In 2010–2012, new outpatient service locations were established in poor Hungarian micro-regions. We exploit this quasi-experiment to estimate the extent of substitution between outpatient and inpatient care. Fixed-effects Poisson models on individual-level panel data for years 2008–2015 show that the number of outpatient visits increased by 19% and the number of inpatient stays decreased by 1.6% as a result, driven by a marked reduction of potentially avoidable hospitalization (PAH) (5%). In our dynamic specification, PAH effects occur in the year after the treatment, whereas non-PAH only decreases with a multi-year lag. The instrumental variable estimates suggest that a one euro increase in outpatient care expenditures produces a 0.6 euro decrease in inpatient care expenditures. Our results (1) strengthen the claim that bringing outpatient care closer to a previously underserved population yields considerable health benefits, and (2) suggest that there is a strong substitution element between outpatient and inpatient care.
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