Subsidies and Structure: The Lasting Impact of the Hill-Burton Program on the Hospital Industry

The hospital industry is one of the most important industries in the U.S., and industry structure can have profound effects on the functioning of markets. Using county-level panel data, we study the effect of public subsidies from the Hospital Survey and Construction Act of 1946, known as the Hill-Burton program, on hospital capacity, organization of the hospital industry, and utilization. We find that the program generated substantial increases in capacity and these changes were highly persistent, lasting well beyond twenty years. However the increases in capacity at non-profit and public hospitals were partially offset by reductions in capacity at for-profit hospitals. Nonetheless, we estimate that the Hill-Burton program accounted for a net increase of over 70,000 beds nationwide, which is roughly 17 percent of the total growth in hospital beds in the U.S. from 1948 to 1975. We also show that differences across counties in the number of hospital beds per capita were greatly reduced over this period. Differences between high and low income counties, rural and urban counties, and the South and the rest of the country fell substantially. We conclude that the program largely achieved its goals, and had substantial and long lasting effects on the hospital industry in the U.S..