Impeding Access or Promoting Efficiency? Effects of Rural Hospital Closure on the Cost and Quality of Care

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Abstract:

This paper studies the effect of hospital closure on the cost and quality of health care in rural markets. Hospital closure can be welfare improving if it reallocates patients to more efficient facilities but can also lead to treatment delay and worsened health outcomes. I find support for both sides of this debate. Using a difference-in-differences analysis of Medicare claims, I show that rural hospital closure led to both a decrease in Medicare spending and an increase in mortality among enrollees with time-sensitive health conditions. I study the implications of forestalling hospital closure in the context of the Critical Access Hospital (CAH) program, a large-scale payment reform that increased Medicare revenues for nearly half of all rural hospitals. I show that the CAH program led to a reduction in hospital closures and an improvement in mortality, but the program’s expenditures were substantial relative to these effects.

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Last updated on 03/19/2019