Gang Nathan Dong

Performing well in financial management and quality of care: evidence from hospital process measures for treatment of cardiovascular disease.

BackgroundFiscal constraints faced by U.S. hospitals as a result of the recent economic downturn are leading to business practices that reduce costs and improve financial and operational efficiency in hospitals. There naturally arises the question of how this finance-driven management culture could affect the quality of care. This paper attempts to determine whether the process measures of treatment quality are correlated with hospital financial performance.MethodsPanel study of hospital care quality and financial condition between 2005 and 2010 for cardiovascular disease treatment at acute care hospitals in the United States. Process measures for condition-specific treatment of heart attack and heart failure and hospital-level financial condition ratios were collected from the CMS databases of Hospital Compare and Cost Reports.ResultsThere is a statistically significant relationship between hospital financial performance and quality of care. Hospital profitability, financial leverage, asset liquidity, operating efficiency, and costs appear to be important factors of health care quality. In general, public hospitals provide lower quality care than their nonprofit counterparts, and urban hospitals report better quality score than those located in rural areas. Specifically, the first-difference regression results indicate that the quality of treatment for cardiovascular patients rises in the year following an increase in hospital profitability, financial leverage, and labor costs.ConclusionsThe results suggest that, when a hospital made more profit, had the capacity to finance investment using debt, paid higher wages presumably to attract more skilled nurses, its quality of care would generally improve. While the pursuit of profit induces hospitals to enhance both quantity and quality of services they offer, the lack of financial strength may result in a lower standard of health care services, implying the importance of monitoring the quality of care among those hospitals with poor financial health.

Informal Bankruptcy: Health Expenditure Shocks and Financial Distress Avoidance

This article studies the financial decision-making behavior of U.S. families that have difficulties paying for their medical bills and investigate what alternatives they have to avoid filing for formal bankruptcy and what influence their motivation to do so. Using household financial and demographic information from the Health Tracking Household Survey in 2007 and 2010, this article finds that families with younger age members, minority ethnic background, more doctor visits, and without insurance made more diverse and severe choices to finance the payments before resorting to personal bankruptcy. Interestingly, households with better education seek more diverse but easier financing methods, suggesting that financial literacy may play a dual role in undertaking financial planning—strategic default and bankruptcy avoiding.

Rising Labor Costs, Earnings Management, and Financial Performance of Health Care Providers around the World ☆

PURPOSE Amid increasing interest in how government regulation and market competition affect the cost and financial sustainability in health care sector, it remains unclear whether health care providers behave similarly to their counterparts in other industries. The goal of this chapter is to study the degree to which health care providers manipulate accruals in periods of financial difficulties caused, in part, by the rising costs of labor. METHODOLOGY We collected the financial information of health care provider in 43 countries from 1984 to 2013 and conducted a pooled cross-sectional study with country and year fixed-effects. FINDINGS The empirical evidence shows that health care providers with higher wage costs are more likely to smooth their earnings in order to maintain financial sustainability. ORIGINALITY/VALUE The finding of this study not only informs regulators that earnings management is pervasive in health care organizations around the world, but also contributes to the studies of financial booktax reporting alignment, given the existing empirical evidence linking earnings management to corporate tax avoidance in this very sector.

Pay More Stocks and Options to Directors? Theory and Evidence of Board Compensation

The compensation of board directors has received much attention, along with the growing debates on corporate governance in recent years, partly due to the ongoing financial crisis. While prior studies including Hall and Liebman (1998) have shown evidence of a dramatic increase in the use of equity-based incentives, resulting in an increase in the sensitivity of executive pay to firm performance, we ask whether it benefits shareholders to offer similar incentive contracts to board directors. This paper suggests that equity-based compensation for board directors is necessary and the level of incentives depends on directors’ effectiveness in monitoring and friendliness in advising CEOs. Using the market competition and pay correlation to proxy for monitoring effectiveness and advisory friendliness, we report empirical evidence supporting our hypotheses.

Numerical Solutions of Financial Partial Differential Equations

This paper provides a general survey of important PDE numerical solutions and studies in detail of certain numerical methods specific to finance with programming samples. These important numerical solutions for financial PDEs include finite difference, finite volume, and finite element. Finite difference is simple to discretize and easy to implement; however, explicit method is not guaranteed stable. The finite volume has an advantage over finite difference in that it does not require a structured mesh. If a structured mesh is used, as in most cases of pricing financial derivatives, the finite volume and finite difference method yield the same discretization equations. Finite difference method can be considered a special case of the finite element method. In general, the finite element method has better quality in obtaining an approximated solution when compared to the finite difference method. Since most PDEs in financial derivatives pricing have simple boundary conditions, the implicit method of finite difference is preferred to finite element method in applications of financial engineering.