Mergers With Intermediation: The Price Effect of Distant Hospital Mergers

With David Dranove and Sungjin Kim

A substantial and increasingly salient class of M&A activity occurs across seemingly disconnected markets. Such cross-market or cross-geography mergers are of growing concern for competition authorities, yet evidence on them is scarce. We study cross-geography hospital mergers between 2011 and 2020 using private insurance data and show that acquisitions are associated with a 4.6% price increase at target hospitals. Using data on employer-sponsored health insurance enrollment and claims, we show that merger effects are strongly associated with overlapping employers across merging markets. We find no price increases when employer overlap is low and significant increases when overlap is high, a finding that persists even when merging parties serve disjoint healthcare markets. We provide evidence that integrated systems exert control over insurers' ability to win valuable employer contracts and secure higher payment rates. We find that cross-geography mergers reduce staffing, admissions, and costs, and increase markups at acquired hospitals.