Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

75 Pages Posted: 26 Aug 2018 Last revised: 23 Dec 2020

See all articles by Stuart Craig

Stuart Craig

University of Pennsylvania - The Wharton School

Matthew Grennan

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ashley Swanson

Columbia University - Columbia Business School; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2020

Abstract

We estimate the effects of hospital mergers, using detailed data containing medical supply transactions (representing 23 percent of operating costs) from a sample of US hospitals 2009-2015. Pre-merger price variation across hospitals (Gini coefficient 7 percent) suggests significant opportunities for cost decreases. However, we observe limited evidence of actual savings. In this retrospective sample, targets realized 1.9 percent savings; acquirers realize no significant savings. Examining treatment effect heterogeneity to shed light on theories of “buyer power,” we find that savings, when they occur, tend to be local, and potential benefits of savings may be offset by managerial costs of merging.

Keywords: Merger, Hospital, Buyer Power, Medical Device

Suggested Citation

Craig, Stuart and Grennan, Matthew and Swanson, Ashley, Mergers and Marginal Costs: New Evidence on Hospital Buyer Power (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3232902 or http://dx.doi.org/10.2139/ssrn.3232902

Stuart Craig

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
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Matthew Grennan (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Philadelphia, PA 19104
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HOME PAGE: http://www.wharton.upenn.edu/faculty/grennan.cfm

National Bureau of Economic Research (NBER) ( email )

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Ashley Swanson

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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