Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

59 Pages Posted: 26 Aug 2018 Last revised: 29 Mar 2019

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

University of Pennsylvania - The Wharton School; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2019

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. On average, targets realize 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 (March 27, 2019). 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 )

3641 Locust Walk
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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

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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