Rural Hospital Closures Led To Increased Prices At Nearby ‘Surviving’ Hospitals, 2012–22

Rural hospitals in the US have closed at a rapid pace in recent years, raising concerns about decreased access to care and declining competition in rural markets. Because prices paid by commercial health insurance plans are negotiated between hospitals and insurers, hospital closure may give “surviving” hospitals increased leverage to negotiate higher prices. Using commercial claims data, we studied the effect of hospital closure on the prices charged by nearby surviving hospitals. We found that hospital closures during the period 2014-18 led to a 3.6 percent increase in prices at surviving hospitals, driven by larger price increases in the three to four years after closure. Price effects were concentrated among surviving hospitals with market power—hospitals with system affiliations and hospitals operating in less competitive markets. We also found that closed hospitals charged lower prices than nearby hospitals in the preclosure period. Thus, closure eliminated low- price hospital options from rural markets. Overall, our findings suggest that hospital closure can have a meaningful impact on commercial prices. Policies targeting rural hospitals should consider the anticompetitive effects of closure, in addition to devoting continued attention to access to and quality of care.