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The Impact of Health Care Reform on Capital Acquisition for Hospitals

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  • Topping, Sharon
  • Carroll, Carolyn
  • Lindley, James T

Abstract

In this paper, the response of the market for hospital stocks to the episode of the Medicare Prospective Payment System (PPS) legislation and its resulting impact on the ability of hospitals to generate capital for expansion and growth are addressed. The response to PPS legislation is evaluated by examining stock returns of publicly traded hospital companies using both traditional event study analysis and intervention analysis. The paper focuses on the effect of PPS over time and uses qualitative data to support the empirical evidence. Before and after its passage, the market reacted negatively to PPS legislation. This result supports qualitative evidence showing that hospitals' capital positions were impaired. When profit margins fell, bond ratings went down, while borrowing costs increased; the rate of hospital bond defaults went up and capital improvements were delayed. Copyright 1997 by MIT Press.

Suggested Citation

  • Topping, Sharon & Carroll, Carolyn & Lindley, James T, 1997. "The Impact of Health Care Reform on Capital Acquisition for Hospitals," The Financial Review, Eastern Finance Association, vol. 32(4), pages 751-778, November.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:4:p:751-78
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    Cited by:

    1. Bradley T. Ewing & Jamie B. Kruse & Mark A. Thompson, 2005. "Comparing the Impact of News: A Tale of Three Health Care Sectors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1587-1611, September.

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