Does Consolidation Improve Quality of Care in the U.S. Hospital Market?

The new wave of hospital consolidation that took place in the past decade has prompted debate on whether consolidation in healthcare markets improves or worsens quality. This paper provides new insights into this ongoing debate using recent U.S. data from 2011 to 2014 on Medicare patients. I analyze 30-day inpatient mortality for heart attack (AMI), heart failure (CHF), and pneumonia, and 30-day readmission for the same procedures. Furthermore, I also look at how hospitals’ process of care scores for the corresponding procedures respond to increased market consolidation. I conclude that the impact of market consolidation on quality of care provided depends on the size of each hospital and the size of the market in which consolidation takes place. Specifically, the quality of care provided by hospitals in geographically larger markets decrease by a larger amount in response to increased market concentration than hospitals in smaller markets, where the effect is insignificant. In comparison to smaller hospitals, larger hospitals respond to increase market concentration by a higher decrease in quality, giving evidence to the claim that hospitals exercise market power in setting quality