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Hospital closure and economic efficiency

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Author Info

  • Capps, Cory
  • Dranove, David
  • Lindrooth, Richard C.

Abstract

We present a new framework for assessing the effects of hospital closures on social welfare and the local economy. While patient welfare necessarily declines when patients lose access to a hospital, closures also tend to reduce costs. We study five hospital closures in two states and find that urban hospital bailouts reduce aggregate social welfare: on balance, the cost savings from closures more than offset the reduction in patient welfare. However, because some of the cost savings are shared nationally, total surplus in the local community may decline following a hospital closure.

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File URL: http://www.sciencedirect.com/science/article/B6V8K-4XNF3WK-2/2/65a384c88c644e4e7fa01c7b3d2de20e
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 29 (2010)
Issue (Month): 1 (January)
Pages: 87-109

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Handle: RePEc:eee:jhecon:v:29:y:2010:i:1:p:87-109

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Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords: Healthcare Health Care Health Insurance Hospitals Policy Making;

References

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  1. Buchmueller, Thomas C. & Jacobson, Mireille & Wold, Cheryl, 2006. "How far to the hospital?: The effect of hospital closures on access to care," Journal of Health Economics, Elsevier, vol. 25(4), pages 740-761, July.
  2. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November.
  3. Wedig, Gerard J & Hassan, Mahmud & Sloan, Frank A, 1989. "Hospital Investment Decisions and the Cost of Capital," The Journal of Business, University of Chicago Press, vol. 62(4), pages 517-37, October.
  4. Keeler, Theodore E & Ying, John S, 1996. "Hospital Costs and Excess Bed Capacity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 470-81, August.
  5. Martin Gaynor & Gerard F. Anderson, 1995. "Uncertain Demand, The Structure of Hospital Costs, and the Cost of EmptyHospital Beds," NBER Working Papers 4460, National Bureau of Economic Research, Inc.
  6. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
  7. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
  8. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
  9. Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
  10. Federico Ciliberto & Richard C. Lindrooth, 2007. "Exit From The Hospital Industry," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 71-81, 01.
  11. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
  12. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  13. Manning, Willard G., 1998. "The logged dependent variable, heteroscedasticity, and the retransformation problem," Journal of Health Economics, Elsevier, vol. 17(3), pages 283-295, June.
  14. Lindrooth, Richard C. & Lo Sasso, Anthony T. & Bazzoli, Gloria J., 2003. "The effect of urban hospital closure on markets," Journal of Health Economics, Elsevier, vol. 22(5), pages 691-712, September.
  15. Brownstone, David & Ghosh, Arindam & Golob, Thomas F. & Kazimi, Camilla & Van Amelsfort, Dirk, 2003. "Drivers' willingness-to-pay to reduce travel time: evidence from the San Diego I-15 congestion pricing project," Transportation Research Part A: Policy and Practice, Elsevier, vol. 37(4), pages 373-387, May.
  16. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
  17. Lee Rivers Mobley & H. E. Frech, 1994. "Firm Growth and Failure in Increasingly Competitive Markets Theory and Application to Hospital Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 1(1), pages 77-93.
  18. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  19. Chernew, Michael & Gowrisankaran, Gautam & Fendrick, A. Mark, 2002. "Payer type and the returns to bypass surgery: evidence from hospital entry behavior," Journal of Health Economics, Elsevier, vol. 21(3), pages 451-474, May.
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Citations

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Cited by:
  1. János Kornai, 2009. "The soft budget constraint syndrome in the hospital sector," Society and Economy, Akadémiai Kiadó, Hungary, vol. 31(1), pages 5-31, June.
  2. Massimiliano Piacenza & Gilberto Turati, 2010. "Does Fiscal Discipline towards Sub-national Governments Affect Citizens’ Well-being? Evidence on Health," Working papers 12, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  3. Martin Gaechter & Peter Schwazer & Engelbert Theurl, 2013. "Entry into the Physicians’ Market: Empirical Evidence from the Outpatient Sector in Austria," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 245-260, December.
  4. Martin Gaynor & Robert J. Town, 2011. "Competition in Health Care Markets," NBER Working Papers 17208, National Bureau of Economic Research, Inc.
  5. Gächter, Martin & Schwazer, Peter & Theurl, Engelbert & Winner, Hannes, 2011. "Physician Density in a Two-Tiered Health Care System," Working Papers in Economics and Finance 2011-5, University of Salzburg.
  6. Guy David & Richard Lindrooth & Lorens A. Helmchen & Lawton R. Burns, 2011. "Do Hospitals Cross Subsidize?," NBER Working Papers 17300, National Bureau of Economic Research, Inc.
  7. Junyi Shen & On Fukui & Hiroyuki Hashimoto & Takako Nakashima & Tadashi Kimura & Kenichiro Morishige & Tatsuyoshi Saijo, 2012. "A cost-benefit analysis on the specialization in departments of obstetrics and gynecology in Japan," Health Economics Review, Springer, vol. 2(1), pages 1-10, December.

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