Stress Relief? Externalities from Specialty Hospital Entry

Mental illness exacts a heavy toll on the US healthcare system and strains general hospitals and their emergency departments. We study how psychiatric inpatient facility entry impacts the local hospital industry. We find that referrals, including from the legal system, are redirected to the specialized facilities––leaving general hospitals with approximately 60% fewer psychiatric admissions. General hospitals also discharge 50% more patients to psychiatric facilities and substitute away from high-skill psychiatric labor––consistent with specialization and market segmentation. Emergency department volumes do not change but care does. However, community-based crime, overdose deaths, and suicides do not decline in the short-run.