Abstract

This study examines the impact of hospital consolidation on the financial performance of consolidating hospitals. In doing so, this study also addresses the potential trade-off of hospital consolidation for society between decreased competition and improved efficiency. Based on economic theory, we hypothesize that hospital consolidation leads to an improvement in hospital financial performance by decreasing competition, which allows consolidating hospitals to charge higher prices, and by increasing efficiency, which lowers the costs of providing a given level of services for consolidating hospitals. Furthermore, we hypothesize that consolidation produces a competition/efficiency trade-off for society, as illustrated by the Williamson Trade-Off Model. We empirically test these hypotheses by running random effects regressions for a financial performance, price, and average cost model. Our results indicate that financial performance does improve for consolidating hospitals following consolidation, but there does not appear to be a trade-off for society. In fact, we find evidence that consolidation increases prices, but leads to an insignificant change in hospital efficiency/costs.

Advisor

Sell, John

Department

Business Economics

Disciplines

Health Economics

Publication Date

2014

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis Exemplar

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© Copyright 2014 Aaron W. McKee