Creative Destruction in the Healthcare Sector: Hospital Closures and Patient Outcomes

Part of the Lubar Research Seminar Series

Speaker:  Tim Liu, University of Utah

Since 2010, the US has seen the net closure of over 100 hospitals, underscoring a need to better understand how closures impact patient outcomes. Using confidential patient-level data, we track patients who are displaced from closed hospitals and forced to seek treatment elsewhere, measuring their outcomes pre and post closure. We find that individuals whose hospital closes and who subsequently switch to another facility experience better health outcomes, relative to patients who do not lose their hospital. Patients displaced by closures tend to receive treatment at higher-quality hospitals characterized by stronger financial performance and higher staffing ratios, suggesting that market exit by inefficient providers may reallocate patients toward better-performing institutions. While displaced patients who remain in the hospital system find higher quality care, we find evidence that elderly patients in rural areas experience elevated mortality outside of the hospital system, suggesting limited accessibility to substitute providers. Overall, our findings reveal heterogeneous effects of hospital closures: while they may enhance care quality and efficiency for most patients, they pose significant risks to patient health in immobile populations.

Tim Liu is an Assistant Professor of Finance at the University of Utah’s David Eccles School of Business. His research focuses on corporate finance, labor economics, and healthcare. He earned his PhD in Finance from the University of North Carolina at Chapel Hill and holds both undergraduate and graduate degrees from the University of Pennsylvania. His work has been published in the Review of Financial Studies.