Do hospital mergers reduce costs?

Abstract

Proponents of hospital consolidation claim that mergers lead to significant cost savings, but there is little systematic evidence backing these claims. For a large sample of hospital mergers between 2000 and 2010, I estimate difference-in-differences models that compare cost trends at acquired hospitals to cost trends at hospitals whose ownership did not change. I find evidence of economically and statistically significant cost reductions at acquired hospitals. On average, acquired hospitals realize cost savings between 4 and 7 percent in the years following the acquisition. These results are robust to a variety of different control strategies, and do not appear to be easily explained by post-merger changes in service and/or patient mix. I then explore several extensions of the results to examine (a) whether the acquiring hospital/system realizes cost savings post-merger and (b) if cost savings depend on the size of the acquirer and/or the geographic overlap of the merging hospitals.

Keywords: Cost efficiencies; Hospital mergers.