Hospital closure and economic efficiency

Abstract

We present a new framework for assessing the effects of hospital closures on social welfare and the local economy. While patient welfare necessarily declines when patients lose access to a hospital, closures also tend to reduce costs. We study five hospital closures in two states and find that urban hospital bailouts reduce aggregate social welfare: on balance, the cost savings from closures more than offset the reduction in patient welfare. However, because some of the cost savings are shared nationally, total surplus in the local community may decline following a hospital closure.