Which Comes First: Economic Decline or Hospital Closure?

By Maria Polyakova, PhD
September 17, 2021

Maria Polyakova is a health economist and assistant professor of Health Policy at Stanford University School of Medicine. Her recent work examines the relationship between health insurance policies and labor markets in health care. She is also a member of the 2021 Tradeoffs Research Council.

The conversation around rural hospital closures is likely familiar to anyone who has followed health policy in recent years. The fact that 138 rural hospitals have closed since 2010 is regularly cited in news reports, research and even President Joe Biden’s recent executive order on competition. Hospitals nationwide employed around 6.6 million people in 2019, and generated, by one estimate, around $3 trillion in economic activity. Politicians and the public are often concerned about what hospital closures, especially in rural America, will mean for access to care and the economic viability of their communities. But a recent NBER working paper suggests concerns over the latter might be misguided.

Researchers Diane Alexander and Michael Richards combined data on all hospital closures in the U.S. from 2005 to 2017 with county-level measures of employment, consumer financial status and housing market activities to estimate the causal effect of hospital closures on local labor markets, consumer financial health and the health of the housing markets. 

Unsurprisingly, they found sharp drops in health care employment (10.6%), but only statistically insignificant drops in other labor markets (2.2%). They similarly failed to find big declines in credit scores, debt collections or bankruptcies, on average. They did observe that housing markets were depressed in areas where hospitals closed, but this tended to anticipate, rather than follow, the closures. 

Alexander and Richards also looked at whether there was a difference in broader economic impacts between rural hospitals that closed completely and those that only “partially” closed, where facilities were repurposed to still provide emergency services, urgent care, outpatient care and/or skilled nursing. Unsurprisingly, they found health care job losses were more than twice as high for full closures, and they note recent policy efforts focused on making it easier for hospitals to avoid total closure instead of continuing to provide all the services they once did.

While this study does not touch on the impact closures have on access to care, it does call into question the idea that losing a hospital spells economic ruin for a community. In fact, one major takeaway is that a declining economy more likely leads to hospital closures rather than the other way around. As lawmakers debate major health policy reforms, these findings raise the question of whether propping up a local economy is a valid reason for spending taxpayer dollars to help hospitals stave off closures. 

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