Contextual factors and business strategy choice: The case of us hospitals

Abstract

US hospitals are struggling with how to compete and remain viable in an increasingly turbulent and competitive environment. Using Porter’s generic strategies and resource dependence theory, this study examined the relationship between environmental factors and business strategy choice among U.S. hospitals. The study used longitudinal data from 2006 to 2016 of US urban, general acute care hospitals from the American Hospital Association Annual Survey, Medicare cost reports, and Area Health Resource File. Multinomial regression was used to analyze the data. and Discussion: Our findings showed four types of hospital strategy: cost-leadership, differentiation, hybrid, and stuck-in-the-middle. A greater number of physicians (county-level) increases the likelihood of pursuing differentiation and hybrid strategy. On the other hand, a higher older adult population (65 years+) increases the likelihood of pursuing a cost-leadership strategy. Similarly, lower competition and higher Medicare Advantage penetration increases the likelihood of pursuing cost-leadership over hybrid strategy. An increase in the unemployment rate decreases the likelihood of pursuing differentiation and cost-leadership strategies versus the hybrid strategy. Finally, hospitals pursuing a differentiation strategy tended to be larger, teaching, and not-for-profit. The results showed the importance of environmental and organizational factors in predicting the strategy choice of hospitals.