Journal of Health Care Finance
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Journal of Health Care Finance Journal of Health Care Finance (USPS 048-090) Indexing: JHCF is indexed in Academic (ISSN 1078-6767) is published quarterly by Aspen Search/CD-ROM, the Business Periodicals Index, the Publishers, 76 Ninth Avenue, New York, NY 10011. Cumulative Index to Nursing & Allied Health Copyright © 2012 CCH Incorporated. All rights reserved. Literature (CINAHL), EMBASE, Health Source, Index www.aspenpublishers.com. Reproduction in whole Medicus, MEDLINE, MEDLARS, the UP-TO-DATE or in part without permission is strictly prohibited. Library/Health Services Management and Wilson Postmaster: Send address changes to Subscription Dept. Business Abstracts®, Wilson Business Abstracts Full IP. P.O. Box 3000, Denville, NJ 07834. Text® by The H.W. Wilson Company. 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The paper used in this publication meets the com/permissions. requirements of the American National Standard for Purchasing reprints: For customized article reprints, Information Sciences—Permanence of Paper for Printed please contact Wright’s Media at 1-877-652-5295 or Library Materials, ANSI Z39.48-1992, effective with go to the Wright’s Media Web site at www.wrights Volume 13, Issue 3. media.com. For more information resources, directories, articles, and a searchable version of Aspen Publishers’ full catalog, visit us at: www.aspenpublishers.com 1 2 3 4 5 Editorial Board Editors Editors Emeritus James J. Unland, MBA Judith J. Baker, PhD, CPA President Partner The Health Capital Group Resource Group, Ltd. Chicago, IL Dallas, TX Paul Gibson, Publisher William O. Cleverley, PhD Joanne Mitchell-George, Senior Managing Editor Professor Elizabeth Venturo, Managing Editor Ohio State University Dom Cervi, Marketing Director Columbus, OH Editorial Board Dana A. Forgione, PhD, CPA, CMA, CFE, Janey Elizabeth Simpkin, President, The Lowell Group, S. Briscoe Endowed Chair in the Business Inc., Chicago, IL of Health, and Professor of Accounting, Elaine Scheye, President, The Scheye Group, Ltd., College of Business, University of Texas at Chicago, IL San Antonio,TX Pamela C. Smith, PhD, Associate Professor, Ellen F. Hoye, MS, Principal, Hoye Consulting Ser- Department of Accounting, The University of vices, Elmhurst, IL Texas at San Antonio, San Antonio, TX Daniel R. Longo, ScD, Professor and Director Jonathan P. Tomes, JD, Partner, Tomes & Dvorak, of Research, ACORN Network Co-Director, Overland Park, KS Department of Family Medicine, Virginia Mustafa Z. Younis, Professor of Health Economics & Commonwealth University, Richmond, VA Finance, Jackson State University, School of Kevin T. Ponton, President, SprainBrook Group, Health Sciences, Department of Health Policy & Hawthorne, NY Management, Jackson, MS JHCF 39:1, Fall 2012 Contents 1 A Comparison of the Capital Structures of Nonprofi t and Proprietary Health Care Organizations John Trussel 12 A Comparative Analysis of the CVP Structure of Nonprofi t Teaching and For-Profi t Non-Teaching Hospitals Li-Lin (Sunny) Liu, Dana A. Forgione, and Mustafa Z. Younis 39 The Economics of Health Care Quality and Medical Errors Charles Andel, Stephen L. Davidow, Mark Hollander, and David A. Moreno 51 Complicated Billing Requirements Challenge Physical Therapy Industry, Creating Ineffi ciencies and Confusion Annette R. Ciavarella 79 Americans with Disability Act: Financial Aspects of Reasonable Accommodations and Undue Hardship Sandra K. Collins and Eric P. Matthews 87 A Real Options Approach to Clinical Faculty Salary Structure Marc J. Kahn and Hugh W. Long From the Editor—About This Issue Once again, this issue of the Journal of —James J. Unland, MBA Health Care Finance is illustrative of the The Health Capital Group breadth of topics we cover. 244 South Randall Road, Ste 123 We are always interested in new article ideas Elgin, Illinois 60123 that directly or indirectly relate to health care (800) 423-5157 fi nance. To submit ideas or articles, please send healthfi [email protected] an email to: [email protected]. iv Copyright © 2012 CCH Incorporated A Comparison of the Capital Structures of Nonprofi t and Proprietary Health Care Organizations John Trussel The relative amount of debt used by an organization is an important determination of the organization’s likelihood of fi nancial problems and its cost of capital. This study addresses whether or not there are any differences between proprietary and nonprofi t health care organizations in terms of capital structure. Controlling for profi tability, risk, growth, and size, analysis of covariance is used to determine whether or not proprietary and nonprofi t health care organizations use the same amount of leverage in their capital structures. The results indicate that there is no difference in the amount of leverage between the two institutional types. Although nonprofi t and proprietary organizations have unique fi nancing mecha- nisms, these differences do not impact the relative amount of debt and equity in their capital structures. Key words: institutional convergence, capital structure, leverage, nonprofi t fi nancial management, health care fi nancial management. apital structure is the relative amount directly and empirically compared the capital of debt that an organization uses to structures of these two types of institutions. Cfi nance its investment projects and This study focuses on the health care industry, programs. The relative amount of debt used by in order to eliminate the effects of industry on an organization is an important determination capital structure. I use a methodology similar of the organization’s likelihood of fi nancial to Kester,4 who compared the capital structure problems and its cost of capital.1 Therefore, of Japanese and US manufacturing corpora- capital structure is a critical issue in the fi nan- tions. Using a sample of 163 US proprietary cial management of both proprietary and non- health care organizations, this study analyzes profi t organizations. Although nonprofi t and the capital structures and compares them proprietary organizations have unique legal to a sample of 163 US nonprofi t health care characteristics that potentially affect fi nanc- organizations. Specifi cally, I test the hypoth- ing, these differences may not impact the rela- esis of institutional convergence on capital tive amount of debt and equity in their capital structure—that there is no difference in the structures. This study addresses whether or capital structures of proprietary and nonprofi t not nonprofi t health care organizations have organizations. capital structures similar to proprietary health care organizations. The results will be of inter- est to creditors and other stakeholders when John Trussel, PhD, CPA, is an Associate Profes- sor of Accounting at the University of West Florida determining the organization’s cost of capital in Pensacola, Florida. His research interests include and its likelihood of fi nancial problems. accounting and fi nancial management of nonprofi t, Although several studies have addressed governmental, and proprietary organizations. He can capital structure in publicly traded corpo- be reached at [email protected]. 2 rations and a few have addressed the issue J Health Care Finance 2012; 39(1):1–11 in nonprofi t organizations,3 no studies have Copyright © 2012 CCH Incorporated 1 2 JOURNAL OF HEALTH CARE FINANCE/FALL 2012 The results of this study indicate that DiMaggio and Anheier10 support this view when capital structure is proxied by leverage and also suggest that organizations of vari- and is measured as the book value of debt- ous forms (proprietary, nonprofi t, and pub- to-assets, there is no signifi cant difference lic) converge, according to industry, due between proprietary and nonprofi t organi- to these isomorphic and other competitive zations beyond that which the profi tability, pressures. As an example, Gray11 conjec- risk, growth, and size of the organizations tures that competition makes proprietary can explain. health care providers more socially respon- The following section provides a brief sible and nonprofi t health care providers overview of the unique legal characteris- more effi cient than they would otherwise be. tics that potentially affect fi nancing and the Empirical evidence supports Gray’s hypoth- capital structure models. The next section esis in the development of the hospital indus- discusses the hypotheses and methodology try.12 Since institutions seem to converge for testing. That section is followed with a according to industry, I focus on one broadly discussion of the empirical results, and the defi ned industry, health care, in testing the fi nal section summarizes this article.