Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes

64 Pages Posted: 19 Apr 2021 Last revised: 1 Oct 2021

See all articles by Cyrus Aghamolla

Cyrus Aghamolla

University of Minnesota - Twin Cities

Pinar Karaca-Mandic

University of Minnesota - Twin Cities - School of Public Health

Xuelin Li

University of South Carolina - Darla Moore School of Business

Richard T. Thakor

University of Minnesota - Carlson School of Management; Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Multiple version iconThere are 2 versions of this paper

Date Written: April 9, 2021

Abstract

This study examines the link between credit supply and hospital health outcomes. Using detailed data on hospitals and the banks that they borrow from, we use bank stress tests as exogenous shocks to credit access for hospitals that have lending relationships with tested banks. We find that affected hospitals shift their operations to enhance their profit margins in response to a negative credit shock, but reduce the quality of their care to patients across a variety of measures. In particular, affected hospitals exhibit significantly lower attentiveness in providing timely and effective treatment and procedures, and are rated substantially lower in patient satisfaction. This decline in care quality is reflected in health outcomes: affected hospitals experience a significant increase in risk-adjusted, unplanned 30-day readmission rates of recently discharged patients and in risk-adjusted 30-day patient mortality rates. Overall, the results indicate that access to credit can affect the quality of healthcare hospitals deliver, pointing to important spillover effects of credit market frictions on health outcomes.

Keywords: Healthcare finance, hospitals, banks, credit supply, lending, health outcomes, stress test

JEL Classification: G21, G31, G32, I11, I15

Suggested Citation

Aghamolla, Cyrus and Karaca-Mandic, Pinar and Li, Xuelin and Thakor, Richard T., Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes (April 9, 2021). Available at SSRN: https://ssrn.com/abstract=3827246 or http://dx.doi.org/10.2139/ssrn.3827246

Cyrus Aghamolla

University of Minnesota - Twin Cities ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Pinar Karaca-Mandic

University of Minnesota - Twin Cities - School of Public Health ( email )

15-223 Phillips-Wangensteen Building
Box 729, 420 Delaware Street SE
Minneapolis, MN 55455-0392
United States

Xuelin Li

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Richard T. Thakor (Contact Author)

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street, E62-618
Cambridge, MA 02142
United States

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