UCL School of Management is delighted to welcome Lina (Dahye) Song, Harvard University, to host a research seminar discussing ‘The Spillover Effects of Hospital Closures on the Efficiency and Quality of Other Hospitals’
Can hospital closures improve the operation and quality of other hospitals? The recent trend in the U.S. hospital closures can have a significant impact on the healthcare sector by altering the way the remaining hospitals deliver care. We investigate the effects of hospital closures on the surrounding hospitals’ operational efficiency and quality and study how such hospitals respond to the closure of their neighboring hospital. We analyze more than 14 million inpatient visits made during 11 years to over 3,000 hospitals in the U.S. (before and after various closures) using econometric models and find that hospital closures generate both positive and negative externalities. When a hospital closes, its nearby hospitals improve their operational efficiency (1.1 additional patients discharged per bed per year). However, they do so via a speed-up response, i.e., by reducing their service durations to accommodate the increased demand (1 out of 6 patients discharged a day earlier), instead of an effort to lower their average bed idle time. This speed-up response negatively affects some aspect of the care provided at nearby hospitals, including an increase in 30-day mortality rate (2.4 additional deaths per 1,000 per year). The effect is heterogeneous, where the hospitals in the markets with limited choice (e.g., less competition, fewer resources) and the more desirable hospitals (e.g., high-quality, urban, teaching, and large) tend to experience greater spillover effect, driven by the greater increase in patient volume. Our analyses suggest two effective policy levers: (a) bailing out specific hospitals (e.g., large instead of small hospitals) from potential closures, and (b) eliminating the speed-up response of more desirable hospitals. Our findings have implications for the policymakers and healthcare organizations who seek to improve the efficiency of the healthcare delivery system while minimizing the negative consequences on care quality.