The purpose of this study was to determine hospital executive management’s perceptions of how turbulence in the politico-legal sector of the macroenvironment impacted the strategic management systems of Tennessee hospitals. In particular, how did Federal and State funding restrictions (Medicare and TennCare) impact the strategic planning and implementation process of their hospitals? The study was also designed to gain insight regarding specific changes to strategic management systems that may have resulted from these funding restrictions. The research was conducted during April and May of 2003. Data were gathered by surveying the Chief Executive Officers (CEOs) of acute care hospitals in Tennessee using a survey instrument covering the areas of strategy formulation, implementation and evaluation. Fifty five percent of CEOs of Tennessee’s acute care hospitals responded to the study Using the number of hospital beds as an indicator of hospital size, the results of a Chi Square test demonstrated that the sample of CEOs responding approximated the population (Chi Square=.986, df=6, p=.986). Proportions of CEOs representing for-profit hospitals and rural hospitals also approximated population proportions. The results of the data analysis gave insight into how reductions in TennCare and Medicare funding levels impacted the strategies employed by Tennessee hospitals, and potential impact on patient care. For example, by a two to one margin, CEOs indicated their hospitals had elected not to offer new services and a majority indicated their hospitals had eliminated services as a result of changes in TennCare/Medicare funding levels. Seventy nine percent of the CEOs responded that their hospitals had delayed the replacement of capital equipment as a result of changes in the funding levels under study. Sixty percent attributed workforce reductions at their facilities to changes in TennCare/Medicare funding levels. Using subscales, differences were found between the responses of CEOs of for-profit and not-for-profit hospitals with regards to selected goals and with regards to strategy evaluation. In both instances, the mean scores of the subscales for CEOs of not-for-profit hospitals were higher.

By using a natural experiment approach and longitudinal national hospital data, this study sheds light on the objective functions of hospitals with different ownership forms by comparing their relative reductions in HH provision after the implementation of the BBA. The empirical findings reveal that for-profit hospitals behave differently as compared to public and private nonprofit hospitals, due to their different operational objectives. While the response of for-profit hospitals is consistent with the profit-maximizer model, both public and private nonprofit ownership types behave consistently in accordance with the model of two-good producers whose objective is to maximize market outputs for meeting the health care needs of the community, given the break-even requirement. This finding provides support for the tax exemption the United States government has granted private nonprofit hospitals. Although the response patterns of the nonprofit ownership types are in general similar, this study found that, contrary to expectation, religious hospitals were more likely than secular nonprofit hospitals to have reduced HH provision after the BBA. Further studies are needed to explore the difference in operational behaviors between these two ownership types. Built on previous related studies and applying a more comprehensive set of independent and control variables with improved data sources, this study is able to examine the effects of certain organizational and market factors on hospital offering of HH care pre-BBA and the change in the provision of HH care in the six years following the implementation of the BBA. Hospital proportion of Medicare patients, hospital size, total profit margin, case mix index, elderly density in the market are found to be positive determinants of a hospital’s likelihood of offering HH care. However, these organizational and market factors, in general, play a non-significant role in influencing hospitals’ changes in HH care provision after the implementation of the BBA. In the study, explanations and implications of these finding are discussed. Finally, potential limitations to this study and opportunities for future research are addressed.