Market restructuring and pricing in the hospital industry

This paper examines the diagnosis related group-level (DRG) price effects of recent hospital mergers and acquisitions that occurred in Ohio and California. Empirical results indicate that hospital mergers and acquisitions increase prices at the DRG level. Further, price increases are greater in DRGs where the merging hospitals gained substantial market share compared to DRGs where the merging hospitals did not gain significant market share. These results suggest that DRG specific market share plays an important role in a hospital's post-merger pricing strategy.