Arch Hellen Med, 32(4), July-August 2015, 475-483
Application and assessment of a financial distress projection model in private general clinics
S. Karakolias, N. Polyzos
OBJECTIVE Application and assessment of a financial distress projection model in private general clinics in Greece. The level of change in the financial health of these units over the last 8 years (2006–2013) was examined and the forecasting ability of the applied model was assessed.
METHOD Altman's second revised Z-score model was applied, which is a linear model with four key financial ratios as independent variables and the dependent variable Z taking values classified into three zones indicative of the financial situation. Data were retrieved from the annual financial statements for the period 2006–2013. The sample consisted of 42 private general clinics, among which 35 were classed as healthy units and 7 distressed to bankrupt. Analysis focused on descriptive statistics, hypothesis testing and discriminant analysis.
RESULTS The financial situation of the units examined has deteriorated significantly over the last 8 years and this deterioration was more pronounced for medium- and large-sized units; hence, there were discrepancies between the simple and the weighted average of Z-scores. The vast majority of distressed units (6/7) were small- and very small-sized units, suggesting that they are inferior to the large players of the industry in restructuring tools. The units with good financial health, although few (about 20%), had improved over the study period, and from 2013 onwards showed statistically significant differences from those in the danger zone. Regarding the forecasting ability of the model, it failed to separate distressed from healthy clinics, but most bankruptcies were identified as outliers 1–2 years before the incident.
CONCLUSIONS The main conclusion is that a broad debate must be launched on the restructuring of private health units entering a financial distress situation. The distress phenomenon is evident and the relevant projection tool is available, which in combination with adaptation to the Greek situation and the addition of an extra quality dimension can provide accurate and reliable results.
Key words: Financial distress, General clinics, Private health services, Z-score.