Association for Public Policy Analysis & Management

Researchers to date have examined the various arguments that are used to justify provider consolidation in health care and the formation of large health systems. These include 1) to gain bargaining leverage in negotiations with commercial health insurers, 2) to generate economies of scale or 3) to facilitate better care coordination to improve quality or generate cost savings. Research has led to a large evidence base demonstrating that consolidation is associated with higher prices, where providers that consolidate gain and use their bargaining power in price negotiations. Some studies have examined the association between consolidation and operating costs, most of which showing that operating costs at the acquired hospital decreased. However, there are not many studies examining the operating costs of the acquiring hospital, which is the entity that gains additional market power. Further, researchers have examined whether care coordination or quality improves after consolidation. Most of the evidence is mixed, without clear evidence that quality improves or declines post-merger.

This study uses the Agency for Healthcare Research and Quality’s Compendium of U.S. Health Systems files for years 2016 and 2018 -- the Comparative Health System Performance (CHSP) Compendium -- Medicare Hospital Compare files, Medicare Healthcare Cost Report Information System (HCRIS) files, Healthcare Cost and Utilization Project Hospital Market Structure Files and the Area Health Resource Files (AHRF). The CHSP contains variables, including health system identification numbers, location, number of physicians and primary care physicians, number of beds, as well as information on hospital and health system participation in accountable care organizations (ACOs) or bundled payment arrangements. The Medicare Hospital Compare files, HCRIS files, and Healthcare Cost and Utilization Project Hospital Market Structure Files provide additional descriptive information of U.S. health systems and affiliated hospitals.

This study will have two components. First, it will review descriptive information on U.S. health systems and their affiliated hospitals, examining financial, quality and utilization performance, including but not limited to the number of acute care beds, the percent of health systems that operate in markets that are considered highly consolidated, the proportion of teaching hospitals, the number of employed physicians, total revenues, operating income, other financial indicators, the proportion with ACO arrangements, among other variables. Second, this thesis will examine the association between various health system and hospital characteristics and cost, quality and utilization performance, such as the association between measures of market concentration and inpatient operating costs or mortality. The thesis will also examine the effect of changes in these characteristics.