NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Hospitals Cross Subsidize?

Guy David, Richard Lindrooth, Lorens A. Helmchen, Lawton R. Burns

NBER Working Paper No. 17300
Issued in August 2011
NBER Program(s):   HC   HE

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.

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Document Object Identifier (DOI): 10.3386/w17300

Published: David, Guy & Lindrooth, Richard C. & Helmchen, Lorens A. & Burns, Lawton R., 2014. "Do hospitals cross-subsidize?," Journal of Health Economics, Elsevier, vol. 37(C), pages 198-218. citation courtesy of

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