Hospital Mergers Do Not Always Save Money or Reduce Inefficiencies

    • August 25, 2003

During 1996 and 1997, researchers at the Economic and Social Research Institute, led by Jack A. Meyer, PhD, examined the St. Louis and Philadelphia hospital markets, which experienced extensive merger activity in the early 1990s, to assess whether horizontal integration combined with purchaser pressure can shrink the excess capacity in a hospital system.

Located in Washington, the institute is a nonprofit, nonpartisan organization that specializes in health and social policy research.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO).

Key Findings

  • Researchers reported the following findings in a Findings Brief available on the HCFO website:

    • Newly created hospital networks tend to evolve through five stages. These include:
      • Loose affiliation.
      • Administrative (e.g., marketing, human resources) services consolidation.
      • Cultural integration, particularly of physicians.
      • Clinical (e.g., cardiology and other specialties) services consolidation.
      • Closure of inefficient and redundant hospitals.
    • In both cities, many of the merged hospitals have improved efficiency since 1993.
    • The merged hospitals in St. Louis and Philadelphia have not consolidated specialized clinical services, nor have they reduced excess hospital beds or closed facilities.
    • Improving power in negotiations with managed care plans through increased size, rather than operational efficiency, was the impetus for many hospital mergers in both St. Louis and Philadelphia.