The Accuracy of Hospital Merger Screening Methods

Abstract

This paper analyzes the accuracy of various prospective hospital merger screening methods used by antitrust agencies and the courts. The qualitative and quantitative predictions of the screening methods calculated with pre-merger data are compared with the actual post-merger price changes of 26 hospital mergers measured relative to controls. The evaluated screening methods include traditional structural measures (e.g., Herfindahl-Hirschman Index associated with various market definitions), measures derived from hospital competition models (e.g., diversion ratios, Willingness-to-Pay, and the Logit Competition Index), and hospital merger simulation. Diversion ratios, Willingness-to-Pay, and the Logit Competition Index are found to be more accurate at predicting post-merger price effects than traditional methods.

Keywords: Health Care, Hospitals, Mergers

JEL Classification: I11, K21, L44