Mergers and Marginal Costs: New Evidence on Hospital Buyer Power
We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.
The data used in this paper were generously provided, in part, by the ECRI Institute (www.ecri.org). We gratefully acknowledge financial support from the Wharton Dean’s Research Fund and Public Policy Initiative, the Wolpow Family, and NSF Grant 30067535. We thank Zack Cooper, Martin Gaynor, Charlie Gray, Matthew Schmitt, and John Van Reenen for assistance in constructing the merger panel. Harrison Byers, Caleb Diaz-Spatharos, and Gi Heung Kim provided excellent research assistance. Any errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- There is no evidence of cost saving by acquiring hospitals; costs at merger targets decline about 1.5 percent. Most hospitals...
Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March. citation courtesy of