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Patient Admission Patterns and Acquisitions of Feeder Hospitals, Journal of Economics & Management Strategy


In the past fifteen years, there have been numerous instances in which a tertiary care hospital acquires a nearby community hospital. One possible motive is to increase referrals from the target's market area. The acquirer might even try to alter the types of patients it admits from the target's market, concentrating on more profitable referrals. We test these hypotheses by comparing changes in referrals of patients from the target market area to changes in a matched set of control markets, using data on 26 acquisitions in Florida and New York. The results vary substantially across acquisitions, with no significant change in admissions being the most common outcome. Nevertheless, 25% of the acquisitions were followed by a significant increase in CABG and PTCA referrals to the acquirer, and 44% lead to increases in referrals of patients from a broader set of tertiary DRGs. In contrast, only one acquisition reduced CABG and PTCA referrals, while two lowered overall tertiary referrals. We also find weak evidence that some acquirers engage in cherry-picking, increasing admissions of low-severity patients from the target market, post-acquisition. Yet a number of acquirers also increased referrals of the most severely ill patients, possibly due to outlier and stop loss payments, or perhaps a reflection of physicians Epreferences for more complex cases. On balance, our results are consistent with recent studies (Burns and Pauly, 2002; Conrad, 2004) indicating that vertical acquisitions that lead to enhanced performance are more commonly the exception than the rule.




Sayaka Nakamura, Cory Capps, David Dranove

Date Published



Nakamura, Sayaka, Cory Capps, and David Dranove. 2007. Patient Admission Patterns and Acquisitions of Feeder Hospitals. Journal of Economics & Management Strategy.(4): 995-1030.


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