The Welfare Consequences of Hospital Mergers

Abstract

In the 1990s the US hospital industry consolidated. This paper estimates the impact of the wave of hospital mergers on welfare focusing on the impact on consumer surplus for the under-65 population. For the purposes of quantifying the price impact of consolidations, hospitals are modeled as an input to the production of health insurance for the under-65 population. The estimates indicate that the aggregate magnitude of the impact of hospital mergers is modest but not trivial. In 2001, average HMO premiums are estimated to be 3.2% higher than they would have been absent any hospital merger activity during the 1990s. In 2003, we estimate that because of hospital mergers private insurance rolls declined by approximately .3 percentage points or approximately 695,000 lives with the vast majority of those who lost private insurance joining the ranks of the uninsured. Our estimates imply that hospital mergers resulted in a cumulative consumer surplus loss of over $42.2 billion between 1990 and 2001. It is estimated that all but a modest $95.4 million of the loss in consumer surplus is transferred from consumers to providers.

Can governments do it better? Merger mania and hospital outcomes in the English NHS

“…4 The policy we exploit led to around 1/4 of hospitals disappearing. Our study is therefore more similar to studies which have examined the impacts of large numbers of hospital mergers in the US during the 1990s (e.g., Dafny, 2009;Ho and Hamilton, 2000;Krishnan, 2001;Spang et al, 2001;Town et al, 2006). These studies find, in general, little benefit from merger and consolidation.…”

Health Care Markets: Theory and Empirical Evidence

“…In 2006, 250 of 332 Metropolitan Statistical Areas were classified as 'Highly Concentrated' according to criteria used by the Federal Trade Commission. Mergers and acquisitions were identified as the main driving forces behind this concentration (Town et al, 2006). As for the underlying cause of this consolidation wave among hospitals, many authors point to the rise of managed care and the increase in number of HMOs, among others, and the pressure to improve bargaining power of hospitals (Chernew, 1995;Cutler et al, 2000;Dranove et al, 2002).…”

Health insurance as a two-part pricing contract

“…Deadweight loss from monopoly is equal to the welfare lost by those who are “priced out” of the insurance market. The empirical consequences of health care monopoly for uninsurance have been considered by Town et al (2006). 7 …”