Do Hospitals Cross Subsidize?

46 Pages Posted: 29 Aug 2011 Last revised: 10 Oct 2021

See all articles by Guy David

Guy David

The Wharton School, University of Pennsylvania - Health Care Management

Richard Lindrooth

University of Colorado at Denver - Anschutz Medical Campus

Lorens A. Helmchen

The George Washington University

Lawton R. Burns

University of Pennsylvania - Health Care Systems Department

Date Written: August 2011

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.

Suggested Citation

David, Guy and Lindrooth, Richard and Helmchen, Lorens A. and Burns, Lawton R., Do Hospitals Cross Subsidize? (August 2011). Available at SSRN: https://ssrn.com/abstract=1918631

Guy David (Contact Author)

The Wharton School, University of Pennsylvania - Health Care Management ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

HOME PAGE: http://www.wharton.upenn.edu/faculty/david.html

Richard Lindrooth

University of Colorado at Denver - Anschutz Medical Campus ( email )

1, L15-1503 12631 E. 17th Avenue
Aurora, CO 80045
United States

Lorens A. Helmchen

The George Washington University ( email )

950 New Hampshire Ave NW
Washington, DC 20052
United States
2029943816 (Phone)
2029943816 (Fax)

Lawton R. Burns

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

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