Prediction of Financial Distress among Rural Hospitals

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From 2005 through 2015, more than 100 rural hospitals have closed their doors to patients in need of inpatient services. Though a handful of these closed hospitals have since reopened, the remaining closures leave millions of rural residents at greater risk of negative health and economic hardship due to the loss of local acute care services.  Policymakers, hospital managers, researchers, and rural residents are concerned and interested in identifying hospitals experiencing financial distress and forecasting potential closures. However, the ability of existing risk prediction models to forecast imminent closures is limited because a high proportion of rural hospitals fall into the highest risk category. This broad definition of financial distress makes identification of the highest risk among the “high risk” hospitals more challenging.

To better understand factors affecting rural hospital financial distress and to develop an early warning system to identify hospitals at risk of distress, the North Carolina Rural Health Research Program developed the Financial Distress Index (FDI).  The FDI model forecasts the risk of distress in two years using the most currently available hospital financial performance, government reimbursement, organizational characteristics and market characteristics. The objective of the brief,  Prediction of Financial Distress among Rural Hospitals, is to: 1) describe the ability of the FDI model to identify a group of rural hospitals facing an increased closure rate and 2) evaluate the potential impact drivers of the FDI model may have on the percent of hospitals at high risk of financial distress and closure.