Ripple Effects: The Impact of Neighboring Hospital Closures on Charges and Profitability Across Ownership Types

• In Event: Organizational Dynamics in the U.S. Healthcare System: Incentives, Structures, and Access

Abstract

We document changes in hospitals' financial and operational performance when a neighboring hospital closes, and we show these changes according to hospital ownership type. We track over 5,000 hospitals nationwide from 2011 to 2019 and their financial reports using the National Academy for State Health Policy's (NASHP) Hospital Cost Tool (HCT) to identify and exploit quasi-random natural experiments of neighboring hospital closure. Using difference-in-differences and event studies frameworks, we find that for-profit neighboring hospitals capitalize on the reduced competition by increasing their charge-to-cost ratios (nearly 200%, significant at 10%) and net-profit-margins (6.1%, significant at 5%), demonstrating profit-maximizing behavior. Nonprofits also benefit financially, but to a lesser extent, while governmental hospitals exhibit minimal or negative financial impacts. Our findings signify the importance of considering the hospital ownership structure when analyzing the consequences of hospital closures.

Author

• Salpy Kanimian, Rice University
  Presenting Author