The effect of urban hospital closure on markets

Abstract

We measure the effect of urban hospital closure on the operating efficiency of the remaining hospitals in the local market. Closure of a hospital other than the least efficient can be detrimental to social welfare because treatment costs will be higher at surviving hospitals. The results show that hospital closure has led to an evolutionary increase in efficiency in urban markets. The hospitals that closed were less efficient at baseline, and after closure their competitors realized lower costs per adjusted admission through an increase in inpatient admissions and emergency room visits. Overall, we estimate that costs per adjusted admission declined by 2-4% for all patients and about 6-8% for patients who would have been treated at the closed hospital.