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

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Author Info
ROBERT A. CONNOR ROGER D. FELDMAN BRYAN E. DOWD
Abstract

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.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 5 (1998)
Issue (Month): 2 (July)
Pages: 159-180
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Handle: RePEc:taf:ijecbs:v:5:y:1998:i:2:p:159-180

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Related research
Keywords: Key Words: Hospital Mergers; Antitrust; Competition; Market Concentration; Economies Of Scale.;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September. [Downloadable!] (restricted)
  2. Zwanziger, Jack & Melnick, Glenn A., 1988. "The effects of hospital competition and the Medicare PPS program on hospital cost behavior in California," Journal of Health Economics, Elsevier, vol. 7(4), pages 301-320, December. [Downloadable!] (restricted)
  3. Hay, George A & Werden, Gregory J, 1993. "Horizontal Mergers: Law, Policy, and Economics," American Economic Review, American Economic Association, vol. 83(2), pages 173-77, May. [Downloadable!] (restricted)
  4. Lynk, William J., 1995. "The creation of economic efficiencies in hospital mergers," Journal of Health Economics, Elsevier, vol. 14(5), pages 507-530, December. [Downloadable!] (restricted)
  5. Lynk, William J, 1995. "Nonprofit Hospital Mergers and the Exercise of Market Power," Journal of Law & Economics, University of Chicago Press, vol. 38(2), pages 437-61, October.
  6. Dranove, David & Shanley, Mark & White, William D, 1993. "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law & Economics, University of Chicago Press, vol. 36(1), pages 179-204, April.
  7. Breyer, Friedrich, 1987. "The specification of a hospital cost function : A comment on the recent literature," Journal of Health Economics, Elsevier, vol. 6(2), pages 147-157, June. [Downloadable!] (restricted)
  8. Robinson, James C. & Luft, Harold S., 1985. "The impact of hospital market structure on patient volume, average length of stay, and the cost of care," Journal of Health Economics, Elsevier, vol. 4(4), pages 333-356, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Karen Eggleston & George Norman & Lynne Marie Pepall, 2004. "Pricing Coordination Failures and Health Care Provider Integration," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  2. Janet Currie & Mehdi Farsi & Bentley W. MacLeod, 2004. "Cut to the Bone Hospital Takeovers and Nurse Employment Contracts," Working Papers 8, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  3. Boris Augurzky & Dirk Engel & Christoph Schwierz, 2006. "Who gets the Credit? Determinants of the Probability of Default in the German Hospital Sector," RWI Discussion Papers 0054, Rheinisch-Westfälisches Institut für Wirtschaftsforschung. [Downloadable!]
  4. Michael D. Rosko, 2001. "Cost efficiency of US hospitals: a stochastic frontier approach," Health Economics, John Wiley & Sons, Ltd., vol. 10(6), pages 539-551. [Downloadable!]
  5. Yu-Chu Shen & Vivian Wu & Glenn Melnick, 2008. "The Changing Effect of HMO Market Structure: An Analysis of Penetration, Concentration, and Ownership Between 1994-2005," NBER Working Papers 13775, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Leemore S. Dafny, 2005. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," NBER Working Papers 11673, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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