Working Paper: NBER ID: w17300
Authors: Guy David; Richard Lindrooth; Lorens A. Helmchen; Lawton R. Burns
Abstract: Cross-subsidies are often considered the principal mechanism through which hospitals provide unprofitable care. Yet, hospitals' reliance on and extent of cross-subsidization are difficult to establish. We exploit entry by cardiac specialty hospitals as an exogenous shock to incumbent hospitals' profitability and in turn to their ability to cross-subsidize unprofitable services. Using patient-level data from general short-term hospitals in Arizona and Colorado before and after entry, we find that the hospitals most exposed to entry reduced their provision of services considered to be unprofitable (psychiatric, substance- abuse, and trauma care) and expanded their admissions for neurosurgery, a highly profitable service.
Keywords: cross-subsidization; hospital services; healthcare economics
JEL Codes: I11; L21; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entry of cardiac specialty hospitals (I11) | Increased admissions for neurosurgery (I11) |
| Decreased provision of unprofitable services (L33) | Increased reliance on cross-subsidization (H29) |
| Entry of cardiac specialty hospitals (I11) | Decreased provision of unprofitable services (L33) |
| Decreased profitability due to competition from specialty hospitals (L19) | Decreased provision of unprofitable services (L33) |