تجدید ساختار بازار و قیمت گذاری در صنعت بیمارستان

This paper examines the diagnosis related group-level (DRG) price effects of recent hospital mergers and acquisitions that occurred in Ohio and California. Empirical results indicate that hospital mergers and acquisitions increase prices at the DRG level. Further, price increases are greater in DRGs where the merging hospitals gained substantial market share compared to DRGs where the merging hospitals did not gain significant market share. These results suggest that DRG specific market share plays an important role in a hospital’s post-merger pricing strategy.

Regulators are often concerned that merger related increases in market power can adversely affect consumers through higher prices, while merging firms usually claim that efficiency gains and cost reductions from the merger will lead to lower prices. The price effects of mergers are of great current relevance in the US hospital industry. In response to changes in the Medicare reimbursement system, the rise of managed care, and declining patient reimbursements, the hospital industry has undergone significant restructuring in recent years. Over 45% of the US hospitals have been involved in mergers, acquisitions, and joint ventures since 1990 (Jaspen, 1998). Many of the recent horizontal within-market hospital mergers and acquisitions have caused large increases in the market share of the merging hospitals. For example, two mergers in Cincinnati in 1994 caused the Herfindahl–Hirschman index1 (HHI) in the Cincinnati market to increase from 1238 in 1993 to 2102 in 1995. Similarly, mergers and acquisitions in the Pittsburgh market caused the Pittsburgh HHI to increase from 763 in 1990 to 3506 in 1998. As per the 1992 Horizontal Merger Guidelines issued by the Department of Justice (DOJ) and the Federal Trade Commission (FTC), the above examples represent large increases in market concentration (Bazzoli et al., 1995). This study examines the price effects of recent hospital mergers and acquisitions. In addition to local within-market mergers, several across-market acquisitions have also occurred. Across-market integration is the merger of two or more firms producing the same product in different markets, as in the case of regional or national hospital chains and networks2 (Snail and Robinson, 1998). Prior studies have not examined the price effects of across-market acquisitions separately from within-market mergers. This study examines price effects of hospital mergers and acquisitions at the level of the individual diagnosis related group (DRG).3 Data from mergers and acquisitions that occurred in the states of Ohio and California during the period 1994–1995 are used to analyze the post-merger price changes for individual DRGs within hospitals. For the Ohio within-market mergers, three different types of analyses are conducted. First, the change in prices for DRGs where the merging hospitals gained substantial market share from the merger is compared to the change in prices for DRGs where the merging hospitals did not gain substantial market share.4 Second, the change in prices for merging hospitals in DRGs where they gained substantial market share from the merger is compared to the change in prices for an identical set of matched DRGs from a non-merging hospital located in the same hospital market. Third, the change in prices for merging hospitals for high-volume DRGs is compared to the change in prices for all non-merging hospitals for the same DRGs. For the California across-market acquisitions, the changes in prices of high-volume DRGs for acquired hospitals are compared with the changes in prices for hospitals which were not acquired. The general finding from this study is that hospital mergers and acquisitions result in increased prices at the DRG level. These results were found at all the levels of analyses and indicate that merging and acquired hospitals increased prices for all DRGs to a greater extent than non-merging hospitals. The results also indicate that price increases were greater in DRGs where the hospital gained substantial market share suggesting that DRG-specific market-share has an important role in a hospital’s post-merger pricing strategy. The remainder of the paper is divided into four sections. Section 2 reviews existing literature on hospital market competition. Section 3 outlines a descriptive model of DRG-level pricing. Section 4 describes the data used in this study. Section 5 discusses the methodology and results. Finally, Section 6 discusses conclusions and implications.

This study examines the influence of mergers and acquisitions on hospital prices. Results indicate that even after controlling for length of stay, DRG-specific effects, hospital-specific effects, and market-specific effects, the increase in DRG level prices is higher in the merging and acquired hospitals compared to corresponding changes for the same set of DRGs for non-merging hospitals. The results of this study are consistent with recent empirical studies about the price effects of changes in hospital market concentration (Brooks et al., 1997; Dranove and Ludwick, 1999; Keeler et al., 1999). Ideally costs should be examined in addition to revenues in order to determine the overall effects of mergers and acquisitions. However, this study primarily focuses on price effects at the DRG level and cost data at the DRG level are not available. Hence, this study only suggests that mergers increase prices without eliminating the possibility that cost reduc- tions through increased economies of scale also occurred after the merger or acquisition. Prior research by Dranove (1998) using semiparametric analysis of economies of scale in non-revenue producing cost centers suggests that small hospitals ( < 2500 discharges annu- ally) may potentially reap substantial benefits from a merger via scale economies in these cost centers. His study also indicates that in larger hospitals, savings from mergers will be minimal. Mergers may also cause DRG-level price reductions in the long run via improved effi- ciencies. This may explain why Connor et al. (1998) found that hospitals which merged during the period 1986–1994, on an aggregate had 5.65% lower price inflation than other non-merging hospitals. A longitudinal analysis using a longer panel to track the long-term effects of hospital mergers on DRG-level prices would be useful. Arguably, several alternative explanations for the observed increase in prices by merging and acquired hospitals are possible. For example, the target hospitals may have increased the quality of services after the merger or acquisition. However, a study examining the changes in quality after mergers and acquisitions, using data from California for the period1991–1994 finds that patient quality (measured by patient mortality) changes only in some cases after consolidation (Ho and Hamilton, 2000). Another consideration is that prices may be equal to marginal cost (MC) in the hospital markets and that the merger or acquisition leads to inefficiencies which increase MC and hence increase prices. However, these inefficiencies are usually unanticipated and hence it is not possible to analyze their probable effects on final product prices, even in theory (Fisher et al., 1989). Further inefficiencies across the board only in DRGs where the hospitals gained market share are unlikely. Future research should also examine the hospital-level price effects of mergers. The aggregate firm-level price effects of mergers are likely to be smaller because of the inclusion of Medicare and Medicaid patients who are reimbursed on a fixed-fee basis and over whom the merging hospitals are unlikely to have bargaining power. This study examines “one of the most enduring conflicts of antitrust policy”: price effects of mergers (Martin, 1994). Given the large number of hospital mergers and acquisitions that have occurred recently, the appropriate anti-trust treatment of hospital mergers is a topic of debate (Dranove et al., 1993; Gaynor and Vogt, 1998; Lynk, 1995). This study defines each DRG as a separate product market and thus provides empirical evidence of the DRG-level price effects of hospital mergers and acquisitions. The results of this study have implications for antitrust examination of hospital mergers. For example, the within-market analysis indicates that merging hospitals in Ohio increased their prices to a greater extent in DRGs where they gained greater market share. Thus, antitrust examination of a hospital merger should include the effects of the merger on DRG-level market shares and market structure, in addition to hospital level market shares. Further, because some degree of substitution may be occurring across closely related DRGs, future research exploring clustering of related DRGs into separate markets would be worthwhile.