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The Welfare Consequences of Hospital Mergers

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  • Robert Town
  • Douglas Wholey
  • Roger Feldman
  • Lawton R. Burns

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.

Suggested Citation

  • Robert Town & Douglas Wholey & Roger Feldman & Lawton R. Burns, 2006. "The Welfare Consequences of Hospital Mergers," NBER Working Papers 12244, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12244
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    References listed on IDEAS

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    Cited by:

    1. Tamara Hayford, 2011. "The Impact of Hospital Mergers on Treatment Intensity and Health Outcomes: Working Paper 2011-05," Working Papers 42753, Congressional Budget Office.
    2. Gaynor, Martin & Laudicella, Mauro & Propper, Carol, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," Journal of Health Economics, Elsevier, vol. 31(3), pages 528-543.
    3. Patrick Romano & David Balan, 2011. "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, Taylor & Francis Journals, vol. 18(1), pages 45-64.
    4. Christina DePasquale, 2014. "Hospital Consolidation and the Nurse Labor Market," Emory Economics 1413, Department of Economics, Emory University (Atlanta).
    5. Desgranges, Gabriel & Gauthier, Stéphane, 2016. "Rationalizability and efficiency in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 163-176.
    6. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    7. Trish, Erin E. & Herring, Bradley J., 2015. "How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?," Journal of Health Economics, Elsevier, vol. 42(C), pages 104-114.
    8. repec:ebl:ecbull:v:9:y:2007:i:10:p:1-14 is not listed on IDEAS
    9. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, Elsevier.
    10. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2013. "Hospital Mergers: A Spatial Competition Approach," Discussion Paper Series in Economics 8/2013, Norwegian School of Economics, Department of Economics.
    11. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
    12. Steven Tenn, 2011. "The Price Effects of Hospital Mergers: A Case Study of the Sutter-Summit Transaction," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(1), pages 65-82.
    13. Dan Friesner & Chris Stevens, 2007. "Ownership and rent-seeking behavior in specialty health care practices," Economics Bulletin, AccessEcon, vol. 9(10), pages 1-14.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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