Hospital Mergers

Hospital mergers have proven to improve productivity and efficiency in three different ways. First, mergers reduce non-price competition which results in extensive duplication of services which in turn leads to higher cost. Second, there is an increased patient base which could lead to greater utilization rates, increased marginal utility of labor, and enhanced revenues. Last, administrative cost should decrease due to consolidation of services. Thus, a positive correlation is present between mergers and cost. Mergers tend to be in close geographic proximity, leading to a concern regarding the increased market power. They generate cost savings that encourage the merged firm to lower prices as well as an increased market concentration. Most