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Do hospitals cross-subsidize?

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  • David, Guy
  • Lindrooth, Richard C.
  • Helmchen, Lorens A.
  • Burns, Lawton R.

Abstract

Despite its salience as a regulatory tool to ensure the delivery of unprofitable medical services, cross-subsidization of services within hospital systems has been notoriously difficult to detect and quantify. We use repeated shocks to a profitable service in the market for hospital-based medical care to test for cross-subsidization of unprofitable services. Using patient-level data from general short-term hospitals in Arizona and Colorado before and after entry by cardiac specialty hospitals, we study how incumbent hospitals adjusted their provision of three uncontested services that are widely considered to be unprofitable. We estimate that the hospitals most exposed to entry reduced their provision of psychiatric, substance-abuse, and trauma care services at a rate of about one uncontested-service admission for every four cardiac admissions they stood to lose. Although entry by single-specialty hospitals may adversely affect the provision of unprofitable uncontested services, these findings warrant further evaluation of service-line cross-subsidization as a means to finance them.

Suggested Citation

  • David, Guy & Lindrooth, Richard C. & Helmchen, Lorens A. & Burns, Lawton R., 2014. "Do hospitals cross-subsidize?," Journal of Health Economics, Elsevier, vol. 37(C), pages 198-218.
  • Handle: RePEc:eee:jhecon:v:37:y:2014:i:c:p:198-218
    DOI: 10.1016/j.jhealeco.2014.06.007
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    Cited by:

    1. Cory S. Capps & Dennis W. Carlton & Guy David, 2020. "Antitrust Treatment Of Nonprofits: Should Hospitals Receive Special Care?," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1183-1199, July.
    2. Desai, Sunita M. & Padmanabhan, Prianca & Chen, Alan Z. & Lewis, Ashley & Glied, Sherry A., 2023. "Hospital concentration and low-income populations: Evidence from New York State Medicaid," Journal of Health Economics, Elsevier, vol. 90(C).
    3. David, Guy & Lindrooth, Richard C. & Helmchen, Lorens A. & Burns, Lawton R., 2014. "Do hospitals cross-subsidize?," Journal of Health Economics, Elsevier, vol. 37(C), pages 198-218.
    4. Swanson, Ashley, 2021. "Physician investment in hospitals: Specialization, selection, and quality in cardiac care," Journal of Health Economics, Elsevier, vol. 80(C).
    5. Owsley, Kelsey M. & Lindrooth, Richard C., 2022. "Understanding the relationship between nonprofit hospital community benefit spending and system membership: An analysis of independent hospital acquisitions," Journal of Health Economics, Elsevier, vol. 86(C).
    6. Jinhyung Lee & Jeffrey S. McCullough & Robert J. Town, 2013. "The impact of health information technology on hospital productivity," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 545-568, September.
    7. Jingjing Ding & Chenpeng Feng & Gongbing Bi & Liang Liang & M. Khan, 2015. "Cone ratio models with shared resources and nontransparent allocation parameters in network DEA," Journal of Productivity Analysis, Springer, vol. 44(2), pages 137-155, October.

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    More about this item

    Keywords

    Hospital markets; Cross-subsidies; Specialty hospitals;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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