Carlson School of Management
Twin Cities
These researchers are examining the effect of increased healthcare costs on local economic conditions. They use private equity (PE) buyouts of U.S. hospital systems as a shock to the healthcare costs faced by firms in affected areas. The group's primary identification strategy consists of the PE acquisition of a large-scale hospital chain, with hospitals dispersed across various communities in the U.S. This strategy is supplemented with broader evidence including all PE buyouts of hospitals over a longer sample period. The researchers provide evidence that PE buyouts of hospital systems result in higher healthcare insurance premiums paid by firms, and such rises in premiums lead to higher business bankruptcies, an increase in business loan volume, slower employment and establishment growth, lower wages, and reduced innovative output. There is additional evidence that increases in healthcare costs result in firms being more vulnerable to the financial crisis, suggesting that the negative economic consequences of rising healthcare costs are due to weakened firm balance sheets which cause firms to be more susceptible to negative economic shocks.