An empirical examination of relative profitability in the nursing facility industry between ownership form and regionality in the state of Texas

The purpose of this research is to examine the relative profitability of the firm within the nursing facility industry in Texas. An examination is made of the variables expected to affect profitability and of importance to the design and implementation of regulatory policy. To facilitate this inquiry, specific questions addressed are: (1) Do differences in ownership form affect profitability (defined as operating income before fixed costs)? (2) What impact does regional location have on profitability? (3) Do patient case-mix and access to care by Medicaid patients differ between proprietary and non-profit firms and facilities located in urban versus rural regions, and what association exists between these variables and profitability? (4) Are economies of scale present in the nursing home industry? (5) Do nursing facilities operate in a competitive output market characterized by the inability of a single firm to exhibit influence over market price?^ Prior studies have principally employed a cost function to assess efficiency differences between classifications of nursing facilities. The inherent weakness in this approach is that it only considers technical efficiency. Not both technical and price efficiency which are the two components of overall economic efficiency. One firm is more technically efficient compared to another if it is able to produce a given quantity of output at the least possible costs. Price efficiency means that scarce resources are being directed towards their most valued use. Assuming similar prices in both input and output markets, differences in overall economic efficiency between firm classes are assessed through profitability, hence a profit function.^ Using the framework of the profit function, data from 1990 Medicaid Costs Reports for Texas, and the analytic technique of Ordinary Least Squares Regression, the findings of the study indicated (1) similar profitability between nursing facilities organized as for-profit versus non-profit and located in urban versus rural regions, (2) an inverse association between both payor-mix and patient case-mix with profitability, (3) strong evidence for the presence of scale economies, and (4) existence of a competitive market structure. The paper concludes with implications regarding reimbursement methodology and construction moratorium policies in Texas. ^

Comparison of financial trends in small rural and urban hospitals in Texas, 1983--1985

The purpose of this study was to compare the financial performance of small rural hospitals to that of small urban hospitals in Texas. Hospital-specific and environmental factors were studied as control variables.^ Small rural hospitals were found to be financially stronger on measures of liquidity but weaker on measures of profitability. Small urban hospitals performed better on measures of profitability and long-range solvency. When all measures in the five dimensions of financial performance were analyzed, no significant difference was found between the two groups of hospitals. None of the control variables included in the study was significantly associated with financial performance both for rural and urban hospitals. Conclusions were that small rural hospitals in Texas are experiencing a deterioration in financial condition but small, rural hospitals are not doing any worse than small urban hospitals; and that the financial hardship which rural hospitals suffer may be inherent in the nature of the institutions themselves, and not as a result of their smallness nor their rural settings. ^