REGULATORY CHANGE, CONSTRAINTS ON ADAPTATION AND ORGANIZATIONAL FAILURE - AN EMPIRICAL-ANALYSIS OF ACUTE-CARE HOSPITALS

The advent of the Medicare prospective payment system (PPS) in 1983 af fected individual general hospitals in varying degrees based on their revenue and cost structures. These same factors served to constrain a hospital's ability to adapt to the post-PPS environment. The three con straints are based on the proportion of the hospital's private-pay (no n-Medicare/Medicaid) patients, economies of scale and economies of sco pe among medical services. We test the relationship between these cons traints and organizational failure in the Chicago area. Hospitals sele cted out of the new environment (1986-91) were at a significant relati ve disadvantage with respect to the proposed constraints.