Mergers and Marginal Costs: New Evidence on Hospital Buyer Power
59 Pages Posted: 26 Aug 2018 Last revised: 29 Mar 2019
Date Written: March 27, 2019
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
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