Advances in outpatient treatment, managed care preferences for less expensive outpatient care, and hospital closures contributed to a 12 percent decline in hospital beds between 1988 and 1998. When urban hospitals in a given area close, the remaining competitor hospitals significantly improve their efficiency, mainly by filling previously empty beds, according to a study supported by the Agency for Healthcare Research and Quality (HS10730).
The findings indicate that overall, the costs per adjusted admission at competitor hospitals (those within 5 miles of closed hospitals) declined by 2 to 4 percent for all patients and about 6 to 8 percent for patients who would have been treated at the closed hospital. These lower costs per adjusted admission were primarily due to an increase in inpatient admissions and emergency room visits leading to higher capacity utilization. Furthermore, the hospitals that closed had been significantly less efficient than their competitors for several years prior to closure.
The difference in efficiency at closed versus remaining hospitals was due to two important differences. First, closed hospitals were operating on a significantly smaller scale, but did not appear to be specialty or niche hospitals. Second, the occupancy rate at eventual closures was about 48 percent versus over 64 percent at competitors, explains Richard Lindrooth, Ph.D., of the Medical University of South Carolina.
Dr. Lindrooth and colleagues estimated differences in costs at hospitals that eventually closed and their nearby competitors. Next, they examined how competitors were affected by (or reacted to) closure by estimating changes in admissions, case mix, input levels, and market concentration related to a competitor's closure. Finally, they estimated the effect of these changes on hospital cost.
Details are in "The effect of urban hospital closure on markets," by Dr. Lindrooth, Anthony T. Lo Sasso, Ph.D., and Gloria J. Bazzoli, Ph.D., in the Journal of Health Economics 22, pp. 691-712, 2003.