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Researchers: Cross-market hospital deals also raise prices

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Mergers involving hospitals, in separate but nearby markets, may increase care prices about 6 percent to 10 percent, according to a team of economists led by Leemore Dafny. 

Dafny, an economist at Northwestern University’s business school, and two colleagues present that conclusion in a draft paper, or working paper, published behind a paywall at the National Bureau of Economic Research (NBER).

Researchers have looked often at how deals involving two hospitals in the same market affect prices. The Dafny team wanted to come up with a technique for analyzing how common insurer relationships and common customer pools might affect the impact of inter-market deals, even when the hospitals involved are not regularly competing head-to-head for the same patients.

The researchers used hospital deal data from the Federal Trade Commission (FTC) to compare hospitals that acquired another hospital in a nearby market in the same state; hospitals that acquired an out-of-state hospital; and hospitals that made no deals. 

The hospitals’ insurer overlap was easy to analyze and, in the statistics, insurer overlap seems to account for most of the effects of inter-market deals on care prices, according to the draft paper.

The researchers say they had no good way to measure customer overlap without getting access to the hospitals’ patient records.

They tried using drive time estimates to analyze customer overlap or “common customer effects.”

The findings are “suggestive evidence of the existence of common customer effects,” according to the researchers. But they say they are still not sure about the relationship between hospital-to-hospital drive time and a hospital deal’s effects on care prices. 

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