NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How do Hospitals Respond to Negative Financial Shocks? The Impact of the 2008 Stock Market Crash

David Dranove, Craig Garthwaite, Christopher Ody

NBER Working Paper No. 18853
Issued in February 2013
NBER Program(s):   HC   HE   IO   PE

The theory of cost-shifting posits that nonprofit hospitals respond to negative financial shocks by raising prices for privately insured patients. We examine how hospitals responded to the sharp reductions in their endowments caused by the 2008 stock market collapse. We find that the average hospital did not engage in cost-shifting, but average hospitals that likely have substantial market power did cost-shift. Investigating further how hospitals responded to the financial setback, we found no evidence of reductions in treatment costs. However, hospitals with large endowment losses delayed purchases of health information technology and curtailed the offering of unprofitable services.

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