Spang_Bazzoli_Arnould_2001 - hospital mergers

Spang_Bazzoli_Arnould_2001 - hospital mergers - HEALTH...

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Hospital Mergers And Savings For Consumers: Exploring New Evidence Comparing merging hospitals with their nonmerging market rivals can yield a more accurate assessment of mergers’ effects. by He ath e r Radach S pang , Gloria J. Bazzo li, and R ichard J. Arn ould H os pita l m ergers have been in- creasing dramatically in the United States in recent years. There were 153 mergers throughout the entire decade of the 1980s, but 176 mergers in just the first seven years of the 1990s. Hospitals contend that mergers allow them to realize efficiency gains, reduce excess capacity, reduce transaction costs, and increase their ability to accept risk- based payment. Even so, mergers in highly concentrated markets could allow hospitals to increase their market power, thwart pay- ers’ efforts to promote cost containment, and thus increase hospital prices. 1 Traditional antitrust analysis of horizontal consolidations has focused on increased mar- ket power, which results from rising market share. Mergers have been considered illegal if they resulted in market power increases great enough to allow nontransitory increases in hospital prices. Rule-of-reason analysis has been applied to mergers, which means that the act of the merger is not illegal per se but that the legality of the merger depends upon the reasonableness (or lack thereof) of the predicted impact of the merger. More re- cently, courts have taken a more holistic ap- proach to antitrust analysis, considering a merger’s overall effect on consumers’ welfare. This expands the rule-of-reason analysis to balance the welfare-enhancing effects of con- solidation, such as increased efficiency, with welfare-reducing effects, such as the potential to control prices. © 2001 Project HOPE–The People-to-PeopleHealth Foundation, Inc. Heather Spang is a consultant at Lexecon, Inc., in Chicago. Gloria Bazzoli is a professor of health administra- tion, Medical College of Virginia/Virginia Commonwealth University. At the time this research was con- ducted, Bazzoli was research professor with the Institute for Health Services Research and Policy Studies of Northwestern University and Spang was a doctoral student at the University of Illinois at Urbana- Champaign. Richard Arnould is a professor and head, Department of Economics, University of Illinois. This study analyzes changes in costs and prices from 1989 to 1997 for 1,767 short- term hospitals, including 204 hospitals involved in mergers; 653 hospitals that were rivals to these merging hospitals; and 910 nonmerging nonrival hospitals. We find that merging hospi- tals generally had lower growth in costs and prices compared with their rivals and also with nonmerging nonrival hospitals. We find that the presence and extent of these savings varied based on market and hospital conditions. How- ever, our findings suggest that cost and price savings resulting from mergers may be smaller than estimated in earlier studies, especially through our comparison of merging hospitals
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This note was uploaded on 02/10/2011 for the course ECON 341 taught by Professor Galunic during the Spring '11 term at Rutgers.

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Spang_Bazzoli_Arnould_2001 - hospital mergers - HEALTH...

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