Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

Stuart Craig, Matthew Grennan, Ashley Swanson

NBER Working Paper No. 24926
Issued in August 2018
NBER Program(s):Health Care, Industrial Organization

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.

A non-technical summary of this paper is available in the October 2018 NBER Digest.  You can sign up to receive the NBER Digest by email.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w24926

Published: Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March. citation courtesy of