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Hospital closure and economic efficiency

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  12. Ciliberto, Federico & Lindrooth, Richard, 2007. "Exit from the Hospital Industry," MPRA Paper 24917, University Library of Munich, Germany.
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  17. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
  18. Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
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