The financial impact of hospital closures on surrounding hospitals

Abstract

Objective: To test whether hospital closures hurt or help surrounding hospitals financially. Do hospital closures improve market efficiency or do they merely shift the least profitable patients to hospitals that can better cross-subsidize them? Methods: Using California hospital data from 2000 to 2011, the analysis employed random-effect and fixed-effect models to test for a change in operating margin before and after a series of 2004, 2007 and 2009 hospital closures (the highest volume years for closures). The main independent variable was each hospital's predicted percent increase in patient volume due to absorption from closing hospitals. We used 5-digit zip code and DRG patient flow data to predict the number of patients each open hospital would absorb from nearby hospital closures. Results: Hospitals experiencing the biggest increase in patient volume due to nearby hospital closings saw a drop in operating margin following those closures. This drop could not be explained by changes in payer mix or reimbursement type for those patients. Conclusions: Our results suggest that hospital closures are shifting high cost patients to open hospitals, not necessarily improving efficiency in the market.

Impact of Rural and Urban Hospital Closures on Inpatient Mortality

“…-Effects on patients seeking care both within and outside their residential HSA. 4 -Ripple effects, such as overcrowding and overburdening of hospitals, on surrounding communities within the HSA (similar concerns as those raised in Song and Saghafian; Hodgson et al (2015); Liu et al (2014)). 5 -Potentially reduced quality at surrounding hospitals due to lower hospital market competition when prices are market-determined (Frakt, 2019).…”

“…Several prior studies (Carroll, 2019;Hsia et al, 2012;Buchmueller et al, 2006) define "affected patients" in relation to the change in geographic distance to the nearest hospital that was experienced post-closure. While distance is an important factor determining patient choice, especially in rural areas, distance sensitivity can vary for different types of procedures (Premkumar et al, 2016) and other factors such as hospital size, technologies available, hospital quality may additionally influence hospital choice (Premkumar et al, 2016;Hodgson et al, 2015;Escarce and Kapur, 2009). Moreover, geodetic distances, driving distances, and driving times may sometimes suffer from measurement inaccuracies (Hsia et al, 2012).…”

“…16 To distinguish appropriately between closed hospitals and hospitals that may exhibit 10 or fewer admissions due to a name/hospital identifier change (owing to a merger or ownership change not resulting in closure), additional sources were consulted for confirming closures. Sources consulted include government reports (OIG, 1995(OIG, , 1996(OIG, , 1997(OIG, , 1998(OIG, , 1999, closed hospitals list from the LA Times (LA Times Data Desk, 2019), and academic publications and reports (Hodgson et al, 2015;Buchmueller et al, 2006;Nicholas C Petris Center, 2001). 17,18 After the confirmation process, a list of 139 potential closures identified using admissions data was reduced to a list of 99 hospital closures.…”

“…About 15% of U.S. hospitals have closed since 1990 and rates of hospital closure have increased over the last decade, with rural closures being of particularly high concern (Carroll, 2019). Common reasons cited for hospital (and emergency department (ED)) closures are weakened hospital finances resulting from low reimbursement rates and uncompensated care (Lindrooth et al, 2018;Hodgson et al, 2015). These problems become exacerbated in rural areas.…”

“…That is, instead of using the year prior, "closure year" was defined as the very year in which a hospital's admissions dropped to 10 or less, and results of this analysis were very similar to the results presented in the paper 17. Closed hospitals data, not used in the published version ofHodgson et al (2015), was also obtained from the authors.18 Numerous other sources, such as non-profit organization reports(CHCF, 2015;HASC, 2010) and news articles announcing individual hospital closures (or suggesting lack thereof), were also used, but are not all listed here. A complete list of these sources can be provided upon request 19.…”