Does efficiency and quality of care affect hospital closures?

In recent decades, a large number of hospitals in Pennsylvania and across the United States have been forced to close entirely, or to transform their beds for alternative uses including outpatient care. Hospital closures have severe repercussions for the stakeholders. A better understanding of hospital closures could help take corrective measures to alleviate the adverse impact closures have on communities. Using Pennsylvania Department of Health data compiled from various sources, we address the following questions: Are less efficient hospitals less likely to survive in the long run? What are the effects of quality of care on hospital closures? Does teaching status and location (urban or rural) have any impact on the probability of hospital closure? The result demonstrates several factors of varying significance affect hospital closures/survivals. Hospitals with higher ratio of registered nurses per bed, higher operating margin, lower percentage of revenues from Medicare and Medicaid, and lower competition were less likely to close. Efficiency measures such as DEA efficiency, cost per patient day, and cost per discharge were not found to have a significant impact on hospital closures. The results suggest that hospital administrators may focus more on quality of care and less on cost reduction and efficiency.