Hospital ownership and profits when a neighbor closes

Publication id: kanimian-2026-hospital-closure-ownership
Status: verified

Citation: Kanimian, S. & Shakya, S. (2026). When a Neighbor Closes: Ownership and Hospital Profits. Eastern Economic Journal. DOI. Download PDF

Facts¶

Policy hook¶

Hospital closures are increasingly common, particularly in rural and underserved areas. When a hospital closes, patients face longer travel times and shift to remaining facilities. The question is whether nearby hospitals’ financial outcomes change after a neighboring closure and whether the response depends on hospital ownership type (for-profit, non-profit, or governmental).

Main finding¶

For-profit hospitals show the largest post-closure increases in Charge-to-cost ratio (1.959, significant at 5% level), though pre-closure trends make this pattern suggestive. The for-profit Net-profit-margin gain of 0.061 (6.1 percentage points, significant at 5% level) is the best-identified result and is comparable to the non-profit gain of 0.063 (6.3 percentage points, significant at 10% level). Governmental hospitals show changes statistically indistinguishable from zero, with a point estimate of -0.138 on net-profit-margin.

Data and setting¶

Short-term hospitals (average patient stay less than 30 days) from 2011-2022. Data from the National Academy for State Health Policy Hospital Cost Tool, covering over 5000 hospitals nationwide. Sample restricted to hospitals with exactly two neighboring hospitals within 60 miles, comparing those experiencing a neighboring closure (treatment group: 5 non-profits, 2 governmental, 2 for-profits) to those retaining two neighbors throughout (control group).

Research design (plain language)¶

Difference-in-differences design using hospital and year fixed effects to compare changes in Charge-to-cost and Net-profit-margin for hospitals before and after a neighboring closure. The primary outcome is the average effect across all post-closure years. An event study using Callaway and Sant’Anna methods examines dynamic effects year-by-year and tests for pre-closure trends. Standard errors are clustered at the hospital level.

One caveat¶

Sample size is small, especially for for-profit and governmental hospitals (2 treated in each category), making ownership-specific estimates suggestive rather than definitive. The Charge-to-cost results for for-profit hospitals show pre-closure trends that weaken a causal interpretation. Cannot disentangle price and quantity responses without patient-level transaction data. Payer-mix differences across ownership types affect outcome levels.

PDF or DOI¶

DOI: 10.1057/s41302-026-00335-x. Download PDF

Why it matters¶

Hospital closures reallocate patient demand and change local competitive pressure. The results show that hospital responses differ significantly by ownership type. For-profit hospitals appear to use reduced competition as an opportunity to increase markups and profitability, consistent with profit-maximizing behavior. Non-profit hospitals also gain financially but with less precision. Governmental hospitals show minimal or negative financial impacts, suggesting they face different constraints or serve a different patient population. These ownership-specific responses have implications for price monitoring, financial support mechanisms, and policy responses to hospital closures in different market contexts.