The price effect of hospital closures

Abstract

This paper analyzes the anti-competitive effect of hospital closures between 1993 and 1998. Using a modified rival analysis with dijference-in- differences (DD) and difference-in-difference-in-differences (DDD) identification strategies, this study finds that competitors located nearest to closed hospitals were best able to improve their bargaining position. Moreover, rivals that experienced multiple neighborhood closures, that faced large closures relative to their own sizes, and that were located in more concentrated markets were all able to raise prices even more. The overall estimate suggests a 4%, one-time, permanent price increase due to closure, a strong price effect that has been overlooked in the literature. © 2008 Excellus Health Plan, Inc.