University of Pennsylvania: The economic impact of rural hospital closures

When a rural hospital closes, it can disrupt both the health care and the economy of a community. The health care sector can supply as much as 10% of the jobs in a rural area. Moreover, hospital closures are a national concern: Of 2,000 rural U.S. hospitals, 150 have closed since 2005, and more than 300 are at risk—a situation exacerbated by the pressures of health care under the COVID-19 pandemic.

Previous studies showed links between hospital closures, lower overall employment, and per capita income at the county level. But are closures a driver or symptom of economic decline? A new study by Leonard Davis Institute of Health Economics senior fellows Paula Chatterjee and Atheendar Venkataramani, with co-author Yuqing Lin, shows that hospital closures reflect existing economic downturns.

The researchers used new econometric methods to compare counties with and without hospital closures over time. They analyzed 10 economic outcomes including health care sector jobs, overall unemployment, per capita income, and bankruptcies. The methods and their study design allowed them to determine the relationship between closures and economic conditions in more detail than previous studies.

Chatterjee, an assistant professor in the Perelman School of Medicine, and colleagues find that of the outcomes they investigated, only health care-sector employment significantly decreased after closures, with a 14% reduction in jobs in counties with a hospital closure, compared to counties without a hospital closure. No other outcomes declined significantly, including overall employment, total jobs, or county population.

Instead, authors note, the story is in the preexisting trends: In areas with a hospital closure, economies were already declining before the hospital shut its doors. Chatterjee and coauthors suggest that based on their results, programs and policies that focus solely on stopping rural hospital closures may be ineffective alone. Success at reducing closures may require a broader focus on the hospital’s local community, including state or federal tax policies to encourage industries in rural markets.