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The Effect of Hospital Closure on Competitors and Markets
Lindrooth, R., Lo Sasso, T. and G. Bazzoli

Abstract: We examine the effects of hospital closure, specifically examining the relative efficiency of hospitals that and how closure affects the operations and costs of hospitals that remain operational in a market. If inefficient institutions close, patients will be treated at the remaining efficient institutions and social welfare can be improved. However, it is not necessarily true that the least efficient hospital will close first. Closure of a hospital other than the least efficient can be of detriment to social welfare because treatment will occur at the less efficient surviving hospitals. The results show that hospital closure has led to an evolutionary increase in efficiency. The hospitals that closed were less efficient at baseline, and after closure their competitors realized lower average costs. The competitors within 5 miles of the closed hospital experienced a significant increase in inpatient admissions, but did not have to increase capacity to meet the additional demand. These results are linked to the cost of an empty bed and the efficiencies that can be gained through eliminating excess capacity.

The Effect of Hospital Closure on Competitors and Markets (PDF 844 KB)

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