Job Market Paper

Safety Net Cutbacks and Hospital Service Provision: Evidence from Psychiatric Care 

Abstract

This paper explores how the closure of unprofitable safety net care at one hospital affects the utilization of services at nearby hospitals, the capacity choices of those nearby hospitals, and patient outcomes. I focus on the effects of inpatient psychiatric unit closures, one of the least profitable services for hospitals. Exploiting sharp variation in the timing of psychiatric unit closures across local hospital markets in California, I find that neighboring hospitals treat less than a third of the number of patients that would have been seen in the closing units. Psychiatric unit losses double at neighboring hospitals due to spillovers of the least profitable and most severe patients. Nearby hospitals strategically respond to closures by decreasing their supply of psychiatric services. Lower access to inpatient psychiatric care shifts patients to high-cost emergency room settings and has spillovers onto the criminal justice system. Taken together, my findings suggest that preventing cutbacks at one hospital can have a multiplier effect in preserving market-level access to care for vulnerable populations.

 

Last updated November 15, 2019

Draft of Job Market Paper (PDF)2.45 MB