ABSTRACT: For profit (FP) health care institutions are becoming more common, even dominant in many communities, and consumers and payers are demanding high‐quality services at reasonable and affordable costs. Hence, health care managers must find ways to provide services to meet these requirements. One of the motivations for conversions of health care institutions from not‐for‐profit (NFP) was the expectation that the profit motive would likely enhance the efficiency of the entire industry, because economic considerations suggest that market competition improves economic growth. This improvement comes from efficiency gains, lower prices, and enhanced quality. This study uses structural equation modeling (SEM) to investigate the relationships among leadership, clinical quality, process quality, patient satisfaction, cost improvement, and hospital performance, using a 2006 survey sample of 313 for‐profit community hospitals. Results indicate significant positive impact of leadership on both clinical quality and process quality which, in turn, positively affect patient satisfaction. Results also show that both clinical quality and process quality significantly affect cost improvement, and that both patient satisfaction and cost improvement have a significant impact on hospital performance, measured by profitability. Further analyses support the dual emphasis suggested by Rust et al. (2002), indicating that both cost improvement and patient satisfaction mediate the relationship between process and clinical quality and profitability.

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