M&A reality check: A longitudinal study of operational cost performance in U.S. hospitals

Hospital mergers and acquisitions (M&As) reduce resource dependence on sources of input and purchasers of output, via market power, service diversification, and operational efficiency. While prior research has examined M&A effects on quality and pricing, less is known about their effects on supply chain cost performance-a core input to health care delivery and a frequently cited but not always realized driver of consolidation.

To determine the impact of hospital M&As on acquired hospital operating costs, in terms of magnitude and timing, and compare possible efficiencies in supply expenses relative to other expense categories.

We analyzed a longitudinal data set of U.S. acute care hospitals (2016-2021) using propensity score matching and panel regression. This approach isolated the effect of merger events on total operating expenses, salary expenses, supply expense categories (medical-surgical and pharmaceutical), and net income.

Acquired hospitals experienced significant reductions in total operating expenses in the postmerger period. These savings were largely attributable to streamlined payroll costs. We observed a modest reduction in medical-surgical supply costs 1 year post-acquisition, but no significant change in pharmaceutical supply costs.

Supply chain cost savings from hospital acquisitions are easy to imagine but elusive to realize. Hospital leaders should first seek targets whose supply chain operations, strategies, and partners fit their own, and proactively communicate and integrate supply chain operations during post-acquisition planning to realize the anticipated operational synergies.