Over the past two decades, cost containment has become a central objective of public policy in advanced economies, often targeting locally provided public services such as hospitals. This paper studies how hospital department closures triggered by post-crisis reforms in Italy reshape healthcare provision and generate broader place-based effects. Using highly granular ward-level data for the universe of Italian public hospitals (2015–2022), we exploit staggered variation in closures and implement a difference-in-differences design. We show that closures act as localized supply shocks, increasing activity volumes and congestion in neighboring same-specialty departments, with selective deteriorations in quality. Extending the analysis to municipalities, we document reductions in natality, increases in mortality, and declines in per-capita income and income distribution indicators in areas exposed to closures. The findings highlight non-trivial efficiency–equity trade-offs and underscore the importance of accounting for spatial equilibrium and place-based effects when evaluating hospital downsizing policies.