Patient Loyalty in Hospital Choice: Evidence from New York

When choosing a hospital, patients favor facilities they have used in the past. Using data from New York, I investigate the sources of patient loyalty to hospitals. To distinguish persistent unobserved heterogeneity and state dependence, I exploit shocks that induce patients to try a new hospital: emergency hospitalizations and temporary hospital closures due to Hurricane Sandy. I find evidence of state dependence under minimal assumptions about the data generating process. State dependence has an impact on health outcomes by preventing the reallocation of patients to high quality hospitals. In the context of hospital choice for heart surgery, patients would switch to hospitals with lower risk-adjusted mortality absent state dependence, leading to a 3% reduction in expected mortality relative to the actual state of the world.