Hospitals Industrial Organization

The Corporatization of Independent Hospitals

That is the title from an interesting paper by Andreyeva et al. (2023). The abstract is below:

Between 2000 and 2020, the share of US hospital bed capacity under multi-unit firms (systems) increased from 58% to 81% – a rapid corporatization of a sector with $1.3 trillion in annual spend. However, little is known about how system ownership affects hospital profitability and quality. We combine novel, patient-level transaction price data from a large commercial insurer, Medicare claims, and New York hospital discharges between 2012 and 2018 to study changes at over 100 independent hospitals that transition to system ownership. The targets obtain differentially higher prices than a matched comparison group, but the operating cost reductions, primarily obtained by reducing employees in support functions, capital, and financing costs, are far greater and exhibit significant economies of scale with acquirer firm size. In contrast, we detect small and statistically insignificant effects on operating costs at 135 system-owned hospitals acquired by other systems, suggesting that the switch to system ownership is the key to achieving these savings. However, corporatization may worsen quality of care on some dimensions.

You can read the full paper here.