A Comparative Analysis: The Impact Of Non-Operating Revenues On Financial Viability Of Urban And Rural Hospitals

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: #0d0d0d; font-size: 10pt;"><span style="font-family: Times New Roman;">Fifty New York hospitals, 25 urban facilities and 25 rural facilities, were chosen at random for analysis.<span style="mso-spacerun: yes;">  </span>They were examined to determine whether non-operating revenue – contributions, gifts, grants (as defined by IRS, Form 990) – plays an important role in fiscal viability .<span style="mso-spacerun: yes;">  </span>Three years of data, 2005 – 2007, for each hospital was selected, and several financial variables were used to construct a fiscal viability index. The purpose of this study was to determine whether there is a positive difference in the fiscal health of hospitals when the hospitals can solicit more income from non-healthcare/non-operating activities in the form of outside gifts and grants.<span style="mso-spacerun: yes;">  </span>Another main purpose of this study was to determine which hospital sector, if any – urban vs. rural – is more dependent upon non-operating revenues for their fiscal viability.</span></span></p>

Non‐operating revenue is an important source of funding for rural hospitals, especially those that are government‐owned

“…These values are comparable to data from a few states in the United States that report values between 1% and 4%. 11,12,15 Additionally, dependence on NOR among rural hospitals demonstrates substantial variability with large standard deviations (4.1%-5.8%) and a heavy right skew. This finding is consistent with other studies that also observe significant variations in the mean proportion of NOR.…”

“…One study of 50 New York hospitals between 2005 and 2007 showed that urban hospitals had a higher median NOR than rural hospitals. 15 Another study in the 1980s described an intervention on rural hospitals based in the Northwest region, which found that a few hospitals were able to boost their negative operating margin to a total positive margin after including NOR. 16 A 2018 study showed that NOR sources were important to cover losses experienced when participating in value-based purchasing programs.…”

“…17 Additional literature has shown differences in reliance on NOR by various organizational characteristics, including ownership, bed size, and teaching status. [11][12][13]15,[18][19][20] However, little is known about the relationship between NOR and other organizational characteristics that impact the overall profitability of rural hospitals, such as system affiliation and payer mix. This study seeks to fill some of these gaps.…”

“…Despite evidence pointing to the potential benefits of NOR, there remain significant gaps in the literature. Specifically, many of the studies that investigated the reliance on NOR to improve overall margins were localized to specific states, 11,12,15 and no studies to our knowledge have recently analyzed dependence on NOR on a national scale. In addition, there is little understanding of the importance of NOR among rural hospitals.…”

“…In addition, there is little understanding of the importance of NOR among rural hospitals. One study of 50 New York hospitals between 2005 and 2007 showed that urban hospitals had a higher median NOR than rural hospitals 15 . Another study in the 1980s described an intervention on rural hospitals based in the Northwest region, which found that a few hospitals were able to boost their negative operating margin to a total positive margin after including NOR 16 .…”