Panel Paper: Investigating the Effects of Common Ownership on Hospital Prices

Thursday, November 7, 2019
I.M Pei Tower: 2nd Floor, Tower Court D (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Jose Azar1, Jessica Dutra2, Donna Ginther3 and David Slusky3, (1)IESE Business School, (2)Economists Incorporated, (3)University of Kansas

Microeconomic theory indicate that increases in market concentration leads to higher prices. Others have estimated the effects of hospital market concentration on prices, as well as some incorporation of the role of hospital system ownership in competition. But they have not taken into account common ownership of competitors through publicly traded stocks when determining concentration. Common ownership receives much less attention than full-mergers due to U.S. legislation that favors large institutional investors, and thus have significantly increased in previous decades without much notice.

Antitrust agencies are concerned with market power due to its likelihood of harming consumers. We calculate modified market concentration that adjust for common ownership to yield a concentration index that better reflex the relationship between concentration and market power in a market in which there is common ownership (i.e. overlap in ownership structure across horizontal competitors.) This is fundamental, due to rising health care prices, and their role as the primary driver of high U.S. spending (Anderson et al., 2003).

The effects of common ownership across industries has been recently explored (e.g., Airlines (Azar et al., 2018), Ready-To-Eat Cereal (Backus et al., 2018), Banking (Azar et al., 2016)), Pharmaceuticals (Banal- Estañol et al., 2018)). All of these have in common the fact that they already are highly concentrated industries even absent of common ownership.

We address the role of common ownership in the hospital industry, which differs from existing papers in it addresses common ownership in two levels. This type of ownership structure in two stages transcends the U.S. hospital system, being present in other industries (e.g. Brazilian Liquefied Petroleum Gas Industry).

Our data sources are from HCRIS, AHA, Impact from CMS, Thomson Reuters 13-F filings, and archived news stories. For tractability, we’ve restricted our analysis to the state of Michigan and defined markets as HRRs. We compute adjusted measures of market concentration for networks and for shareholding. We also compute Common Ownership Pricing Pressure that accounts for both networks and shareholders. This is important because it doesn’t require the assumption that hospitals have homogeneous services and is consistent with a structural model up to date with the literature in antitrust analysis.

We regress log of price (i.e., average revenue) on these concentration measures, Our preliminary results are that common ownership of networks seem to be bringing prices down, whereas concentration of shares (large institutional investors) are bringing prices up.


Anderson, G.F., Reinhardt, U.E., Hussey, P.S., & Petrosyan, V. (2003). It’s the prices, stupid: why the United States is so different from other countries. Health Affairs, 22(3), 89–105.

Azar, J., Raina, S., & Schmalz, M.C. (2016). Ultimate ownership and bank competition.

Azar, J., Schmalz, M.C., & Tecu, I. (2018). Anticompetitive effects of common ownership. The Journal of Finance, 73(4), 1513–1565.

Backus, M., Conlon, C., & Sinkinson, M. (2018). Common ownership and competition in the ready-to-eat cereal industry. New York University Stern Working Paper.

Banal-Estañol, A., Seldeslachts, J., Newham, M., et al. (2018). Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry. Technical report.