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The Price Effects of Cross-Market Hospital Mergers

Author

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  • Leemore Dafny
  • Kate Ho
  • Robin S. Lee

Abstract

We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service, but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower-quality care). Using data on hospital mergers from 1996-2012, we find support that this mechanism operates within state boundaries: cross-market, within-state hospital mergers yield price increases of 7-9 percent for acquiring hospitals, whereas out of state acquisitions do not yield significant increases.

Suggested Citation

  • Leemore Dafny & Kate Ho & Robin S. Lee, 2016. "The Price Effects of Cross-Market Hospital Mergers," NBER Working Papers 22106, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22106
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    References listed on IDEAS

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    1. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
    2. Kate Ho & Robin S. Lee, 2017. "Insurer Competition in Health Care Markets," Econometrica, Econometric Society, vol. 85, pages 379-417, March.
    3. Matthew S. Lewis & Kevin E. Pflum, 2015. "Diagnosing Hospital System Bargaining Power in Managed Care Networks," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 243-274, February.
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    Cited by:

    1. Peter Dohmen & Martin Ineveld & Aniek Markus & Liana Hagen & Joris Klundert, 2023. "Does competition improve hospital performance: a DEA based evaluation from the Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(6), pages 999-1017, August.
    2. Steven C. Salop & Fiona Scott Morton, 2021. "The 2010 HMGs Ten Years Later: Where Do We Go From Here?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 81-101, February.
    3. Zack Cooper & Stuart V Craig & Martin Gaynor & John Van Reenen, 2019. "The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 51-107.
    4. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    5. Kate Ho & Robin S. Lee, 2017. "Insurer Competition in Health Care Markets," Econometrica, Econometric Society, vol. 85, pages 379-417, March.
    6. Daniel Goetz, 2016. "Broadband Mergers and Dynamic Bargaining: An Application to Netflix," Working Papers 16-07, NET Institute.
    7. Jomon A. Paul & Benedikt Quosigk & Leo MacDonald, 2019. "Factors Impacting Market Concentration of Not-for-Profit Hospitals," Journal of Business Ethics, Springer, vol. 154(2), pages 517-535, January.
    8. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending Effect Methods to Examine Treatment Effect Heterogeneity in Experiments for the Young and Privately Insured?," Cowles Foundation Discussion Papers 3006, Cowles Foundation for Research in Economics, Yale University.
    9. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending," Cowles Foundation Discussion Papers 2106, Cowles Foundation for Research in Economics, Yale University.
    10. David Dranove & Christopher Ody, 2019. "Employed for Higher Pay? How Medicare Payment Rules Affect Hospital Employment of Physicians," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 249-271, November.
    11. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending Effect Methods to Examine Treatment Effect Heterogeneity in Experiments for the Young and Privately Insured?," Cowles Foundation Discussion Papers 3006, Cowles Foundation for Research in Economics, Yale University.
    12. Schmitt, Matt, 2017. "Do hospital mergers reduce costs?," Journal of Health Economics, Elsevier, vol. 52(C), pages 74-94.
    13. Zack Cooper & Amanda E Kowalski & Eleanor N Powell & Jennifer Wu, 2017. "Politics and Health Care Spending in the United States," NBER Working Papers 23748, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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