An Empirical Study of the Determinants of Safety-Net Hospital Failures

Several safety-net hospitals have closed in the United States, but the scholarly literature does not adequately explain why. This study examines the relationship between the operational status (open or closed) of safety-net hospitals and unemployment, median household income, gross profit margin, efficiency ratio, operating margin, excess margin, and salary and benefit expenses per full-time equivalent. Study data were collected and analyzed by means of a logistic regression analysis. A significant relationship between hospital operational status and unemployment, operating margin, and salary and benefit expenses per full-time equivalent was indicated in this study. A safety-net hospital closure model was developed that showed that unemployment, operating margin, and salary and benefit expenses per full-time equivalent had a direct impact on hospital closures. Safety-net hospitals that experience upward trends in the unemployment rate in the areas they serve and have a poor operating margin and high salary and benefit expenses that make them more likely to close. This study provides supporting data to hospital administrators so decisions can be made to avoid future safety-net hospital closures. Information from this research can also provide legislators information and data as to why safety-net hospitals close and used as a tool for health care reform