The Effects of Market Concentration and Horizontal Mergers on Hospital Costs and Prices

Abstract

Antitrust advocates believe that horizontal consolidation in hospital markets can reduce competition and increase prices while merger advocates believe it can benefit consumers by reducing service duplication. This study analyzed the market conditions, operating characteristics, and costs and prices of approximately 3500 short-term general hospitals (including 112 within-market-area mergers) from 1986 to 1994 to investigate the effects of market concentration, hospital mergers, and managed care penetration. The results show: a shift away from non-price competition toward price competition in health care markets; that this shift was fueled by increased market penetration by price-sensitive buyers; that horizontal hospital mergers produced average cost savings of approximately 5%, which were generally passed on to consumers as lower prices; that cost savings were generally greater for mergers of similar-size hospitals, with a higher degree of duplicative services, and with lower pre-merger occupancy rates; and some evidence that post-merger price reductions were smaller in less-competitive markets.Hospital Mergers, Antitrust, Competition, Market Concentration, Economies Of Scale,

Helsefeltets strateger

“…Research also posits that the lack of conflict and the presence of administrative hierarchies make initial consolidation achievable (Ibid). Again, these initial savings tend to be small in magnitude (Connor et al, 1998;Lesser & Brewster, 2001) and may simply be one-shot savings (Bazzoli et al, 2004). The results of this thesis clearly confirm previous findings of "small initial wins" The achieved cost savings for the first year were -as previously mentioned -relatively small by average industry standards.…”

“…legal mergers under one license and owner) and not include those with multihospital affiliations, one would observe more consistency in results. Namely, several studies on full mergers per se have achieved positive cost savings (Alexander et al, 1996;Connor et al, 1998;Dranove, 1998;Eberhardt, 2001;Lesser & Brewster, 2001). All studies that have found no costs savings or cost increases examined multi-hospital arrangements (Dranove et al, 1996).…”

“…They tend to be small (Connor et al, 1998;Lesser & Brewster, 2001), may simply represent movements away from prior inefficiency (Alexander et al, 1996), are limited to smaller hospitals and are quickly exhausted (Dranove, 1998), largely result from administrative savings (Eberhardt, 2001), and may simply be one-shot savings rather than reductions in rates of cost growth (for further details, see the review by Bazzoli et al, 2004).…”

“…They tend to be small in magnitude (e.g. Connor et al, 1998;Lesser & Brewster, 2001), may simply represent movements away from prior inefficiency (Alexander et al, 1996), are quickly exhausted (Dranove, 1998), largely result from administrative savings (Eberhardt, 2001), and may simply be one-shot savings rather than reductions in rates of cost growth (Bazzoli et al, 2004). Fulop et al (2002) also report that the cost savings for four mergers of NHS trusts were minimal (although they were not consistent for the four NHS trusts studied) and less than the estimated annual savings (£500 000).…”

Hospitals' Negotiating Leverage with Health Plans: How and Why Has It Changed?

“…Some studies conclude that mergers result in higher prices, potentially blunting savings achieved through managed care (Simpson and Shin 1998;Keeler, Melnick, and Zwanziger 1999). Other studies find that mergers lower prices, consistent with the thesis that they lead to economies of scale and the reduction of excess capacity (Connor and Feldman 1998;Connor, Feldman, and Dowd 1998). Various studies also report conflicting findings about whether the profit-status of the two merging hospitals affects prices (see for example Lynk [1995] and responses by Dranove and Ludwick [1999], Keeler, Melnick, and Zwanziger [1999], and Simpson and Shin [1998]).…”