The association between strategic group membership and hospital financial performance

Abstract

Background: The health care industry is facing constant changes from health care reform; demanding consumers; and new expensive forms of treatment. These changes put more pressures on hospitals and their ability to remain profitable. Understanding how to improve hospital financial performance by applying an appropriate strategy increasingly turbulent environment remains a key concern to managers and researchers. The overall purpose of this study was to identify the strategic group structure of the hospital industry and to examine the effect of strategic group membership on hospital financial performance. Methods: We examined longitudinal data (2006 to 2016) for United States (US) urban general acute care hospitals from three secondary datasets: the American Hospital Association (AHA) Annual Survey, Medicare Cost Reports (CMS), and Area Health Resource File (AHRF). Multiple regression analysis with control for time and state fixed effects was used for data analysis. Results: Our results suggest that on average about 37 percent of hospitals pursue cost-leadership strategy, and about 5 percent of hospitals pursue the differentiation strategy. Hospitals with hybrid strategy outperform hospitals with cost-leadership strategy and stuck-in-the-middle. Conclusions: The absence of a coherent strategy (i.e., stuck-in-the-middle) is likely to lead to poor performance. The results demonstrate the usefulness of strategic group studies like this study as a method for managers to assess their current strategic positioning.