Working Paper: NBER ID: w24926
Authors: Stuart Craig; Matthew Grennan; Ashley Swanson
Abstract: We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.
Keywords: hospital mergers; buyer power; marginal costs; healthcare economics
JEL Codes: I11; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger target hospitals (G34) | savings on physician preference items (PPIs) (I11) |
| merger target hospitals (G34) | efficiencies in price negotiations for high-tech physician preference items (PPIs) (I11) |
| merger target hospitals (G34) | increase in monopsony power (J42) |
| merger acquirers (G34) | increase in costs per transaction (D23) |
| merger target hospitals (G34) | decrease in costs for PPIs (E31) |
| merger acquirers (G34) | increase in costs for commodities (Q02) |