Hospital Competition and Hospital Mergers: What the Best Evidence - - PowerPoint PPT Presentation

Hospital Competition and Hospital Mergers: What the Best Evidence Tells Us

Webinar with Zack Cooper (Yale University), Stuart Craig (University of Pennsylvania), Leemore Dafny (Harvard University), and Martin Gaynor (Carnegie Mellon University) September 4, 2019

Introduction

• The average premium for employer-sponsored family health coverage

was $19,616 in 2018

[Kaiser Family Foundation, 2018 – Employer Health Benefits Survey]

• Hospitals account for 33% of health spending (the largest individual

category)

[2018 National Health Expenditure Survey]

• The hospital sector accounts for 6% of gross domestic product

[2018 National Health Expenditure Survey]

• The hospital industry has undergone significant consolidation over the

last 30 years

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Hospital Mergers Per Year (Number of Transactions)

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Commuting Zone HHIs in 2001, 2007, and 2014

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2001 Mean HHI 5,110 2007 Mean HHI 5,185 2014 Mean HHI 5,400

.00005 .0001 .00015 .0002

Density Estimate

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

HHI

2001 2007 2014

Notes: The graph displays the kernel density estimate of the distribution of Commuting Zone-HHIs across the country. Each Commuting Zone’s HHI is a hospital bed-weighted average of the HHIs of the hospitals in that Commuting Zone. A hospital’s market includes all hospitals within a 45 minute travel time of said

• hospital. Each hospital’s share of the market is based on how many beds its health network controls in the hospital’s market. The density function is estimated

using kdensity command in Stata. Source: Cooper 2019

Health Spending on the Commercially Insured Varies by a Factor of 3 Across the Nation

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Commercial Health Spending, 2015

Source: Cooper, Craig, Gaynor, and Van Reenen (2019). “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured”. Quarterly Journal of Economics, 134(1)): 51-107

Inpatient Prices Across Hospital Referral Regions

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6 Source: Cooper, Craig, Gaynor, Harish, Krumholz, and Van Reenen (2019). “Hospital Prices Grew Substantially Faster than Physician Prices For Hospital-Based Care in 2007 – 2014”. Health Affairs, 38(2): 184-189

Hospital Concentration, Prices, and Contract Structure

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12.5% 7.6% 3.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Monopoly Duopoly Triopoly

Hospital Concentration and Prices

• Monopoly hospitals had a higher share of inpatient cases paid as a share of charges
• Monopoly hospitals had fewer cases linked to the Medicare fee schedule

Source: Cooper, Craig, Gaynor, and Van Reenen (2019). “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured”. Quarterly Journal of Economics, 134(1)): 51-107

There is Expansive Variation in Prices Within Hospitals

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Lower-Limb Prices at One High Volume Hospital

Source: Cooper, Craig, Gaynor, and Van Reenen (2019). “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured”. Quarterly Journal of Economics, 134(1)): 51-107

Impact of Mergers on Prices

9 Price Effect (%)

• Inova Health System acquisition of Prince William Hospital – simulated price increase of 30.5%

(Gowrisankaran, Nevo, and Town, AER, 2015).

• Sutter’s prices increased between 28% and 44% following its merger with Alta-Bates (Tenn, 2011).

Source: Cooper, Craig, Gaynor, and Van Reenen (2019). “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured”. Quarterly Journal of Economics, 134(1)): 51-107

Concluding Thoughts

• The hospital sector is the largest contributor to health spending in the US
• The industry has gone through substantial consolidation over the last twenty to thirty years
• In the cross-section, concentration is linked to higher prices and more favorable contractual

terms

• Ex-post merger analysis shows that mergers can raise prices
• At a point where we need to consider either price regulation or substantial increases in

antitrust enforcement budgets.

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