Hospital Bailouts and Economic Efficiency

We measure the effect of six hospital closures on patient and total welfare. While patient welfare necessarily declines because some patients lose access to their preferred hospital, closures also affect costs. Recent research suggests that less efficient institutions are more likely to close and that surrounding hospitals are able to increase efficiency as result of scale economies. Thus, the net effect of closures, and the wisdom of hospital bailouts, is an empirical question. We find that hospital bailouts are usually unwise: on balance the cost savings from closures more than offset the reduction in patient welfare.