The Role of Organizational Slack in Buffering Financially Distressed Hospitals from Market Exits

Abstract

EXECUTIVE SUMMARY 

Financial distress is a persistent problem in U.S. hospitals, leading them to close at an alarming rate over the past two decades. Given the potential adverse effects of hospital closures on healthcare access and public health, interest is growing in understanding more about the financial health of U.S. hospitals. In this study, we set out to explore the extent to which relevant organizational and environmental factors potentially buffer financially distressed hospitals from closure, and even at the brink of closure, enable some to merge with other hospitals. We tested our hypotheses by first examining how factors such as slack resources, environmental munificence, and environmental complexity affect the likelihood of survival versus closing or merging with other organizations. We then tested how the same factors affect the likelihood of merging relative to closing for financially distressed hospitals that undergo one of these two events. We found that different types of slack resources and environmental forces impact different outcomes. In this article, we discuss the implications of our findings for hospital stakeholders.