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Do hospital mergers reduce costs?

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  • Schmitt, Matt

Abstract

Proponents of hospital consolidation claim that mergers lead to significant cost savings, but there is little systematic evidence backing these claims. For a large sample of hospital mergers between 2000 and 2010, I estimate difference-in-differences models that compare cost trends at acquired hospitals to cost trends at hospitals whose ownership did not change. I find evidence of economically and statistically significant cost reductions at acquired hospitals. On average, acquired hospitals realize cost savings between 4 and 7 percent in the years following the acquisition. These results are robust to a variety of different control strategies, and do not appear to be easily explained by post-merger changes in service and/or patient mix. I then explore several extensions of the results to examine (a) whether the acquiring hospital/system realizes cost savings post-merger and (b) if cost savings depend on the size of the acquirer and/or the geographic overlap of the merging hospitals.

Suggested Citation

  • Schmitt, Matt, 2017. "Do hospital mergers reduce costs?," Journal of Health Economics, Elsevier, vol. 52(C), pages 74-94.
    • Handle: RePEc:eee:jhecon:v:52:y:2017:i:c:p:74-94
    DOI: 10.1016/j.jhealeco.2017.01.007
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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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