PhD. Spotlight: The Impacts of Health Care Capital Controls on Health Outcomes and Regional Competition

Capital control policies, such as certificate of need (CON) regulations, are often touted as a means of combating the rising costs of healthcare. However, such policies often have little to no concern with their impact on health outcomes. Dr. Kevin Chiu’s dissertation research examines this impact. Dr. Chiu’s dissertation is comprised of three articles.

The first article titled, “The Impact of Certificate of Need Laws on Heart Attack Mortality,” explores the relationship between heart attack deaths and CON laws, assessing the differential impact on states adopting CON regulation between 1968 and 1982. Using neighboring counties on opposite sides of a state border to account for the endogeneity of healthcare preferences across regions, Dr. Chiu finds that the introduction of CON regulations led to 6-7 additional heart attack deaths per 100,000 (which represents a 4.2% increase in deaths relative to the pre-CON mean). The next two articles explain possible mechanisms that links CON policies to the additional deaths.

The second article measures the effect of capital on health outcomes. Taking advantage of the fact that non-profit hospitals follow a rigid endowment spending policy based upon the market value of their endowments, along with his coauthor (Dr. Shawn Kantor) Dr. Chiu develops an instrumental variable for current capital spending that is based upon each non-profit hospital’s endowment level interacted with stock market shocks over time. Using patient-level discharge data from non-profit hospitals in the state of Florida from 2006 to 2014, they find that for every $1,000,000 increase in a hospital’s capital expenditure, mortality decreases by 0.0062 to 0.0123 percentage point for the average ER visitor, and 0.0064 to 0.0110 percentage point for the average patient admitted to the hospital. This equates to about 6.2 to 12.3 individuals per 100,000. This effect, however, is economically small, since the average hospital treats 1,357 patients per year.

The final article is a case study of Florida’s CON regulations prior to repeal in 2019. The goal is to provide a description of the CON approval process for future research on the impact of CON. This article explores the traditional methods of entry deterrence in the healthcare market then discusses how the regulatory environment may provide an additional option for incumbents to use unproductive capital to deter entry into a CON regulatory environment. Dr. Chiu then provides an exploratory analysis of whether an incumbent has an impact on CON approval, conditional on the entrant reaching the decision to file a CON application, and briefly describe what needs to be accounted for in any future analysis.

Dr. Kevin Chiu earned his PhD. in Economics from Florida State University in 2019. This post is based on Dr. Kevin Chiu’s dissertation abstract which is available via DigiNole.

The feature image is from The Dallas Morning News.

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