Study Overview
The past decade has seen profound changes in how the hospital industry has organized itself, including the rising importance of hospital systems. Theoretically, system consolidation can have positive effects from improved efficiency and quality or negative effects from greater market power. This study examines which hospitals consolidate and finds that hospitals were more likely to join systems if they were for-profit institutions, were located in urban areas, or had high managed care loads. Furthermore, the evidence suggests that system formation has primarily served to increase market power, not improve patient care quality or hospital efficiency, at least in the short run.
Study Results
The number of hospital acquisitions has declined each year, yet policy circles are still concerned with the potential negative consequences of extensive hospital consolidation. This study suggests that some of these concerns may be justified. Our results show that following consolidation, hospital market power, not the efficiency of care delivery, increased; and hospitals gained higher prices but did not translate them into higher quality of inpatient care or the provision of more community goods. On net, this analysis suggests that consumers were worse off as a result of hospital consolidation, taking into account a broad range of outcomes.