Financial and organizational determinants of hospital diversification intosubacute care

Objective. To examine the financial, market, and organizational determinant s of hospital diversification into subacute inpatient care by acute care ho spitals in order to guide hospital managers in undertaking such diversifica tion efforts. Study Setting. All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total). Data Sources. Cross-sectional, time-series data were drawn from the America n Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and lon gitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental var iables. Study Design. The study is longitudinal, enabling the specification of temp oral patterns in conversion, causal inferences, and the treatment of right- censoring problems. The unit of analysis is the individual hospital. Key Findings. Significant differences were found in the average level of su bacute care offered by investor-owned versus tax-exempt hospitals. After co ntrolling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' a ctivities in this market. Resource availability appears to expedite expansi on into subacute care for both types of hospitals. Conclusions. Investment criteria and strategy differ between investor-owned and tax exempt hospitals.