Technical ReportPDF Available

The Impact of Hospital Consolidation - Update


Abstract and Figures

This brief is an update of the 2006 synthesis examining the impact of hospital mergers on prices, costs, and quality of care. In addition to examining the literature on hospital consolidation since the 2006 synthesis was published, this update reviews the evidence on physician-hospital consolidation. The Patient Protection and Affordable Care Act (ACA) promotes Accountable Care Organizations (ACOs) and the bundling of payments across providers for an episode of care (“bundled payments”), both of which encourage consolidation between hospitals and physician practices. Key Findings: Hospital consolidation generally results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent. Hospital competition improves quality of care. This is true under both administered price systems, such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however. Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.
Content may be subject to copyright.
Also see companion report available at
The impact
of hospital
> Hospital consolidation gener-
ally results in higher prices.
This is true across geographic
markets and different data
sources. When hospitals merge in
already concentrated markets, the
price increase can be dramatic,
often exceeding 20 percent.
> Hospital competition improves
quality of care. This is true under
both administered price systems,
such as Medicare and the English
National Health Service, and
market determined pricing such
as the private health insurance
market. The evidence is more
mixed from studies of market
determined systems, however.
> Physician-hospital consoli-
dation has not led to either
improved quality or reduced
costs. Studies find that consoli-
dation was primarily for the
purpose of enhanced bargaining
power with payers, and hence
did not lead to true integration.
Consolidation without integration
does not lead to enhanced
In 2006, the Synthesis Project published a research synthesis on the impact of hospital
mergers on prices, costs and quality of care (38). Since that time, the literature has
expanded a great deal. We review those subsequent findings in this Synthesis Update.
In particular, we focus on the impact of hospital mergers on prices and quality, and
introduce a review of the evidence on physician-hospital consolidation (absent from
the 2006 synthesis). The Patient Protection and Affordable Care Act (ACA) promotes
Accountable Care Organizations (ACOs) and the bundling of payments across
providers for an episode of care (“bundled payments”). Both of these features of the
ACA encourage consolidation between hospitals and physician practices, which in fact
has recently accelerated.
What is the relationship between hospital consolidation
and prices?
Increases in hospital market concentration lead to increases in the price
of hospital care.1 This finding is consistent with the conclusion of the 2006 synthesis.
Since the 2006 report, several econometric studies have revisited the relationship
between price and hospital concentration, using data from a variety of sources, thereby
expanding the geographic scope of the evidence base. The prior evidence came almost
exclusively from California. The more recent evidence comes from more states (Florida,
Massachusetts) and from the entire United States (see Table 1). Ultimately, increases
in health care costs (which are generally paid directly by insurers or self-insured
employers) are passed on to health care consumers in the form of higher premiums,
lower benefits and lower wages (see, e.g., Baicker and Chandra (4)).
By Martin Gaynor, PhD1 and
Robert Town, PhD2
1 Heinz College, Carnegie Mellon
2 The Wharton School, University
of Pennsylvania
1 Hospital concentration measures the extent to which a market is dominated by a few (or one) hospitals. All else
equal, the higher the market concentration, the less vigorous is the resulting price competition. Consolidation within a
market (e.g., via mergers) reduces independent market participants and by doing so increases market concentration.
Table 1: Summary of hospital concentration studies since 2006
of data
Time frame
of analysis
Akosa Antwi
et al. (2009)
CA 1999–2005 Prices increased twofold over period and growth
is highest in monopoly markets; however, changes
in market concentration are not associated with
differential price growth.
Dranove et al.
& FL
1990–2003 The association between hospital concentration and
price increased during the 1990s and leveled off
during the 2000s.
and Keeler
CA 1999–2003 Hospital concentration is positively associated with
price growth; hospitals in large systems experienced
higher price growth.
Moriya et al.
US 2001–2003 Insurer concentration is negatively associated
with hospital prices; hospital price/concentration
relationship is insignificant.
Wu (2008) MA 1990–2002 Hospitals for which a rival hospital closed experienced
a price increase relative to controls.
June 2012
This document is an update of a
previous Synthesis Report available
ISSN 2155-3718
2 | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | THE ROBERT WOOD JOHNSON FOUNDATION | The impact of hospital consolidation—Update
Prices paid to hospitals by private health insurers within hospital markets vary
dramatically (22). The evidence points to differences in hospital bargaining leverage
as a principal driver of the difference between relatively expensive and inexpensive
hospital systems within the same hospital market.
Some evidence suggests that growth in prices is related to market
concentration. An important policy question is whether, in addition to leading
to a one-time price increase, hospital mergers increase the rate of growth of hospital
prices. A few studies have addressed this issue (see Table 1), with the most recent
studies giving somewhat conflicting answers to this question. Melnick and Keeler find
a positive correlation between price growth and market concentration (28). On the
other hand, Akosa Antwi et al. find that monopoly markets experienced the highest
rates of growth, but there was little relationship between changes in concentration and
the growth of prices (2).
Hospital mergers in concentrated markets generally lead to
significant price increases. Several studies have taken a retrospective look at
the impact of recent hospital mergers on prices paid to hospitals by health insurers.
This research focuses on a “case study” merger and examines the change in inpatient
prices after the merger compared with a set of “control” hospitals (see Table 2).
The magnitude of price increases when hospitals merge in concentrated markets is
typically quite large, most exceeding 20 percent. Analyses that use data spanning large
geographic regions that encompass many hospital mergers also find that, for the most
part, hospital mergers in concentrated markets result in significant price increases.
Price increases exceeded 20% when mergers
occurred in concentrated markets.
In recent years, the Federal Trade
Commission (FTC) has become more
aggressive in challenging cases and
has had dramatically more success
than during the 1980s and 1990s.
At the time of the 2006 synthesis,
after a decade and a half long
series of unsuccessful attempts to
block hospital mergers, the Federal
Trade Commission (FTC) had just
successfully litigated its first hospital
merger case. In this case, the FTC
challenged a consummated merger
and the court found that the merger
between Evanston-Northwestern
Hospital and Highland Park Hospital
(both located in Evanston, Ill.) led to
an increase in prices. The decision
in this case is important because it
established that proximate not-for-
profit hospitals in urban areas can
increase market power by merging.
Importantly, the case also established
that, post-acquisition, hospitals are
willing to use their increased market
power to raise prices.
The findings in the Evanston-
Northwestern case gave the FTC a
firm footing for litigation of hospital
merger cases. Since 2006, the FTC
has successfully brought suit to stop
several hospital mergers. Of particular
note is the ProMedica case, in which
a federal judge granted the FTC an
injunction in its antitrust challenge of
ProMedica’s acquisition of a hospital.2
It is the first prospective merger court
victory for the enforcement agencies
in decades.3
2 United States of America Federal Trade
Commission Office of Administrative Law
Judges, Docket No. 9346, In the Matter of
ProMedica Health System, Inc., December
12, 2011 (
3 Prospective merger analysis seeks to assess
the competitive harm from a transaction
principally based on information available prior
to the consummation of the transaction.
of mergers
Time frame
of analysis Results
Dafny (2009) US 1999–2005 Merging hospitals had 40%
higher prices than non-
merging hospitals.
Haas-Wilson and
Garmon (2011)
Evanston, IL Mergers
of Evanston-NW &
Highland Park and
St. Therese & Victory
1990–2003 Post-merger, Evanston-
NW hospital had 20%
higher prices than control
group; no price effect at St.
Tenn (2011) SF Bay Area, CA
Sutter/Summit merger
1999–2003 Summit prices increased
28.4% to 44.2% compared
with control group.
Thompson (2011) Wilmington, NC
New Hanover-Cape
Fear merger
2001–2003 3 of 4 insurers experienced
a large price increase;
1 insurer experienced a
decrease in prices.
Town et al. (2006) US 1990–2002 Aggregate hospital merger
activity increased the
uninsured rate by
.3 percentage points.
Table 2: Summary of hospital merger event studies since 2006
The impact of hospital consolidation—Update | THE ROBERT WOOD JOHNSON FOUNDATION | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | 3
Hospital competition improves quality.
It is important to distinguish between
consolidation and integration.
Consolidation is simply bringing
together two (or more) previously
independent entities. Integration
implies more—in particular,
elimination of unnecessary
duplication, creating systems to
bring the previously separate entities
together, and comprehensive
management of the organization as
a whole.
Limited data show that
consolidation between
physicians and hospitals is
increasing. Increasing numbers of
physicians are working as hospital
employees and increasing numbers
of physician practices are owned by
hospitals. The number of physicians
working as employees grew from
around 31 percent in 1996–97 to
36 percent in 2004–05 (26). Another
survey found that the percentage of
primary care physicians employed by
hospitals rose from under 20 percent
in 2000 to over 30 percent in 2008
and the percentage of specialists
employed by hospitals rose from
just over 5 percent to 15 percent
(25). The percentage of physician
practices owned by hospitals rose
from around 20 percent in 2002
to over 50 percent by 2008 (25).
On the other hand, the percentage
of hospitals with other kinds of
physician-hospital relationships, such
as physician hospital organizations
(PHOs) and independent practice
associations (IPAs), has fallen
steadily from 2000 through 2010 (3).
What is the relationship between hospital consolidation
and quality?
At least for some procedures, hospital concentration reduces
quality. Since the 2006 synthesis report, many new econometric studies have
examined the impact of hospital competition on quality of care, using data from
a variety of sources, including studies from outside the United States. The new
econometric studies can be divided into two types: those that examine markets with
administered prices and those that examine markets with market determined prices.
Hospital competition improves quality under an administered pricing
system. Studies of the impact of competition on hospital quality under an
administered price regime are based on the U.S. Medicare program and the English
National Health Service (NHS), which made a transition to administered prices in
a 2006 reform. The evidence presented in the 2006 synthesis was entirely from the
Medicare program. The findings from those studies were mixed, but the strongest
evidence was that tougher competition led to enhanced quality of care. Those results
are reinforced by newer studies from the NHS, which uniformly show a positive
impact of competition on the quality of care. The 2006 reform in the NHS was
intended to create competition among hospitals for patients, by allowing patients
to choose their hospital, while setting regulated prices in a manner very similar to
the Medicare DRG-based system.4 The studies all show a substantial impact of the
introduction of hospital competition in the NHS on reducing mortality rates (see
Table 3). While it is not possible to draw direct conclusions about the United States
based on evidence from the United Kingdom, these studies add to the growing
evidence base that competition leads to enhanced quality under administered prices.
Table 3: Summary of hospital quality-competition studies with administered prices
since 2006 (continued on next page)
of data
frame of
quality? Results
et al.
England 2002–08 Yes Acute myocardial infarction (AMI) mortality
fell significantly faster after the reforms in less
concentrated markets. This led to 300 fewer
AMI deaths per year.
et al.
England 2003–04,
Yes All-cause and AMI mortality fell significantly
faster after the reforms in less concentrated
markets. There were no effects on length of
stay, expenditures or productivity. This led
to 4,791 life years saved from deaths from
all-causes averted, and 1,527 AMI life years
saved. Benefits outweigh costs.
et al.
England 2006 Yes Hospitals in less concentrated markets have
better management, and better management
leads to reduced mortality. Adding an
additional hospital close by improves
management quality and thereby reduces
heart attack mortality by 10.7%.
4 The NHS reforms introduced: patient choice among hospitals, regulated prices, and performance incentives for
hospital managers. Previously a local public entity selectively contracted with hospitals (often sole source) to
provide care for their patients. Contract negotiations focused on price, not quality. Patients had little choice and
hospital managers had little incentive to compete for patients on quality. See Cooper et al. (13), Gaynor et al.
(20) for more details.
4 | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | THE ROBERT WOOD JOHNSON FOUNDATION | The impact of hospital consolidation—Update
Physician-hospital consolidation studied so far
did not involve true integration.
Table 3: Summary of hospital quality-competition studies with administered prices
since 2006 (continued from previous page)
of data
frame of
quality? Results
et al.
England 2008–09 Yes Hip replacement patients are significantly
more likely to choose higher-quality
hospitals. A 5% increase in a hospital’s
mortality rate decreases demand by 6.9%.
Hospital mergers substantially reduce the
responsiveness of demand to mortality.
et al.
England 2003–04,
Yes Coronary artery bypass graft surgery (CABG)
patients’ responsiveness to hospital mortality
rates is substantially higher after the reforms.
A 1% increase in a hospital’s mortality rate
reduces its market share by over 4% after the
reforms. The change in elasticity due to the
reform led to a significant reduction in mortality.
Competition improves quality where prices are market determined,
although the evidence is mixed (Table 4). There have also been substantial
additions to this literature since the 2006 synthesis. The findings from these studies
are more mixed than the findings of recent studies of markets with administered
prices. This stands to reason: if hospitals can compete on both price and quality, then
when they face tougher competition they will choose to compete by whichever means
is most effective. If buyers are considerably more responsive to price than quality (for
example, if price is easier to measure), then enhanced competition can lead to lower
prices, but also less attention to quality. On the other hand, if quality is particularly
salient, then tougher competition can enhance quality.
All of the U.S. studies except for one find that competition improves quality, while
the English studies uniformly find negative effects.5 The difference appears to most
likely be due to differences in the possibility of patient choice between the United
States and England (in the 1990s).
In the United States, prices are negotiated by price-sensitive insurers. These insurers
have strong incentives to obtain lower prices, since their customers, typically employers,
are responsive to price differences. Insurers, however, do not engage in sole-source
contracting. They contract with sets, or “networks,” of hospitals. Patients are thus free to
exercise choice of hospital within a network (which is often quite broad). Hospitals have
an incentive to compete on quality in order to attract patients within a network. As a
consequence, there are both price and quality incentives in play.
In contrast, in England in the 1990s, negotiation was done by a single local public entity
(Primary Care Trust, or PCT) for all individuals in a geographic area, and contracts were
sole source. Purchasers could use savings obtained via lower prices to purchase more
care (particularly elective care). Hospitals’ operating incomes came from contracts with
purchasers. Information on quality was not publicly available. This led to negotiations
focused on price, not quality. As a consequence, patients had little or no choice of hospital,
and there was far less incentive for hospitals to compete on quality to attract patients.
Consolidation between physicians
and hospitals is of great interest both
because of the potential consolidation
has for creating integration, and the
impetus created by the ACAs push
towards creating Accountable Care
Organizations (ACOs) and emphasis
on bundled payments. In theory, there
are substantial gains to be made from
consolidation. However, there are
also concerns that consolidation may
have adverse impacts on competition.
Consolidation can simply be an
attempt by providers to enhance
bargaining power vis à vis insurers.
The research evidence on
physician-hospital consolidation
does not find evidence supporting
either clinical gains or cost
reductions (9, 27). The most likely
reason is that most consolidation did
not lead to true integration. Evidence
on this topic comes from examination
of physician-hospital organizations in
the 1990s. Current consolidation is
too recent to allow for studies of its
effects. While the successes of certain
prominent integrated organizations,
such as Geisinger Health System,
InterMountain Healthcare, or the Mayo
Clinic, are frequently mentioned as
support for gains from consolidation,
these are ad hoc examples, selected
for their positive results. They do not
constitute research evidence.
5 The English studies are of a prior reform in the 1990s which emphasized price competition (see Propper et al.
(31) for more details).
The impact of hospital consolidation—Update | THE ROBERT WOOD JOHNSON FOUNDATION | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | 5
A major next step for research in this area is sorting out the factors that determine
whether competition will lead to increased or decreased quality. Whether competition
leads to increased or decreased quality depends on its relative impacts on how
responsive hospital choice is to price versus quality. Future research can focus on trying
to recover estimates of these key elements, as well as understanding institutional and
policy factors that affect the competitive environment.
Table 4: Summary of hospital quality-competition studies with market determined prices
since 2006
of data
Time frame
of analysis
quality? Results
Sohn and
Rathouz (2003)
California 1995 Yes Competition reduced angioplasty
Encinosa and
Florida 1996–2000 No Low hospital operating margin
(possibly due to competition) led to
more patient safety events.
Propper et al.
England 1995–98 No Hospitals facing more competitors
had higher mortality rates in a
deregulated environment.
New York 1995–2000 Yes Hospital mergers had no impact on
many quality indicators, but did lead
to increases in mortality for AMI and
heart failure patients.
Propper et al.
England 1991–99 No Mortality increased at hospitals
with a larger number of competitors
following deregulation.
US 2000–02 Yes Demand for kidney transplants is
responsive to graft failure. As demand
becomes more responsive, hospitals
have to compete harder to attract or
retain patients.
Abraham et al.
US 1990 Yes Quantity increases with the number
of hospitals. This will happen only if
quality increases or price falls. This
therefore implies that an increase in
the number of hospitals increases
Cutler et al.
Pennsylvania 1994–95,
Yes Removing barriers to entry in the form
of certificate of need laws led to entry
and increased market shares for low
mortality rate CABG surgeons.
Escarce et al.
New York,
1994–99 Yes Mortality for patients with a variety
of conditions is lower in less
concentrated markets in California
and New York. There are no effects in
Rogowski et al.
California 1994–99 Yes Mortality for patients with a variety of
conditions is lower where hospitals
have more competitors.
Romano and
Balan (2011)
Area (PMSA)
Yes A hospital merger in the Chicago
suburbs had no effect on some quality
indicators, and harmed some others.
Consolidation is often motivated
by a desire to enhance bargaining
power by reducing competition.
Burns et al. (10) find that hospital-
physician alliances increase
with the number of HMOs in the
market. They infer that providers
may be consolidating in order to
achieve or enhance market power.
More recently, Berenson et al. (6)
conducted 300 interviews with
health care market participants, and
reported that increased bargaining
power through joint negotiations is
one of several reasons for hospital-
physician alliances.
Ciliberto and Dranove (12) and
Cuellar and Gertler (14) are
econometric studies that examine
the impact of physician-hospital
consolidation. Both papers look
at the effects of physician-hospital
consolidation on hospital prices.
The two studies find opposite
results—Cuellar and Gertler
find evidence consistent with
anticompetitive effects of physician-
hospital consolidation, while Ciliberto
and Dranove find no such evidence.
It appears that consolidation is often
motivated by a desire to enhance
bargaining power by reducing
competition, but the limited evidence
on whether this leads to higher
hospital prices is mixed.
Physician-hospital consolidation is often
motivated by enhanced bargaining power.
6 | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | THE ROBERT WOOD JOHNSON FOUNDATION | The impact of hospital consolidation—Update
Additions to the evidence base since the 2006 research synthesis reinforce
the findings that hospital competition leads to lower prices. The expanded
evidence on competition and quality shows that competition leads to
higher quality when there are administered prices. The evidence is less
straightforward when prices are market determined, although the majority of
studies show that competition improves quality. Our review of the research
on physician-hospital consolidation does not suggest that such consolidation
(absent true integration) will lead to cost reductions or clinical improvement,
and may lead to enhanced market power for providers.
Policy developments since the 2006 synthesis give policy-makers both some
cause for optimism and some cause for concern.
> The FTC’s recent successes in blocking horizontal hospital mergers
should prevent further consolidation, thereby constraining price
increases and likely improving the quality of care.
> Nonetheless, many hospital markets remain highly concentrated and
noncompetitive. And, the prospect that the ACA could encourage
greater physician-hospital consolidation gives some cause for concern.
> While the current evidence base is not very supportive of initiatives
to encourage physician-hospital integration, given the current
interest in this kind of consolidation and the promotion of ACOs and
bundled payments, more evidence is clearly needed on the impacts of
consolidation on costs, quality and prices.
Conclusions and
Policy Implications
THE SYNTHESIS PROJECT (Synthesis) is an initiative of the Robert Wood
Johnson Foundation to produce relevant, concise, and thought-provoking briefs
and reports on today’s important health policy issues.
David C. Colby, Ph.D., the Robert Wood Johnson Foundation
Katherine Hempstead, Ph.D., the Robert Wood Johnson Foundation
Sarah Goodell, M.A., Synthesis Project
Linda T. Bilheimer, Ph.D., National Center for Health Statistics
Jon B. Christianson, Ph.D., Universit y of Minnesota
Paul B. Ginsburg, Ph.D., Center for Studying Health System Change
Jack Hoadley, Ph.D., Georgetown University Health Policy Institute
Haiden A. Huskamp, Ph.D., Harvard Medical School
Julia A. James, Independent Consultant
Judith D. Moore, Independent Consultant
William J. Scanlon, Ph.D., National Health Policy Forum
Michael S. Sparer, Ph.D., Columbia University
1. Abraham JM, Gaynor M, Vogt
WB. “Entry and Competition in
Local Hospital Markets.” Journal of
Industrial Economics, vol. 55, no. 2,
2. Akosa Antwi Y, Gaynor M, Vogt
WB. “A Bargain at Twice the Price?
California Hospital Prices in the
New Millennium.” Forum for Health
Economics and Policy, 12(1): Article
3, 2009. Accessed at http://www.
3. American Hospital Association.
Trendwatch Chartbook 2012.
Chicago, IL: American Hospital
Association, 2012. Accessed at
4. Baicker K, Chandra A. “The Labor
Market Effects of Rising Health
Insurance Premiums.” Journal of
Labor Economics, vol. 24, no. 3,
5. Beckert W, Christensen M, Collyer
K. “Choice of NHS-funded Hospital
Services in England.” The Economic
Journal, vol. 122, no. 560, 2012.
6. Berenson R, Ginsburg P, Kemper N.
“Unchecked Provider Clout in
California Foreshadows Challenges
to Health Reform.” Health Affairs,
vol. 29, no. 4, 2010.
7. Bhattacharya J, Bundorf MK. “The
Incidence of the Healthcare Costs of
Obesity.” Working Paper No. 11303.
Cambridge, MA: National Bureau of
Economic Research, 2005.
8. Bloom N, Propper C, Seiler S,
Van Reenen J. “The Impact of
Competition on Management Quality:
Evidence from Public Hospitals.”
Working Paper No. 16032.
Cambridge, MA: National Bureau
of Economic Research, 2010.
9. Burns LR, Muller R. “Hospital
Physician Collaboration: Landscape
of Economic Integration and Impact
on Clinical Integration.” Milbank
Quarterly, vol. 86, no. 3, 2008.
10. Burns LR, Bazzoli G, Dynan L,
Wholey D. “Impact of HMO Market
Structure Physician-Hospital
Strategic Alliances.” Health Services
Research, vol. 35, no. 1, 2000.
The impact of hospital consolidation—Update | THE ROBERT WOOD JOHNSON FOUNDATION | THE SYNTHESIS PROJECT, POLICY BRIEF NO. 9 | 7
11. Capps C. The Quality Effects of
Hospital Mergers. Unpublished
manuscript, Bates White LLC, 2005.
12. Ciliberto F, Dranove DD. “The Effect
of Physician-Hospital Affiliations on
Hospital Prices in California.” Journal
of Health Economics, vol. 25, no. 1,
13. Cooper Z, Gibbons S, Jones S,
McGuire A. “Does Hospital
Competition Save Lives? Evidence
from the English NHS Patient Choice
Reforms.” The Economic Journal,
vol. 121, no. 554, 2011.
14. Cuellar AE, Gertler PJ. “Strategic
Integration of Hospitals and
Physicians.” Journal of Health
Economics, vol. 25, no. 1, 2005.
15. Cutler DM, Huckman RS, Kolstad JT.
“Input Constraints and the Efficiency of
Entry: Lessons from Cardiac Surgery.”
American Economic Journal: Economic
Policy, vol. 2, no. 1, 2010.
16. Dafny L. “Estimation and Identification
of Merger Effects: An Application to
Hospital Mergers.” Journal of Law and
Economics, vol. 52, no. 3, 2009.
17. Dranove D, Lindrooth R, White W,
Zwanziger J. “Is the Impact of
Managed Care on Hospital Prices
Decreasing?” Journal of Health
Economics, vol. 27, no. 2, 2008.
18. Encinosa WE, Bernard DM. “Hospital
Finances and Patient Safety
Outcomes.” Inquiry, vol. 42, no. 1,
19. Escarce JJ, Jain AK, Rogowski J.
“Hospital Competition, Managed Care,
and Mortality after Hospitalization for
Medical Conditions: Evidence from
Three States.” Medical Care Research
and Review, vol. 63, no. 6 Suppl.,
20. Gaynor M, Moreno-Serra R, Propper
C. “Death by Market Power: Reform,
Competition and Patient Outcomes in
the National Health Service.” Working
Paper No. 16164. Cambridge,
MA: National Bureau of Economic
Research, 2010.
21. Gaynor M, Propper C, Seiler S. Free
to Choose? Reform and Demand
Response in the British National Health
Service, Unpublished manuscript,
Stanford University, 2011.
22. Ginsburg P. Wide variation in hospital
and physician payment rates evidence
of provider market power. HSC
Research Brief No. 16. Washington,
DC: Center for Studying Health System
Change, 2010.
23. Haas-Wilson D. Garmon C. “Hospital
Mergers and Competitive Effects: Two
Retrospective Analyses.” International
Journal of the Economics of Business,
vol. 18, no. 1, 2011.
24. Howard DH. “Quality and Consumer
Choice in Healthcare: Evidence from
Kidney Transplantation.” Topics in
Economic Analysis and Policy, vol. 5,
no. 1, Article 24, 2005. Accessed
25. Kocher R, Sahni NR. “Hospitals’ Race
to Employ Physicians—The Logic
Behind a Money-Losing Proposition.”
New England Journal of Medicine,
vol. 364, no. 19, 2011.
26. Liebhaber A, Grossman JM. Physicians
Moving to Mid-Sized, Single-Specialty
Practices. Technical Report, Tracking
Report No. 18. Washington, DC:
Center for Studying Health System
Change, 2007.
27. Madison K. “Hospital-Physician
Affiliations and Patient Treatments,
Expenditures, and Outcomes.” Health
Services Research, vol. 39, no. 2,
28. Melnick G, Keeler E. “The Effects of
Multi-Hospital Systems on Hospital
Prices.” Journal of Health Economics,
vol. 26, no. 2, 2007.
29. Moriya AS, Vogt WB, Gaynor M.
“Hospital Prices and Market Structure
in the Hospital and Insurance
Industries.” Health Economics, Policy
and Law, vol. 5, no. 4, 2010.
30. Propper C, Burgess S, Green K.
“Does Competition between Hospitals
Improve the Quality of Care? Hospital
Death Rates and the NHS Internal
Market.” Journal of Public Economics,
vol. 88, no. 7–8, 2004.
31. Propper C, Burgess S, Gossage D.
“Competition and Quality: Evidence
from the NHS Internal Market 1991–9.”
The Economic Journal, vol. 118,
no. 525, 2008.
32. Rogowski J, Jain AK, Escarce JJ.
“Hospital Competition, Managed Care,
and Mortality after Hospitalization
for Medical Conditions in California.”
Health Services Research, vol. 42,
no. 2, 2007.
33. Romano P, Balan D. “A Retrospective
Analysis of the Clinical Quality Effects
of the Acquisition of Highland Park
Hospital by Evanston Northwestern
Healthcare.” International Journal of
the Economics of Business, vol. 18,
no. 1, 2011.
34. Sohn M-W, Rathouz PJ. “Competition
among Hospitals and Quality of Care:
Hospital-Level Analysis.” Unpublished
manuscript, University of Chicago
35. Tenn S. “The Price Effects of Hospital
Mergers: A Case Study of the Sutter-
Summit Transaction.” International
Journal of the Economics of Business,
vol. 18, no. 1, 2011.
36. Thompson E. “The Effect of Hospital
Mergers on Inpatient Prices: A Case
Study of the New Hanover-Cape Fear
Transaction,” International Journal of
the Economics of Business, vol. 18,
no. 1, 2011.
37. Town R, Wholey D, Feldman R, Burns
L. “The Welfare Consequences of
Hospital Mergers.” Working Paper
No. 12244. Cambridge, MA: National
Bureau of Economic Research, 2006.
38. Vogt WB, Town RJ. How Has Hospital
Consolidation Affected the Price and
Quality of Hospital Care? Research
Synthesis Report No. 9. Princeton, NJ:
Robert Wood Johnson Foundation,
39. Wu V. “Managed Care’s Price
Bargaining with Hospitals.” Journal
of Health Economics, vol. 28, no. 2,
The Synthesis Project
The Robert Wood Johnson Foundation
Route 1 & College Road East
P.O. Box 2316
Princeton, NJ 08543-2316
Phone: 888-719-1909
JUNE 2012
... Previous studies have shown, however, that hospital consolidation may actually increase prices and health system costs [4,5]. There is still a paucity of recent data on its effect on quality of care and outcomes, specifically in cardiovascular disease. ...
... Health care policy over the past two decades encourages consolidation of markets-leading to increased market concentration-with the formation of accountable care organizations and use of bundled payments [4]. While the goal of these policies has been improvement in coordination of care, there are likely unintended effects on costs of care and patient outcomes [23]. ...
Full-text available
Background: As health care markets in the United States have become increasingly consolidated, the role of market concentration on physician treatment behavior remains unclear. In cardiology, specifically, there has been evolving treatment of acute myocardial infarction complicated by cardiogenic shock (AMI-CS) with increasing use of mechanical circulatory support (MCS). However, there remains wide variation in it use. The role of market concentration in the utilization of MCS in AMI-CS is unknown. We examined the use of MCS in AMI-CS and its effect on outcomes between competitive and concentrated markets. Methods and results: We used the National Inpatient Sample to query patients admitted with AMI-CS between 2003 and 2009. The primary study outcome was the use of mechanical circulatory support. The primary study exposure was market concentration, measured using the Herfindahl-Hirschman Index, which was used to classify markets as unconcentrated (competitive), moderately concentrated, and highly concentrated. Baseline characteristics, procedures, and outcomes were compared for patients in differently concentrated markets. Multivariable logistic regression was used to examine the association between HHI and use of MCS. Results: There were 32,406 hospitalizations for patients admitted with AMI-CS. Patients in unconcentrated markets were more likely to receive MCS than in highly concentrated markets (unconcentrated 46.8% [5087/10,873], moderately concentrated 44.9% [2933/6526], and high concentrated 44.5% [6676/15,007], p < 0.01). Multivariable regression showed that patients in more concentrated markets had decreased use of MCS in patients in later years of the study period (2009, OR 0.64, 95% CI 0.44-0.94, p = 0.02), with no effect in earlier years. There was no significant difference in in-hospital mortality. Conclusion: Multivariable analysis did not show an association with market concentration and use of MCS in AMI-CS. However, subgroup analysis did show that competitive hospital markets were associated with more frequent use of MCS in AMI-CS as frequency of utilization increased over time. Further studies are needed to evaluate the effect of hospital market consolidation on the use of MCS and outcomes in AMI-CS.
... Previous studies have shown that most consolidations are largely characterized as lacking meaningful integration of management, culture, and data systems and are typically associated with decreased competition, more concentrated markets, and less innovation. 7,8 The research concludes that this vastly common approach to consolidation suggests financial rather than quality motivations for mergers. ...
... HACs (ie, CLABSIs and CAUTIs) were assessed as infections per 1000 device-days and per 1000 discharges. 8 Rates per catheter-day and per discharge were both included because interventions to reduce infection rates included both avoidance of device placement (ie, fewer patients with any device) and initiatives to reduce risk in those with devices. All events were routinely identified by the quality department following national standards for case finding. ...
Full-text available
Importance Hospital consolidations have been shown not to improve quality on average. Objective To assess a full-integration approach to hospital mergers based on quality metrics in a safety net hospital acquired by an urban academic health system. Design, Setting, and Participants This quality improvement study analyzed outcomes for all nonpsychiatric, nonrehabilitation, non-newborn patients discharged between September 1, 2010, and August 31, 2019, at a US safety net hospital that was acquired by an urban academic health system in January 2016. Interrupted time series and statistical process control analyses were used to assess the main outcomes and measures. Data sources included the hospital’s electronic health record, Centers for Medicare & Medicaid Services Hospital Compare, and nursing quality reports. Exposures A full-integration approach to the merger that included: (1) early administrative and clinical leadership integration with the academic health system; (2) rapid transition to the academic health system electronic health record; (3) local ownership of quality metrics; (4) system-level goals with real-time actionable analytics through combined dashboards; and (5) implementation of value-based and other analytic-driven interventions. Main Outcomes and Measures The primary outcome was in-hospital mortality. Secondary outcomes included 30-day readmission, patient experience, and hospital-acquired conditions. Results The 122 348 patients in the premerger (September 2010 through August 2016) and the 58 904 patients in the postmerger (September 2016 through August 2019) periods had a mean (SD) age of 55.5 (22.0) years; the total sample of 181 252 patients included 112 191 women (61.9%), the payor mix was majority governmental (144 375 patients [79.7%]), and most admissions were emergent (121 469 patients [67.0%]). There was a 0.71% (95% CI, 0.57%-0.86%) absolute (27% relative) reduction in the crude mortality rate and 0.95% (95% CI, 0.83%-1.12%) absolute (33% relative) in the adjusted rate by the end of the 3-year intervention period. There was no significant improvement in readmission rates after accounting for baseline trends. There were fewer central line infections per 1000 catheter days, fewer catheter-associated urinary tract infections per 1000 discharges, and a higher likelihood of patients recommending the hospital or ranking it 9 or 10. Conclusions and Relevance In this quality improvement study, a hospital merger with a full-integration approach to consolidation was found to be associated with improvement in quality outcomes.
... When a hospital joins an insurer's network, the hospital signs a contract that stipulates how and what they will be paid. Unfortunately, because most of these contracts contain clauses that prohibit their terms from being released, little is known about precisely how insurers pay each hospital (Reinhardt 2006;Gaynor and Town 2011). However, in addition to analyzing price levels, the richness of the HCCI data also enables us to estimate the types of insurer-hospital contracts that are being struck. ...
... The results in Table IV, Panel A are robust to measuring prices in a multitude of ways, such as (i) risk-adjusting our inpatient price measure with patients' Charlson score; (ii) riskadjusting our inpatient price using ICD-9 diagnosis codes instead of DRG fixed effects (about 9,235 ICD-9 codes versus 746 DRG codes), and measuring price in levels instead of logarithms (see Online Appendix Table XIII). 48 Our results are consistent with earlier, single-state studies of hospital prices and market structure (mostly using data from California), which have found strong positive and statistically significant correlation between hospital market concentration and prices (see Vogt and Town 2006;Gaynor and Town 2012). Table IV, Panel B has the same specification as in Panel A but changes the dependent variable to the percent of cases paid as a share of hospital charges. ...
We use insurance claims data covering 28% of individuals with employer-sponsored health insurance in the United States to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions, and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a nearly homogeneous service such as lower-limb magnetic resonance imaging, about a fifth of the total case-level price variation occurs within a hospital in the cross section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12% higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g., they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs-hospitals have lower prices and bear more financial risk. Examining the 366 mergers and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6% when the merging hospitals were geographically close (e.g., 5 miles or less apart), but not when the hospitals were geographically distant (e.g., over 25 miles apart).
... know little about if and, in particular, how hospital mergers might impact the quality and safety of care. For one, studies that report on how hospitals perform on a set of quality indicators pre-and post-merger, deliver inconsistent and inconclusive results (Gaynor and Town, 2012;Hayford, 2012;Ho and Hamilton, 2000;Mutter et al., 2011;Romano and Balan, 2011;Vogt and Town, 2006). Also, they often offer little explanation as to how the effects observed might have come about. ...
... These studies operationalise the quality of care by comparing a set of quality indicators pre-and postmerger, testing for differences. When reviewing what the effects of hospital mergers on quality of care are, it proves difficult to say if mergers impact the quality of care positively or negatively (Gaynor and Town, 2012;Vogt and Town, 2006). Although some studies find either positive or negative effects, most studies have difficulties identifying effects in either one direction, and often the different quality indicators selected to operationalise the quality of care point in different directions Ho and Hamilton, 2000;Mutter et al., 2011). ...
Purpose Despite the continuation of hospital mergers in many western countries, it is uncertain if and how hospital mergers impact the quality of care. This poses challenges for the regulation of mergers. The purpose of this paper is to understand: how regulators and hospitals frame the impact of merging on the quality and safety of care and how hospital mergers might be regulated, given their uncertain impact on quality and safety of care. Design/methodology/approach This paper studies the regulation of hospital mergers in The Netherlands. In a qualitative study design, it draws on 30 semi-structured interviews with inspectors from the Dutch Health and Youth Care Inspectorate (Inspectorate) and respondents from three hospitals that merged between 2013 and 2015. This paper draws from literature on process-based regulation to understand how regulators can monitor hospital mergers. Findings This paper finds that inspectors and hospital respondents frame the process of merging as potentially disruptive to daily care practices. While inspectors emphasise the dangers of merging, hospital respondents report how merging stimulated them to reflect on their care practices and how it afforded learning between hospitals. Although the Inspectorate considers mergers a risk to quality of care, their regulatory practices are hesitant. Originality/value This qualitative study sheds light on how merging might affect key hospital processes and daily care practices. It offers opportunities for the regulation of hospital mergers that acknowledges rather than aims to dispel the uncertain and potentially ambiguous impact of mergers on quality and safety of care.
Full-text available
Objectives: For oncological care, there is a clear tendency towards centralisation and collaboration aimed at improving patient outcomes. However, in market-based healthcare systems, this trend is related to the potential trade-off between hospital volume and hospital competition. We analyse the association between hospital volume, competition from neighbouring hospitals and outcomes for patients who underwent surgery for invasive breast cancer (IBC). Outcome measures: Surgical margins, 90 days re-excision, overall survival. Design, setting, participants: In this population-based study, we use data from the Netherlands Cancer Registry. Our study sample consists of 136 958 patients who underwent surgery for IBC between 2004 and 2014 in the Netherlands. Results: Our findings show that treatment types as well as patient and tumour characteristics explain most of the variation in all outcomes. After adjusting for confounding variables and intrahospital correlation in multivariate logistic regressions, hospital volume and competition from neighbouring hospitals did not show significant associations with surgical margins and re-excision rates. For patients who underwent surgery in hospitals annually performing 250 surgeries or more, multilevel Cox proportional hazard models show that survival was somewhat higher (HR 0.94). Survival in hospitals with four or more (potential) competitors within 30 km was slightly higher (HR 0.97). However, this effect did not hold after changing this proxy for hospital competition. Conclusions: Based on the selection of patient outcomes, hospital volume and regional competition appear to play only a limited role in the explanation of variation in IBC outcomes across Dutch hospitals. Further research into hospital variation for high-volume tumours like the one studied here is recommended to (i) use consistently measured quality indicators that better reflect multidisciplinary clinical practice and patient and provider decision-making, (ii) include more sophisticated measures for hospital competition and (iii) assess the entire process of care within the hospital, as well as care provided by other providers in cancer networks.
Objective To examine non-profit hospitals’ financial and spending allocations when the private sector payment rate is higher than the Medicare's payment rate. Data Sources Hospital financial data for 2014 – 2018 from Center for Medicare and Medicaid Services Hospital Cost Reports, hospital characteristics from the American Hospital Association (AHA) Annual Survey. Study Design Hospital and year level fixed effects regressions modeling each hospital's 1) operating net income per discharge equivalent (DE); 2) administrative cost per DE; 3) patient care cost per DE; 4) registered nurse per bed; charity care cost per DE; and 5) provision of unprofitable services as a function of the private sector to Medicare payment ratio (PMR). Data Collection/Extraction Methods Hospital/year-level data from hospital cost reports merged with AHA data. Samples included general short-term hospitals with non-profit ownership, excluding critical access hospitals. Principal Findings Final sample included a total of 8,862 hospital-year observations, with a mean PMR of 1.62. Non-profit hospitals having a 0.1 higher PMR was associated with $257 (95% CI: $181 - $334) increase in operating net income per DE; $66 (95% CI: $32 - $99) increase in administrative cost per DE; $170 (95% CI: $120 - $220) increase in patient care cost per DE; and $18 (95% CI: $10 - $25) increase in charity care cost per DE. We found hospitals hired 0.86 (95% CI: -0.08 - 1.81) more registered nurses per 100 beds, but no evidence on providing more beds for unprofitable services, such as obstetric care, burn care, alcohol/drug abuse treatment, or psychiatric care. Conclusions Higher private sector prices led primarily to greater surplus and administrative cost for non-profit hospitals, and smaller increases in spending on services that will directly benefit patients. This article is protected by copyright. All rights reserved.
Medical Malpractice claims are frequently asserted in the United States. At various time and places, an extraordinarily high number of claims and payouts led to what some have called medical malpractice crises. Consequently, in some geographical locations physicians either could not purchase malpractice insurance as carriers withdrew from the market, or, insurance became increasingly expensive and the overall costs associated with the delivery of health care continued to rise. Other undesirable consequences of these crises included a shortage of qualified physicians in certain parts of the country. Many of the states responded to these problems legislatively through a long series of tort reform measures. The health care industry itself has evolved in numerous ways. In particular, many health care providers have turned away from traditional private insurance models to self-insured models such as captives. Further, the industry has continued to consolidate, with fewer, but larger hospitals and clinics, and with an increasing number of physicians employed directly by hospitals and large clinics. The results of all of these changes have had mixed results.
Full-text available
While most studies of health care industry consolidation focus on impacts on prices or quality, these are not its only potential impacts. This exploratory qualitative study describes industry and community stakeholder perceptions of the impacts of cumulative hospital, practice, and insurance mergers, acquisitions, and affiliations in Pittsburgh, Pennsylvania. Since the 1980s, Pittsburgh’s health care landscape has been transformed and is now dominated by competition between 2 integrated payer-provider networks, health care system UPMC (and its insurance arm UPMC Health Plan) and insurer Highmark (and its health care system Allegheny Health Network). Semi-structured interviews with 20 boundary-spanning stakeholders revealed a mix of perceived impacts of consolidation: some positive, some neutral or ambiguous, and some negative. Stakeholders perceived consolidation’s positive impacts on long-term viability of health care facilities and their ability to adopt new care models, enhanced competition in health insurance, creation of foundations, and pioneering medical research and innovation. Stakeholders also believed that consolidation changed geographic access to care, physician referral behaviors, how educated patients were about their health care, the health care advertising environment, and economies of surrounding neighborhoods. Interviewees noted that consolidation raised questions about what the responsibilities of non-profit organizations are to their communities. However, stakeholders also reported their perceptions of negative outcomes, including ways in which consolidation had potentially reduced patient access to care, accountability and transparency, systems’ willingness to collaborate, and physician autonomy. As trends toward consolidation are not slowing, there will be many opportunities to experiment with policy levers to mitigate its potentially negative consequences.
Joining nonownership based, organization-driven networks and alliances is a common strategy for hospitals to pursue yet little is known about what types of hospitals join these collaborations, due in part to challenges in identifying members. One novel network form that has recently emerged, and made identification feasible, is franchise-like “affiliation networks” in which affiliate hospitals pay an annual membership fee that allows access to the clinical expertise and resources of high-status, nationally ranked sponsor hospitals. Affiliation networks and their members publicize affiliation. Using 2006-2015 data on United States’ hospitals, we find hospitals with higher patient acuity, teaching hospitals, and hospitals located in areas of higher utilization intensity were more likely to join an affiliation network. Joining affiliation networks does not appear to be in response to highly competitive markets because hospitals in less competitive environments are more likely to join and hospitals with higher net incomes are more likely to join.
In the Dutch healthcare system, provider competition is used as a tool to improve efficiency. From a competition policy perspective, little is known about how collaboration among healthcare providers contributes to overall patient welfare, and how a balance is achieved between scale benefits and preventing anti-competitive collusion. This paper examines the ex-post effects of a Dutch case study in which three competing hospitals have collaborated to provide high-complexity low-volume cancer surgery, an arrangement that tests the limits of permissibility under the Dutch cartel prohibition. Our preliminary empirical research demonstrated only a modest increase in price and travel time for some of the tumour surgeries. Volume analysis showed that the intended centralization of surgical procedures has not been fully realized. Our findings highlight the importance of a comprehensive self-assessment by the collaborating hospitals to ex-ante assess (potential) efficiencies and antitrust risks. Such self-assessments could benefit from research focused on which collaborations are most appropriate to achieve quality gains. For the ex-post assessment by competition authorities following the cartel prohibition, a more thorough insight into the (long-term) changes in hospital prices, profitability, and quality after collaboration is needed.
Full-text available
The impacts of choice in public services are controversial. We exploit a reform in the English National Health Service to assess the impact of relaxing constraints on patient choice. We estimate a demand model that explicitly captures the referral constraints imposed on patients to evaluate whether removing constraints on choice increased the demand elasticity faced by hospitals. Using data for an important surgical procedure, we find that patients became more responsive to clinical quality. The increased demand responsiveness led to a modest reduction in mortality by re-allocating patients and an increase in patient welfare. The elasticity of demand faced by hospitals increased substantially post-reform, giving hospitals stronger incentives to improve their quality of care. Finally, we find evidence that hospitals responded to the enhanced incentives by improving quality. The results suggests greater choice can enhance quality.
Full-text available
There has been substantial consolidation among health insurers and hospitals, recently, raising questions about the effects of this consolidation on the exercise of market power. We analyze the relationship between insurer and hospital market concentration and the prices of hospital services. We use a national US dataset containing transaction prices for health care services for over 11 million privately insured Americans. Using three years of panel data, we estimate how insurer and hospital market concentration are related to hospital prices, while controlling for unobserved market effects. We find that increases in insurance market concentration are significantly associated with decreases in hospital prices, whereas increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally sized insurers is estimated to decrease hospital prices by 6.7%.
Full-text available
The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from nonexperimental data. In contrast, this paper exploits a procompetitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Using this policy to implement a difference-in-differences research design, we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. We find that the effect of competition is to save lives without raising costs.
Full-text available
Prior studies suggest that with elastically supplied inputs free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON ) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher quality surgeons, and that this entry was approximately welfare neutral. (JEL I11, L13)
Abstract The Federal Trade Commission initiated a Hospital Merger Retrospective Project in 2002 to analyze the effects of consummated mergers. One of the mergers studied was the 1998 acquisition by New Hanover Regional Medical Center (“New Hanover”) of Columbia Cape Fear Memorial Hospital (“Cape Fear”) in Wilmington, North Carolina. In this paper, we employ patient‐level claims data from four different insurers to estimate the effects of this merger on inpatient prices. Our results provide mixed evidence. Two of the insurers experienced substantial post‐merger price increases relative to the control group of hospitals. The post‐merger price changes for another insurer, however, were comparable to those for the control group, while the fourth insurer actually experienced a significant price decrease following the merger. Thus it is difficult to draw conclusions about the impact of this merger on inpatient pricing.
Abstract We conduct a retrospective study of the Sutter–Summit hospital merger to assess whether antitrust enforcement in this matter was appropriate. This consummated merger combined two hospitals located close together in the Oakland‐Berkeley region of the San Francisco Bay Area. The greater metropolitan area contained many other hospitals that offered a similar range of services, but which were located farther away. A central issue raised by the Sutter–Summit transaction was whether travel costs were low enough such that these hospitals were a sufficient constraint on the merging parties to prevent an anticompetitive price increase. We use detailed claims data from three large health insurers to compare the post‐merger price change for the merging parties to the price change for a set of control‐group hospitals. Our results show that Summit’s price increase was among the largest of any comparable hospital in California, indicating this transaction may have been anticompetitive.
Abstract We present empirical analyses of the effects of two hospital mergers – both occurring in the northern suburbs of Chicago in 2000 – on the pre‐ and post‐merger prices negotiated with commercial health insurers. Using difference‐in‐differences methodology and data on actual transaction prices, specifically the prices paid by private health insurance companies and patients for inpatient care, we find one of the mergers was anticompetitive. Relative to price increases at other hospitals, the merger between Evanston Northwestern and Highland Park Hospitals led to large and statistically significant post‐merger price increases. Our results are robust across data sources, control groups, and case‐mix adjustment methods.
This article examines the choice of hospital for elective hip replacements amongst patients in England, using patient‐episode level data from the Hospital Episodes Statistics records. The article is primarily methodological: we estimate a demand model that allows for heterogeneity across observed patient characteristics and demonstrate how to use this model to simulate the effect of mergers between hospitals. Our article contributes to the empirical literature on hospital choice and provides a novel method for simulating mergers between hospitals with regulated prices. Importantly, in an industry that competes on quality, our demand model estimations also identify important quality dimensions of choice.
Research has shown that managed care (MC) slowed the rate of growth in health care spending in the 1990s, primarily via lower unit prices paid. However, the mechanism of MC's price bargaining has not been well studied. This article uses a unique panel dataset with actual hospital prices in Massachusetts between 1994 and 2000 to examine the sources of MC's bargaining power. I find two significant determinants of price discounts. First, plans with large memberships are able to extract volume discounts across hospitals. Second, health plans that are more successful at channeling patients can extract greater discounts. Patient channeling can add to the volume discount that plans negotiate.
Payer-driven competition has been widely advocated as a means of increasing efficiency in health care markets. The 1990s reforms to the UK health service followed this path. We examine whether competition led to better outcomes for patients, as measured by death rates after treatment following heart attacks. Using data that until 1999 were not publicly available in any form on hospital level death rates, we find that the relationship between competition and quality of care appears to be negative. Greater competition is associated with higher death rates, controlling for patient mix and other observed characteristics of the hospital and the catchment area for its patients. However, the estimated impact of competition is small.