Does Similarity Produce Synergy in Horizontal Hospital Acquisitions? Linking Operations Characteristics to Operations Strategy

The efficiency gains of hospital mergers and acquisitions (M&As) are derived not only from the market, financial, and managerial synergies, but also from operational synergies in economies of scale, clinical standardizations, service line optimizations, and so forth. To understand the roles that operations characteristics, and operations strategy play in hospital acquisitions, this dissertation examines the direct effects of geographic proximity and the service overlap on an acquired hospital’s post-acquisition operational performance (i.e., cost and quality) and its post-acquisition service-mix changes. The dissertation presents the findings from two essays. The first essay examines whether acquisitions benefit hospitals in terms of cost and quality. In addition, we try to determine the extent to which these benefits stem from similarities in two operational characteristics (i.e., service lines and geographical location). In the second essay, we test the effects of geographic proximity and market competition on an acquired hospital’s operations strategy (i.e., the service-mix changes). Analyzing four years (2010-2013) of data from 218 acquired hospitals in the U.S. (i.e., target hospitals), we find that hospital acquisitions result in lower readmission rates and operating expenses for the acquired hospitals. Also, the degree of geographic proximity is positively related to the post-acquisition quality improvements of the acquired hospitals. More important, there is an inverted U-shaped relationship between the pre-acquisition degree of service line similarity between the acquired and the acquirer hospitals and the post-acquisition quality improvements of the acquired hospital. Moreover, the relationship between the degree of service similarity and an acquired hospital’s post-acquisition quality performance is moderated by the degree of geographic proximity between the acquired and the acquirer hospitals. Finally, geographic proximity and market competition have some effects on an acquired hospital’s post-acquisition service-mix changes.Decision and Information Sciences, Department o