Do Hospitals Cross Subsidize?

46 Pages Posted: 29 Aug 2011

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). NBER Working Paper No. w17300, 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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