Market share trumps operational efficiency for teaching hospitals, study finds

Many hospital leaders focus their time and energy on optimizing operational efficiency, but they may be better served focusing on enhancing their market share as a way to improve financial performance, according to a study published by Taylor & Francis.

The study, led by James Langabeer, PhD, of the Houston-based University of Texas Health Science Center, analyzed the financial performance of 80 major teaching hospitals in the 20 largest metropolitan areas in the U.S. from 2012-2016. Specialty hospitals were excluded from the study to better control results.

Here are four study findings:

1. The median return on investment, which is calculated by dividing net operating margin by total assets, was 4.28 percent across all hospitals. Market share had a mean of 13.67 across all hospitals.

2. Market share for the lowest-performing facilities in terms of return on assets was 10.05 percent, though the market share for the highest performing hospitals was 17.8 percent4. Overall, "high-performing hospitals had an average 77 percent higher share of their community's gross revenues," writes Dr. Langabeer.

3. Other than market share, the only variable that demonstrated an impact on financial performance was teaching intensity. "Results suggest that for every one-point change in market share, there was a 0.382 change in ROA, assuming other covariates remained constant. Additionally, for each additional resident, there is a 0.025 reduction in ROA," writes Dr. Langabeer.

4. "The current study findings suggest that hospitals with a higher market share, higher economic status of their surrounding community, and somewhat lower intensity of teaching efforts all help to position teaching hospitals to outperform their competition," writes Dr. Langabeer.

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