The Impact of Privatization: Evidence from the Hospital Sector

Privatization has been shown to increase the growth and profitability of government-owned firms. However, the effects on consumers have been understudied. We study potential trade- offs in the US hospital sector, where government control of capacity declined by 42% over 1983–2019. Private operators may improve hospitals’ financial viability and reduce the need for subsidies, but a focus on profitability may adversely affect access for unprofitable low-income patients and care quality. Combining multiple patient- and hospital-level administrative datasets with national hospital survey data, we study 258 hospital privatizations during the 2000–2018 period. Private operators increase profitability through a reduction in employment and an increase in the mean revenue per patient. The latter is achieved by cream-skimming more profitable patients and services, as well as by increasing prices. However, we detect an increase in mortality rates among elderly (aged 65+) patients, suggesting a decline in care quality. We also find a decrease in aggregate admissions of low-income patients at the market level and an increase in mortality among the near-elderly (ages 55–64), particularly in low-income markets. Overall, we estimate that the 258 hospital privatizations led to approximately 920 additional deaths per year and $694 million in annual savings for local governments by the end of our study period.