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Hospital Consolidation and Costs: Another Look at the Evidence, Journal of Health Economics


We investigate whether two-to-one hospital mergers lead to short-term cost savings. We use a unified empirical methodology, so that we may directly compare results for systems (where hospitals share ownership but maintain separate licenses) and mergers (where hospitals share the same license). Our comparison group consists of a group of ten 'pseudo mergers' that were chosen using nearest neighbor matching based on a propensity score. Estimates of a multi-product cost function reveal that hospitals that form systems do not enjoy any measurable cost reductions. On the other hand, mergers that lead to closure (or conversion) of one of the inpatient facilities offer considerable savings two, three and four years out- our point estimates range from 6-9 percent. Mergers that do not lead to closures appear to decrease costs in the first-year, by an estimated 5 percent. However, after three or four years, there is no longer a significant reduction in costs. The results are robust to changes in the specification and the sample. We also present some evidence that the distance between merger partners is inversely related to cost savings.




David Dranove, Richard C. Lindrooth

Date Published



Dranove, David, and Richard C. Lindrooth. 2003. Hospital Consolidation and Costs: Another Look at the Evidence. Journal of Health Economics.(6): 983-997.


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