PREDICTION OF HOSPITAL FAILURE - A POST-PPS ANALYSIS

This study investigates the ability of discriminant analysis to provid e accurate predictions of hospital failure. Using data from the period following the introduction of the Prospective Payment System, we deve loped discriminant functions for each of two hospital ownership catego ries: not-for-profit and proprietary. The resulting discriminant model s contain six and seven variables, respectively. For each ownership ca tegory, the variables represent four major aspects of financial health (liquidity, leverage, profitability, and efficiency) plus county mark etshare and length of stay. The proportion of closed hospitals misclas sified as open one year before closure does not exceed 0.05 for either ownership type. Our results show that discriminant functions based on a small set of financial and nonfinancial variables provide the capab ility to predict hospital failure reliably for both not-for-profit and proprietary hospitals.