Editorial Board

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 Joanne Mitchell-George, Senior Managing Editor William O. Cleverley, PhD Dom Cervi, Marketing Director Professor Ohio State University 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 Department of Accounting, The University of Services, 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 40:3, Spring 2014 Contents 1 Hospital Diversifi cation Strategy Steven R. Eastaugh 14 Public Hospitals in Peril: Factors Associated with Financial Distress Zo Ramamonjiarivelo, Robert Weech-Maldonado, Larry Hearld, and Rohit Pradhan 31 Using a Social Entrepreneurial Approach to Enhance the Financial and Social Value of Health Care Organizations Sandra S. Liu, Jui-fen Rachel Lu, and Kristina L. Guo 47 Health Care Reform and the Development of Health Insurance Plans: The Case of the Emirate of Abu Dhabi, UAE Samer Hamidi, Dr.PH, Sami Shaban, PhD, Ashraf A. Mahate, PhD, and Mustafa Z. Younis 67 The Impact of Star Physicians on Diffusion of a Medical Technology: The Case of Laparoscopic Gastric Bypass Surgery Laura Shinn 86 Health Policies and Intervention Strategies Aliye T. Mosaad and Mustafa Z. Younis 101 Determinants of Differentials in Pneumonia Mortality in the UK and France Rizwan ul Haq, Patrick Rivers, and Muhammad Umar From the Editor— About This Issue Once again, this issue of the Journal of Health Care Finance is illustrative of the breadth of topics we cover. We are always interested in new article ideas that directly or indirectly relate to health care fi nance. To submit ideas or articles, please send an email to: [email protected]. —James J. Unland, MBA The Health Capital Group 244 South Randall Road, Ste 123 Elgin, Illinois 60123 (800) 423-5157 healthfi [email protected] iv Copyright © 2014 CCH Incorporated Hospital Diversifi cation Strategy Steven R. Eastaugh To determine the impact of health system restructuring on the levels of hospital diversifi cation and operating ratio this paper analyzed 94 teaching hospitals and 94 community hospitals during the period 2008–2013. The 47 teaching hospitals are matched with 47 other teaching hospitals experiencing the same fi nancial market position in 2008, but with different levels of preference for risk and diversifi cation in their strategic plan. Covariates in the analysis included levels of hospital competition and the degree of local government planning (for example, highly regulated in New York, in contrast to Texas). Moreo- ver, 47 nonteaching community hospitals are matched with 47 other community hospitals in 2008, having varying manager preferences for service-line diversifi cation and risk. Diversifi cation and operating ratio are modeled in a two-stage least squares (TSLS) framework as jointly dependent. Institutional diversifi cation is found to yield better fi nancial position, and the better operating profi ts provide the fi rm the wherewithal to diversify. Some services are in a growth phase, like bariatric weight-loss surgery and sleep disorder clinics. Hospital managers’ preferences for risk/return potential were considered. An institution life cycle hypothesis is advanced to explain hospital behavior: boom and bust, diversifi cation, and divestiture, occasionally leading to closure or merger. Key words: product line selection, diversifi cation, risk, operating profi t margin, regulation Political leaders often promote compre- Successful general hospitals are increas- hensive health system reform without any ingly emulating specialty hospitals by plac- forethought into how it will impact organi- ing focus on a narrow number of specialized zations small and large. In this study we departments. Specialty hospitals are emulat- consider the largest of health care organiza- ing global business strategies for specialized tions, the hospital, and how shifts in govern- “focus factories,” for example, China, South ment policy and local fi nancial conditions Korea, Japan, Italy, and Germany.1 The hos- impact diversifi cation decisions. Diversifi - pitals, general and specialty, are increasingly cation is a key strategy to support the core selecting narrow posture decisions for what business, the inpatient hospital mothership, services to offer. For example, you might and a number of satellite service ventures. specialize in weight loss surgery or sleep dis- Interest in service product-line diversifi ca- orders, and also select a trio-combo strategy tion is evidenced by the popularity of con- like neonatal intensive care unit plus pedi- ferences and courses on hospital corporate atric inpatient special unit plus organized planning and marketing. Diversifi cation is a strategic management issue in the development of a marketing plan. For example, Dr. Steven R. Eastaugh was a professor at Cornell the basic way to build market share involves University and GWU for 37 years. He now runs the development of more markets for cur- Eastaugh Econometrics and can be reached at eas- rent service, and more services for current [email protected] markets. Many fi nance faculty argue that Acknowledgements: The author acknowledges the hospital that fails to diversify will be the assistance of Ed Roberts, Thomas Davy, Kevin relegated to a “plodder” or negative growth Smolich, Craig Rosenfeld, Linda Kleckner, and Erika existence. The plodder is not positioned to Schouten. benefi t from insurance exchanges or value J Health Care Finance 2014; 40(3):1–13 based purchasing (VBP). Copyright © 2014 CCH Incorporated 1 2 JOURNAL OF HEALTH CARE FINANCE/Spring 2014 pediatric outpatient department. In some The new lines of business we will con- highly uninsured states, Obamacare (the sider in this empirical study are all related Affordable Care Act passed March 2010) ventures (that is, only expanding exist- might most signifi cantly boost diagnostic ing health product lines of service). Pub- testing volume. lic image and profi ts often improve after Such market posture decisions typically a diversifi cation expansion. Four teaching precede marketing mix decisions. Poorly hospitals reported profi table diversifi ca- performing general hospitals often fi xate tion efforts providing dental care for the on the initial posture decision stage, and do handicapped and alcohol detoxifi cation and little new or different. Any attempt to have counseling services to teenagers. Obamac- a general hospital emulate a general store are expansion in the coming decade might may lead to strategic mediocrity. Hospitals expand such opportunities. Some services make the choice about how broad or nar- such as bariatric weight-loss surgery are row a diversifi cation effort should be made in a growth period of development, while (posture decision), but almost never con- other services face maturation and decline. sider the strategic decision about whether Today, any institution must collect enough to use a marketing penetration or market- retained earnings to render health services skimming pricing strategy. Indeed, pric- in the future and to rebuild and modern- ing decisions are less frequently discussed ize facilities. The product portfolio of the in the hospital sector relative to private hospital can be diversifi ed to include health industry because the consumer is so highly promotion and health education activi- insured.2 ties, such as programs designed to improve Hospital boards realize that the recent patient compliance. growth in detailed restructuring plans The sample consists of 94 teaching hos- must be tempered by concern for admin- pitals and 94 nonteaching community hos- istrative costs. The better managed facili- pitals in 12 states. Service-specifi c shifts in ties do not just pursue imitative entry or diversifi cation are listed in Figure 1. The “bandwaggoning.” For example, if CGH fastest growth area, bariatric weight-loss medical center goes into sports medicine surgery, was added during the study period we follow with a “me too entry” into the to 21 hospitals. Sleep disorder clinics have same service-line. Well managed hospi- been added at 18 hospitals. The most dis- tals analyze posture variables, and meth- turbing trend is that 24 of the hospitals ods to offer a favorable degree of product (Figure 1, Line 6) closed their emergency differentiation relative to the competition. departments in the study period 2008–2013. The situation gets “sticky” if the hospital No hospital opened an emergency room. begins to heighten preexisting levels of In the last decade 945 US hospitals have competition with their own physicians. closed their emergency department accord- The hospital, as a centralized service dis-

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