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Do Hospitals Cross Subsidize?

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

Cross-subsidies are often considered the principal mechanism through which hospitals provide unprofitable care. Yet, hospitals' reliance on and extent of cross-subsidization are difficult to establish. We exploit entry by cardiac specialty hospitals as an exogenous shock to incumbent hospitals' profitability and in turn to their ability to cross-subsidize unprofitable services. Using patient-level data from general short-term hospitals in Arizona and Colorado before and after entry, we find that the hospitals most exposed to entry reduced their provision of services considered to be unprofitable (psychiatric, substance- abuse, and trauma care) and expanded their admissions for neurosurgery, a highly profitable service.

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File URL: http://www.nber.org/papers/w17300.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17300.

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Date of creation: Aug 2011
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Publication status: published as 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:nbr:nberwo:17300
Note: HC HE
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