NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Price Effects of Cross-Market Hospital Mergers

Leemore Dafny, Kate Ho, Robin S. Lee

NBER Working Paper No. 22106
Issued in March 2016, Revised in June 2017
NBER Program(s):Health Care, Industrial Organization

So-called “horizontal mergers” of firms whose products are direct substitutes at the point of sale have garnered significant attention from researchers and regulators alike. 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 the case of hospital mergers across distinct geographic markets (“cross-market” mergers), we show that such combinations can reduce competition among the merging firms for inclusion in intermediary insurers' networks, leading to higher prices (or lower-quality care). The result derives from the presence of “common customers” (i.e. purchasers of insurance plans) who value both hospitals, as well as (one or more) “common insurers” with which price and network status is negotiated. We test our theoretical predictions using two samples of cross-market hospital mergers, focusing exclusively on hospitals that are bystanders rather than the likely drivers of the transactions in order to address concerns about the endogeneity of merger activity. We find that hospitals gaining system members in-state (but not in the same geographic market) experience price increases of 7-10 percent relative to control hospitals, while hospitals gaining system members out-of-state exhibit no statistically significant changes in price. The former group are likelier to share common customers and insurers. The results suggest that cross-market, within-state hospital mergers increase hospital systems' leverage when bargaining with insurers.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22106

Users who downloaded this paper also downloaded* these:
Cooper, Craig, Gaynor, and Van Reenen w21815 The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured
Pakes w22086 Empirical Tools and Competition Analysis: Past Progress and Current Problems
Gowrisankaran, Nevo, and Town w18875 Mergers When Prices are Negotiated: Evidence from the Hospital Industry
Blonigen and Pierce w22750 Evidence for the Effects of Mergers on Market Power and Efficiency
Dafny w11673 Estimation and Identification of Merger Effects: An Application to Hospital Mergers
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us