Contributors

LK
Lyubomira Koeva-Dimitrova

Applying Altman Z-score Analysis for Assessing the Financial Strength, and the Risk of Insolvency of Bulgarian Hospitals

DOI:

https://doi.org/10.58894/EJPP.2022.2.434
financial analysis of hospitals altman z-score assessment of financial stability of hospitals

Abstract

The financial stability of the hospitals is an essential prerequisite for their sustainable development and a warrant for the continuous execution of their socially significant role. Thus, research aimed at assessing hospitals' financial strength could drive well-informed preventive policy measures to increase our health system's resilience.

In this study, we apply a modified Altman Z-score model to assess the degree of financial stability of thirty-one state-owned hospitals. The sample includes the hospitals that have generated the highest income from contracts with the NHIF in 2020.

The hospitals with Altman Z-score over 3, we define as ones in good financial condition. Hospitals with a value between 1.81 and 3 are classified as relatively stable financially or fall into the so-called "grey area" of financial stability. Those with a Z-score below 1.8 are classified as having a problematic financial condition or experiencing financial distress. We also applied two other applicable methods for assessing the financial condition of hospitals to affirm the results from the application of the Z-score model.

The results show that only 42% (n=13) of the hospitals in the sample are in stable financial condition. 29% (n=9) of hospitals fall into the grey area and have relatively stable financial conditions, and 29% (n=9) are in difficult financial conditions and are experiencing financial distress. These results essentially correspond to the control models, which concludes that the modified Altman Z-score model is applicable as an integral indicator for assessing the financial stability of hospitals in Bulgaria. The results suggest that less than 50% of the biggest by revenue, state-owned hospitals are robust financially, raising our concern. This indicates the need for additional research to thoroughly assess Bulgarian hospitals' financial condition.