Consolidations and closures: an empirical analysis of exits from the hospital industry

Abstract

This paper investigates the pre-exit characteristics of hospital mergers, acquisitions, and closures. We estimate competing risk hazard models using an 18-year national data set that spans the wave of closures in the 1980s and of mergers in the 1990s. Evidence shows that weak productivity of the hospital is a strong determinant for closures while competitive pressures are more influential in the decision to consolidate. Thus, increased market power, relative to cost reductions, appears to play a larger role in the merger decision. Our results also provide insight into possible correlations between mergers and closures.