An Empirical Investigation of Hospital Profitability in the Post-PPS Era

In this study, we identify the empirical determinants of hospital profitability, as measured by return on assets, using a comprehensive sample of hospitals from all four U.S. regions over the post-PPS era. We augment previous empirical models of hospital profitability by considering the effects of additional economic and financial variables and the effects of conversion of ownership status. Our empirical findings suggest that the following factors are significant determinants of hospital profitability during the post-PPS era: geographic location, ownership status, teaching status, conversion of ownership status, adjusted number of employees, length of stay, competition, financial indebtedness, bed capacity, and occupancy rate. We also find that a nonlinear relationship characterizes the dependence of hospital profitability on bed capacity and occupancy rate.