Volume 2 Issue 2 | Fall 2009 RESEARCH

Consolidation and Quality:

An examination of the effect of hospital
consolidation on the quality of care over time
Tariq Nazir Ali*
*
Harvard College ‘09

The study of hospital consolidation and its effect on the quality of patient care has been of great interest in both the
economic and legal communities as consolidation activity surged in the mid-1990s. Previous studies have either
been inconclusive or concluded that hospital mergers and acquisitions detrimentally impact quality. This study
examines hospital care before and after consolidation from 1993 to 1998 using patient data from 14 states. Using
inpatient mortality and length of stay for CHF patients as indicators of quality, the study incorporates time lag
variables to test for any time variance in the effect of hospital consolidation on the quality of patient care. Initially,
in the first year post-merger, hospital consolidation results in an initial increase in inpatient mortality and has a
negligible effect on length of stay. In subsequent years, there is a significant decrease in inpatient mortality and
length of stay, both indicating an improvement in quality of care. These results seem to counter the conclusions of
existing literature and thus invite further study.

Introduction formed on the impact of consolidation on quality. One such study is

Consolidation of hospitals and other providers in the health care
industry occurred at a dizzying pace during the 1990s. With only
ten hospital mergers and acquisitions documented nationally in 1991,
the number increased within a few years by a factor of nine (Town
et al. 2006), peaking in the mid-nineties. Hospital consolidations
have been attributed to the organizational desires to cut operation-
al costs and increase revenue (Dranove and Lindrooth 2003). With
mergers increasing prices by more than 5% over competitors (Vita et
al. 2001), hospital mergers have fallen under close political scrutiny
as an antitrust legal issue, as its social benefit to the community is
questioned. As reflected in Figure 1, with the increase in mergers and
acquisitions, the hospital market concentration, as reflected by the
Herfindahl-Herschman Index (HHI), steadily increased, reflecting
less competition and possibly resulting in lower quality of care. Con-
sequently, many states enacted specific restrictions and barriers to
hospital consolidation, requiring proof of a resulting public benefit.
Starting from 1996, the state of Montana requires all merging hospi-
tals to obtain a Certificate of Public Advantage (COPA) by providing
proof that the “proposed merger results in lower health care costs,
improved access to health care or greater quality of care than would
occur without a merger” (Montana Department of Justice). States
as well as the Federal Trade Commission have brought several an-
titrust cases against hospital networks, including the notable recent
August 6, 2007 ruling against the Evanston Northwestern Health-
care network’s acquisition of Highland Park Hospital in Illinois as
anticompetitive and unlawful. One of the arguments cited the lack
of proof of an improvement in the quality of care (Bingham 2007).
Consequently, by setting the quality level of care as one of the three
benchmarks for the legality of hospital mergers, the relation between
hospital consolidation and its effect on the quality of care has become
not only of great interest to the health care industry, but also to the
legal community. However, very few empirical studies have been per-
that of Ho and Hamilton (2000) that compared the before and after
effects on quality of 140 hospital mergers and acquisitions in Cali-
fornia between 1992 and 1995. Focusing on inpatient mortality for
heart attack and stroke patients, 90-day readmission rates for heart
attack patients, and early discharge for newborns as quality indica-
tors, the study found no significant effects on inpatient mortality and
an increase in readmission rates and early discharges of newborns.
However, the paper’s conclusions can be considered weak, as ac-
knowledged by the authors. The lack a significant effect on inpatient
mortalities with the merged hospitals is attributed to high standard
errors, and thus, an effect on inpatient mortality cannot be ruled out.
In examining mergers that have occurred in a two-year window, the
study fails to account for any variance in the effect of consolidation
over time. Without a standardized observation point after a merger, an
inconsistency is formed; the effect of a merger in 1993 is not observed
until two years later while a merger in 1994 is observed after a year.
The focus of this paper is to build on the work done by Ho and
Hamilton’s study of hospital mergers and acquisitions and their ef-
fect on the quality of patient care. Two specific aims of this paper,
addressing the questions left by Ho and Hamilton’s study, are first, to
observe any possible time variance in the mergers’ effect on the qual-
ity of care, and second, to test the external validity of their findings
by expanding the study to across 14 states. Using inpatient mortal-
ity and the length of stay of patients diagnosed with chronic heart
failure (CHF), defined as DRG 127, as the two quality indicators,
patient outcomes before and after hospital mergers and acquisitions
between the 1993 and 1997 are compared. The results of the study
show that hospital consolidations had initially a detrimental effect
on inpatient mortality of CHF patients and a statistically insignifi-
cant effect on their length of stay in the first year post-merger, but in
subsequent years they lowered the impatient mortality by up to 5.8
percentage points and reduced hospital length of stay by up to 0.657
days—both indicating an improvement in the quality of patient care.

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Existing Literature
Exhaustive studies have been performed on the effects of consoli-
dation in the health care industry on prices, costs, and efficiency. As
indicated in Danove and Lindroth’s (2003) study, merged hospitals
experienced a 5% decrease in costs in the first year after the merger.
However, several studies have shown that such mergers and acquisi-
tions do not necessarily lead to lower costs; instead, price increases
because of increases in market power. In Krishnan and Krishnan
(2001), hospital acquisitions were found to result in increased rev-
enue per patient and increased operating margins compared to non-
merging hospitals but not lower operating costs. Similarly, found in
the Town et al. (2006) study, because of consolidations, average HMO
premiums in 2001 were estimated to have been 3.2% higher than had
there not been any mergers since the early 1990s. The authors fur-
ther that the resulting increase in premiums have led to a cumula-
tive loss of $42.2 billion in consumer surplus between 1990 and 2001.
In addition to the Ho and Hamilton (2000) study, several stud-
ies have shown no significant effect on the quality of care with hos-
pital consolidation or decreased hospital competition. Shortell and
Hughes (1988) found no significant association between hospital
competition and inpatient mortality, while Kessler and McClellan
(2000) found that competition during that time period (pre-1990) led
to an increase in health costs and higher quality of care and that in
the subsequent period, competition limited adverse health outcomes
and reduced costs. In a 2002 study, Sari substantiated the importance
of hospital competition with the study of in-hospital complications,
revealing that higher hospital market share and concentration are
associated with lower quality of care. And more specifically, Sch-
neider (2008) evaluates the inclusion of the quality benchmark in
antitrust law that is aimed at hospital mergers. Revealed through a
study of coronary artery bypass graft surgeries in Californian hos-
pitals, hospital competition is linked with lower risk-adjusted mo-
rality rates. Therefore, as all previous studies have shown, there is
no noticeable benefit, and maybe even a detriment, to the qual-
ity of care from hospital mergers and acquisitions. However, as also
noted by many of the aforementioned studies, the scope of their
studies have been relatively limited by size or location (such as on
hospitals in only one state), and therefore, there is not a significant
amount of literature testing the external validity of these findings.
Accounting for time variance in the effect of hospital mergers and
acquisitions is not present in many studies. In the few studies that do
account for time variance, the inconsistency of the effect of hospital
mergers on various indicators is revealed. Groff et al.’s (2007) study
of the effects of mergers on efficiency concludes that while there is no
significant effect on efficiency after the first year of a merger, the sec-
ond year reveals a significant increase in efficiency. The inconsistency
in effects of mergers therefore substantiates the suspicions of the Ho
and Hamilton study by underlining the importance of accounting for
the time variance. Therefore, an examination of the effects of hospital
mergers on quality of care necessitates the accounting of time vari-
ance for a more complete analysis on the impact on patient outcomes.
Data and Summary Statistics
The primary goals of this study are to test the external validity
of Ho and Hamilton’s analysis and to account for time variance in
the impact of mergers on quality of care. Thus, for this study, patient
data from hospitals in 14 states and during a six-year timeframe from
1993-1998 are analyzed. Included in the fourteen states are Califor-
nia, Pennsylvania and Florida—three states known for exceptional
2 The Harvard Undergraduate Research Journal
Volume 2 Issue 2 | Fall 2009
Figure 1 graphs the total number of horizontal mergers, acquisitions,
and system expansions (we refer to this collective consolidation activity
as “M&A”) across populous metropolitan statistical areas (MSAs) from
1990 to 2003
Source: American Hospital Association and author’s calculations
hospital consolidation.1 To maximize the inclusion of merging hos-
pitals in sample data, 1993 to 1998 was chosen as the time window; as
indicated in Figure 1, it was the peak of hospital consolidation activity.
Patient Data
Data on patients for the study came from the Nationwide Inpa-
tient Sample (NIS), a part of the Healthcare Cost and Utilization
Project (HCUP), sponsored by the Agency of Healthcare Research
and Quality. Obtained for the years of 1993, 1997, and 1998, the
annual NIS data is approximately a 20 percent sample of the US
community hospitals, averaging about 1000 hospitals with nearly
7.1 million patient records. For the purpose of this study, overlap
of hospitals across the yearly NIS datasets is necessary, and there-
fore, out of the approximately 1000 hospitals, 590 hospitals are in-
corporated into the study sample. Of the 590 hospitals, all patients
treated for CHF were included in the study, yielding a total sample
of 344,946 CHF patients over the course of the study. Because of a
significant change in the data structure of the NIS annual survey in
1998, there is a limited overlap in the number of hospitals between
the 1997 and 1998 NIS data; CHF patient data drops by a factor of
three in 1998 from 131,780 and 156,315 data points from 1993 and
1997, respectively to only 56,586 data points in the 1998 data sample.
Hospital Data
Information on hospitals studied was also drawn from the NIS
survey. In addition to providing basic hospital features, certain
hospital weights such as the number of hospital beds, urbanity, to-
tal discharges and geographical controls are also provided. Data on
hospital mergers during the observed window between 1993 and
1997 were also derived from the NIS survey. Two hospital iden-
tifiers in the NIS survey differ in the effect that a hospital merger
or acquisition has on them. One identifier linked to the American
Hospital Association (AHA) changes after a hospital consolida-
tion as defined by the AHA. Meanwhile the other hospital identi-
fier, the HCUP’s hospital data source number, does not get affected
by mergers or acquisitions. By exploiting the difference in the way
these identifiers respond to consolidations, a list of hospital merg-
ers and acquisitions was derived by examining any change in each
hospital’s identifiers from 1993 to 1997. Any change would therefore
indicate that merger activity did occur during the three year win-
1
Complete list of states: AZ, CA, CO, CT, FL, IL. IA, MD, MA, NJ, NY, PA,
WA, and WI
 Volume 2 Issue 2 | Fall 2009
Year of Merger/Aquisition
1994 1995 1996
Number of Hospitals 54 72 47
Sample Size 31895 53839 34773
Table 1 Summary of Hospital Mergers/Acquisitions per year
Merged/Acquired Hospitals calculated and year of acquisition/ merger
determined as described in section III. Sample size corresponds to num-
ber of patient records from corresponding hospital. Size includes data
from 1993, 1997, and 1998.
dow. Consequently, all types of mergers and acquisitions will be
examined and not differentiated in this study, as is done in Ho and
Hamilton (2000). Out of the 590 hospitals analyzed in this study, 173
were determined to have undergone a hospital merger or acquisition.
Merger Activity
The specific year of the hospital consolidation during the three
year window (1994-1996) was determined through the use of the
American Hospital Association’s annually published Hospital
Guide, which provides characteristics of each hospital in the nation.
By tracking changes in each of the 173 merged hospitals’ profile,
health system affiliation, or date of entry into a health system, the
year of consolidation was derived. As shown in Table 1, 54 hospi-
tals consolidated in 1994, 72 in 1995, and 47 in 1996, providing us
with 31,895, 53,839 and 34,773 CHF patient data points, respectively.
Quality Indicators
For the purpose of this study, inpatient mortality and length of
hospital stay of CHF patients are used as measurements of qual-
ity of care. The use of inpatient mortality as a quality indicator
has been used in several of the aforementioned studies, includ-
ing Ho and Hamilton, as an indicator of quality of patient care. It
is assumed that holding all else equal, if a rise in the rate of inpa-
tient mortality of CHF patients is associated with hospital merg-
ers and acquisitions, then one can conclude that consolidation
in the health care industry leads to lower quality patient care.
The length of stay (LOS) is another well-used measure of quality of
patient care. While Ho and Hamilton do use LOS as an indicator, their
interpretation of the association with quality of care, with particular
focus on newborn LOS, is different from that of this paper. While they
posit that an increase in the length of stay is associated with a better
quality of care, in this study, using the findings of Boles and Clement
(1995) as a guide, it will be assumed that an increase length of stay
will be linked to a decrease in quality of patient care. With a longer
stay in the hospital, a patient took longer to regain enough health
to be discharged. Also, a longer hospital stay may imply that a pa-
tient had a greater chance of being exposed to hospital complications.
Using NIS data from 1993 as pre-merger data for comparison
with 1997 and 1998 statistics as post-merger data, a time trend and
All Hospitals
Congestive Heart Failure Paients 1993 1997 1998
Mean Length of Stay 6.85 5.36 5.15
Percent Inpatient Death 6.78 5.00 4.67
Sample Size 131780 156437 56586
Table 2 Summary of Quality Indicators, by status of hospital activity during 1994, 1995, and 1996
Mean Length of Stay in terms of days with minimum=0. Sample size of patient records restricted to those with DRG=127 (Conges-
tive Heart Failure) and to hospitals present in both the years 1993 and 1997 of the NIS data. Sample size of 1998 is significantly
smaller because of limited overlap in hospitals in the HCUP NIS data for 1997 and 1998.
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RESEARCH
an association of quality indicators with merged hospitals are appar-
ent (Table 2). For all hospitals, we see a clear decrease in the aver-
age length of stay in days for patients admitted for CHF across time
with the mean being 6.85, 5.36, and 5.15 for 1993, 1997, and 1998,
respectively. Similarly, the percent of inpatient mortality for CHF
patients also decreased for all hospitals across time with 6.78%,
5.00% and 4.67% mortality in 1993, 1997 and 1998, respectively.
In Table 2, the mean length of stay and inpatient mortality is
also subdivided in regards to patients who are from the 173 hospi-
tals that are classified as having consolidated in either 1994, 1995,
or 1996, and patients that are from hospitals that did not undergo
any consolidation. A significant portion of the patient data points
in the study sample are drawn from hospitals that do not un-
dergo any form of consolidation; 229,757 data points are drawn
from non-consolidated hospitals and 115,046 points are drawn
from hospitals that consolidated through merger/acquisition.
An apparent association between the two quality indicators and
merger exists since both indicators are higher for the hospitals that
consolidate than those that do not. The mean lengths of stay for hos-
pitals that do not consolidate are 6.77, 5.30, and 5.17 for the three
years whereas the mean lengths of stay for consolidating hospitals
are 7.00, 5.45, and 5.08. Similarly, for the percentage of inpatient
mortality, non-consolidating hospitals have inpatient mortality rate
of 6.67%, 4.89%, and 4.61%, whereas consolidating hospitals have
6.99%, 5.77%, and 4.93%. The difference between consolidating
and non-consolidating hospitals in 1993 is statistically significant
for both quality indicators: mean length of stay (t=-5.14, p=0.00)
and rate of inpatient mortality (t=-2.099, p=0.036). That the asso-
ciation is also apparent in 1993, prior to the mergers, suggests that
there are factors in the merged hospitals that are tied to the high
mean length of stay and rate of inpatient mortality for CHF pa-
tients. Therefore, these summary statistics illustrate the need for this
study to account not only for time trends but also for the apparent
initial associations between consolidating hospitals and the qual-
ity indicators. Thus, in this study, a difference-in-differences mul-
tivariate regression analysis will be performed to control for time
trends as well as for hospital effects of whether or not the CHF pa-
tient data is from a hospital classified as a merger/acquisition or not.
Emperical Framework
To understand the effect of hospital mergers and acquisitions on
the quality of patient care, an approach similar to that employed by
Ho and Hamilton is used. 1993 is set as a pre-merger date while 1997
and 1998 are years examining the effects of hospital consolidation
post-merger. Hospitals that consolidate between 1994 and 1996 are
of focus to this study, therefore allowing us to isolate the effects of
the merger/acquisition on any changes in the quality of patient care.
In order to incorporate time variance into the study, a method
No Consolidation Mergers and Aquisitions
1993 1997 1998 1993 1997 1998
6.77 5.30 5.17 7.00 5.45 5.08
6.67 4.89 4.61 6.99 5.77 4.93
87309 97011 45437 44471 59426 11149
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similar to that employed by Groff et al. (2007) in their analysis of
the impact of merger activity on hospital efficiency is used. By iden-
tifying in which year the 173 identified hospitals consolidated and
when the impact is observed (1997 or 1998) for each data point, the
period of time post-merger can be taken into account and grouped.
Thus all hospitals that have merged in 1996 are not observed until
one year later in the 1997 data or two years later in the 1998 data.
For those that consolidated in 1995, there is a two year gap before
the mergers’ impact on length of stay or inpatient mortality is ob-
served in the 1997 data and a three year gap before observed in
the 1998 data. The differences between when the hospitals merged
and when its impact is observed in the quality indicators is not
only controlled for in this framework but is also advantageous in
understanding the time variance in the effect of consolidation.
Thus, by having two post-merger years’ data we are able to extrapo-
late the impact of a hospital merger up to four years post merger. Those
that merge in 1996 and are observed in 1997 are grouped together re-
flecting the effect of hospital consolidation after one year. Those that
merge in 1995 and are observed in 1997 are grouped with those that
merge in 1996 and are observed in 1998 to analyze the effect of hospi-
tal consolidation after two years. Similarly, those that merge in 1994
and are observed in 1997 are grouped with those that merge in 1995
and are observed in 1998 to analyze the effect of consolidation three
years post-merger. And lastly, those that merge in 1994 and are ob-
served in the 1998 data are grouped together to reflect the impact of
consolidation on the quality indicators four years after consolidation.
This method assumes that the nature of a hospital merger is
not unique to what year it occurs in. While there are consider-
ations regarding anti-trust laws that were passed in the mid-1990s
that might possibly have formed barriers to consolidation, they
have no impact on this particular study; the causes of a merger is
not of focus in this study as it does not affect the quality indicators.
Similarly, any concerns that a hospital merging in a later year ex-
periences a higher HHI/hospital market concentration also do not
affect the focus of this study or bias the results on the quality in-
dicators because hospital market concentration is controlled for in
the performed regression analysis. Therefore, the assumption that
the nature of a hospital merger is not unique to what year it occurs
in sufficiently holds for the purpose of this framework and study.
Therefore, for each quality indicator, the proposed analyti-
cal framework is the same. Allowing the output Y to represent ei-
ther the predicted length of stay for CHF patients or the prob-
ability of inpatient mortality, we can allow Y to be calculated as
Y=B1mergedyr+B2 yr97+B3 yr98+B4merged+B5yr2+B6yr3+B7yr4
+B8X+B9Hosp+ ε (1)
where yr97 and yr98 are binary variables (with data from pre-
merger 1993 as the omitted dummy variable) indicating which year
the patient data is from, with B2 and B3 reflecting the effect and cap-
turing the time trends on the estimation of the quality indicators. The
variable merged classifies whether the patient data is from one of the
identified 173 hospitals that consolidated, and therefore captures any
effect that any of the factors unique to that group, even prior to con-
solidation, may have on the estimation of the quality indicators. This
is necessitated as seen in Table 2 where even prior to consolidation,
the 173 identified hospitals had a statistically significant difference
(higher) mean length of stay and rate of inpatient mortality of CHF
patients in 1993 than their non-consolidating counterparts. with the time lags. As predicted and exemplified in the data sum-
In the above-proposed equation, X represents various patient con-
trol variables such as age, race, and gender, as included in the ob-
tained NIS data. In previous quality of care studies (Ho and Hamil-
4 The Harvard Undergraduate Research Journal
Volume 2 Issue 2 | Fall 2009
ton 2000; Schneider 2008), patient comorbidities were also utilized to
control and isolate the effect of mergers on quality of care; however,
because of limitations in the obtained data, comorbidities were not
obtained and thus, not controlled for in this study. The variable Hosp
represents the aggregate of hospital specific controls provided by the
HCUP NIS survey, including the number of beds in the hospital, lo-
calization (either urban or rural), the number of total discharges, and
the continental region that it is located in. It is important to account
for these characteristics because there are quite possibly significant
associations between quality and the urbanity of hospitals (where
hospitals in an urban/municipal location tend to be more equipped
and thus generate better patient outcomes than those in rural loca-
tions) or between quality and regional differences. It is also assumed
that the number of hospital beds and of total discharges are linked to
quality of care; more beds and more patients treated suggest a more
developed and advanced hospital, which may lead to better patient
outcomes. Thus, these three controls may help eliminate any bias in
the estimation of the quality indicators. A patient flow Herfindahl-
Hirschman Index (HHI) is also included in the hospital controls to
account for the hospital market concentration. A HHI patient flow in-
dex was chosen over HSA or MSA as a definition of the market based
on the arguments posited by Williams et al. (2006) and because with
the regional and urbanity characteristics already being controlled
for, patient flow better defines the hospital market concentration.
Therefore, the variable of interest in this study is that of mergedyr,
which is the interaction of both yr97/yr98 and merged— when the
CHF patient data comes from one of the 173 identified hospitals that
consolidated and from data post-merger (either from 1997 or 1998).
With the inclusion of merged controlling for any group effects and
yr97 and yr98 controlling for any time trends, this interaction term
isolates the impact of hospital consolidation (as captured in the coef-
ficient B1) on the quality indicators. With the inclusion of lags yr2,
yr3, and yr4, the interaction term more specifically reflects the im-
pact of hospital mergers and acquisition on the quality indicators one
year after consolidation. The dummy time lags yr2, yr3, and yr4 are
defined by grouping the hospitals in those categories depending on
when the hospitals merged and from which post-merger data year
(1997 or 1998) the patient data is drawn from. Thus, to calculate the
effect on the quality indicator two years after consolidation, coeffi-
cients of mergedyr and yr2—B1 and B5—are summed, and likewise
for three years after and four years after. The statistical significance
and the sign of these coefficients are of true interest of this study as
these findings will shed light on what the impact of hospital merg-
ers and acquisitions have (if any) on the quality of patient care.
Emperical Results
Multivariate regressions of Equation 1 were performed for
both quality indicators, length of stay and inpatient mortal-
ity, for CHF patients. Because of the binary nature of inpa-
tient mortality, probit regression analysis was performed for
estimating inpatient mortality. OLS regression analysis was
performed for the estimation of length of stay CHF patients.
CHF Inpatient Mortality
As shown in the regression analysis of data in Table 3, two re-
gressions were performed in the estimation of inpatient mortality of
those with CHF. With 276,965 data points, regression (1) is a probit
regression without the time lags yr2, yr3, yr4, and regression (2) is
mary in Table 2, the coefficients of the dummy variables capturing
whether or not the data is from 1997 or 1998 are highly significant
with a negative coefficients of 16.0 and 17.2 percentage points (15.9
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Dependent variable CHF Inpatient Mortality CHF Length of Stay

(1) (2) (3) (4)
Probit Probit OLS OLS
Merged Hospital * Years Post Merger 0.00683 0.07829** -0.17286* 0.17048
(Mergedyr) (.01713) (.02457) (.08669) (.111073)
Patient Record is from 1997 -0.16014** -0.15904** -1.28796** -1.28483**
(.01045) (.01053) (.02677) (.026852)
Patient Record is from 1998 -0.17288** -0.16966** -1.36935** -1.34803**
(.01252) (.012617) (.03178) (.031366)
Patient Record is from Hospital that 0.02744* 0.04368** 0.32368** 0.40112**
Merged (.01276) (.013603) (.04301) (.046067)
Second Year after Merger __ -0.07254** __ -0.34839**
(.022334) (.06458)
Third Year after Merger __ -0.12670** __ -0.57360**
(.03024) (.16912)
Fourth Year after Merger __ -0.13662** __ -0.82725**
(.05603) (.14851)
Controls for Patient (Age, Race, Sex) Yes Yes Yes Yes
Controls for Hospital (Bedsize, Ur- Yes Yes Yes Yes
banity, Region, Total Discharges)
Patient flow HHI Yes Yes Yes Yes
Intercept -2.23828** -2.2395** 3.91103** 3.90544**
(.03905) (.03912) (.14165) (.14247)
F-statistics testing the hypothesis that the population coefficients on the indicated regressors are all zero
Mergedyr, Second Year after Merger __ 12.45** __ 14.81**
(.0020) (.0000)
Mergedyr, Third Year after Merger __ 17.94** __ 5.81**
(.0001) (.0030)
Mergedyr, Fourth Year after Merger __ 11.99** __ 19.73**
(.0035) (.0000)
Regression summary statistics
(Pseudo) R 2 0.0143 0.0144 0.0113 0.0114
n 276965 276965 277690 277690
Table 3 Difference in Difference estimates for CHF inpatient mortality and Length of Stay
Notes: Heteroskedasticity-robust standard errors are given in parentheses under estimated coefficients, and p-values are given in paren-
theses under F- statistics. The F-statistics are heteroskedasticity-robust. Coefficients are significant at the +10%, *5%, **1% significance
level. The controls for patient include Age, Race and Sex. Controls for Hospitals include Hospital Bedsize, Urbanity and Region. Patient
flow used as HHI/Hospital Market Share.
*Age= given in years;
*Race= (1) white, (2) black, (3) Hispanic, (4) Asian or Pacific Islander, (5) Native American, (6) other;
* Sex= (1) male, (2) female;
*Hospital Bedsize- (1) small, (2) medium, (3) large
* Urbanity= (0) Rural, (1) Urban
* Region- (1) Northeast, (2) Midwest, (3) South, (4) West
*2nd Year after merger= Hospitals that merged in 1995 in data collected in 1997, Hospitals that merged in 1996 in data collected in 1998.
*3rd Year after merger= Hospitals that merged in 1994 in data collected in 1997, Hospitals that merged in 1995 in data collected in 1998.
*4th Year after merger= Hospitals that merged in 1994 in data collected in 1998.

or 17 in reg. 2) decreases in the probability of an inpatient death,
holding all else equal.2 This reflects the apparent decreasing trend
in inpatient mortality rates that is shown in Table 2. Similarly, the
coefficient of the merged hospital dummy variable—indicating
that the patient record was from one of the 173 consolidating hos-
pitals—is shown to be highly significant in both regressions with a
positive coefficient of a 2.7 percentage points (4.3 in reg. 2) increase
in inpatient mortality, holding all else equal. This finding agrees
with the summary statistics shown in Table 2, where the inpatient
2
The large negative coefficient of the year dummy variables is countered by
positive coefficients of controls variables such as urbanity and patient flow HHI,
(coefficients of .04 and .25 respectively) to result in a more reasonable aggregate
effect that produces the low percentages of inpatient mortality as reflected in
Table 2.

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RESEARCH
mortality rates of merged hospitals were found to be statistically sig-
nificantly higher than the rates from non-consolidating hospitals.
In both regressions (1) and (2), patient and hospital controls were
included. Most were found to be statistically significant controls.
In regression (1), time variance is ignored and thus the fact that
the 173 consolidating hospitals merged or were acquired at dif-
ferent points in the three year window is ignored. Consequently,
we obtain a positive but statistically insignificant coefficient of
the interaction term mergedyr—the regressor of interest. There-
fore, similar to all previous studies done on this matter, we end up
with a similar result of an inconclusive but possibly increasing ef-
fect on inpatient mortality by hospital mergers. Also, similar to
the results achieved by Ho and Hamilton, the lack of significance
in the coefficient could be due to the large standard error of 0.017.
When taking into account the time variance with the inclusion of
the lags (yr2, yr3, and yr4), we reach a different and more significant
conclusion. The interaction term, mergedyr is now highly statistically
significant at the 1% level with a positive coefficient of a 7.8 percent-
age point increase in inpatient mortality if a hospital consolidates,
holding all else equal. This result also confirms conclusions made in
existing literature that hospital mergers and acquisitions lead to de-
creases in the quality of care. However, in this regression, because of
the inclusion of lag variables, mergedyr represents only the effect of
a merger/acquisition after the first year. All three lags, accounting for
time variance of the effects of hospital consolidation were found to be
highly significant at the 1% level as reflected in the results of the F-
tests in Table 3. Consequently, after the second year post-merger, the
effect on inpatient mortality is reduced from 7.82 to 0.56 percentage
points. Inpatient mortality is actually reduced by hospital mergers in
its third year by 4.8 percentage points and by 5.8 percentage points in
its fourth year. These results counter the conclusions reached by exist-
ing literature; while it confirms their findings that initially, in the first
year post-merger inpatient mortality may increase due to consolida-
tion, after the third year, the effect of hospital consolidation reduces
inpatient mortality by 4.8-5.8 percentage points, holding all else equal.
CHF Length of Stay
Similar to the results of the inpatient mortality, the effect of hos-
pital mergers and acquisitions on the length of stay of CHF patients
is significant and varies across the years post-consolidation. Again
two OLS regressions were performed using Equation 1 where regres-
sion (3) is without the lag variables yr2, yr3, and yr4, and regression
(4) is with them. The dummy variables that control for whether the
patient data is from 1997 or 1998 as well as the dummy control vari-
able on whether or not the patient data is from one of the 173 identi-
fied consolidating hospitals are found to be highly significant at the
1% level, capturing the general time trends as well as any state ef-
fects from unknown factors in the 173 merging hospitals. The signs
of the coefficients—similar to the regressions of CHF inpatient mor-
tality— also are in line with the trends in Table 2, where the 1997
and 1998 year coefficients are negative (approx. -1.3), reflecting a
trend of decreasing the length of stay. There is a positive coefficient
for merged hospitals (0.32 or .40 in regression (4)), reflecting the sta-
tistically significantly higher mean length of stay of patients from
consolidating hospitals than those from non-consolidating hospi-
tals, holding all else equal. In both regressions (3) and (4), patient
and hospital controls such as the number of beds in the hospital,
urbanity, region, total discharges, and patient flow HHI were also
included. Most were found to be statistically significant controls.
Similar to regression (1) for inpatient mortality, regression
(3) ignores any time variance of the effects of hospital consolida-
tion by excluding the lag variables. The interaction term mergedyr
is again the regressor of interest—isolating the impact of hospi-
6 The Harvard Undergraduate Research Journal
Volume 2 Issue 2 | Fall 2009
tal consolidation on the length of stay of CHF patients. The coeffi-
cient is found to be negative and statistically significant at the 5%
level with the impact of a hospital consolidating associated with a
reduction of the length of stay by .17 days, holding all else equal.
When taking into account the time variance with the inclu-
sion of the lags, we reach a similar conclusion that the effect on the
length of stay of CHF patients is decreased by hospital consolida-
tion. The incorporation of the lag variables results in the mergedyr
regressor becoming positive and statistically insignificant. With this
mergedyr now reflecting the effect of hospital consolidation one year
post-merger, this result reflects that after only one year of consolida-
tion, there is no significant effect from consolidation on the length
of stay of CHF patients. All three lag variables that account for the
time variance were, however, revealed to be highly significant at
the 1% level as reflected in the F-tests in Table 3. While there is a
possibly positive but statistically insignificant effect of mergers on
length of stay in the first year after consolidation, hospital merg-
ers lead to a decrease in length of stay by 0.178 days two years post-
mergers. Length of stay is reduced by hospital mergers in its third
year post-consolidation by 0.403 days and reduced by 0.657 days in
its fourth year, holding all else equal. These results further counter
the conclusions of other studies by revealing that holding all else
equal, hospital mergers and acquisitions result in significant reduc-
tions of the length of stay after the second year, post-consolidation.
Conclusions
This paper sought to expand the study of the effects of hospi-
tal mergers and acquisitions on the quality of patient care. Several
studies including that of Ho and Hamilton (2000) have posited that
the consolidation has negligible or detrimental effects on the qual-
ity of care. By expanding the study of hospitals across 14 states
and observing hospital activity and patient outcomes from 1993-
1998, this study furthered the discussion by testing the external
validity of data from a singl state and by accounting for the time.
The results of the study counter the conclusions reached by pre-
vious studies by showing that while hospital mergers and acquisi-
tions initially have a detrimental effect on inpatient mortality of
CHF patients and a statistically insignificant effect on their length of
stay in the first year post-merger, in subsequent years they lower the
impatient mortality by 5.8 percentage points and reduced hospital
length of stay by 0.657 days—both indicating an improvement in the
quality of patient care. One possible explanation for the peculiarity
of the first year post-merger in comparison to the observed effects
in the subsequent years is that initially, the hospital, organization-
ally, is in a state of restructuring, and thus, quality of care may dip.
There are several caveats to these results of this study. The method
to identify hospitals that consolidated during the three-year window
was done through several data manipulations and derivations, and
not by a source explicitly identifying mergers and acquisitions. There-
fore, the derivation of the 173 hospitals is susceptible to inconsisten-
cies in the data or misclassifications. Similarly, the process of iden-
tifying the year of consolidation through the examination of when
the profile of a hospital changes in the American Hospital Associa-
tion’s Hospital Guide is also susceptible to inconsistencies and indi-
rect changes in classification and measurement by the AHA over the
years. Lastly, this process of identifying mergers and acquisitions did
not allow for the classification of consolidation by type, as is done by
Ho and Hamilton (2000), which subdivided consolidating hospitals
into those that merge, are acquired, and are acquired from one health
system to another. Consequently, any variances between the types of
consolidation on the effect of quality of care are not distinguished.
Volume 2 Issue 2 | Fall 2009 RESEARCH

As raised by Ho and Hamilton in their study, the use of in- Vol 318, no.17. 1988. (pages 1100-1107)
patient mortality as a quality indicator necessitates caution for Town, Robert J., Wholey, Douglas R., Feldman, Roger and Burns, Lawton
R., “The Welfare Consequences of Hospital Mergers” (May 2006). NBER
with earlier discharges caused by consolidation—as seen in the
Working Paper No. W12244
results of the analysis of length of stay for CHF patients—the in- Vita, M. et al., “The Competitive Effects of Not-For-Profit Hospital Mergers:
patient mortality of patients might be reduced because of censor- A Case Study.” Journal of Industrial Economics, vol 49, no. 1, 2001.
ing of deaths that occur soon after discharge that would otherwise Williams, Claudia, Vogt, William, and Town, Robert. “How has hospital
have been counted as an inpatient mortality had the length of stay consolidation affected the price and quality of hospital care?” Robert
Wood Johnson Foundation Policy Brief (no.9) February 2006.
not been reduced. This would cause the data and the regression
analysis to become biased in attributing more of the decrease in
inpatient mortality to the impact of consolidation than it truly is.
Lastly, there remains a possibility of omitted variable bias in
the regressions. While the regressions were controlled for hospital
characteristics such as hospital bed size, urbanity, region, total dis-
charges, and patient flow HHI, and by patient statistics such as age,
race and gender, several other factors such as patient comorbidities
were not included due to limitations in the available NIS data. Ad-
ditionally, unobservable variances in time effects across hospitals are
also not controlled for in the regression analysis, endangering the
results to biases. It should be noted however, that hospital controls
such as hospital bed size or total discharges were not controlled over
time and therefore any changes to a hospital’s bed size over time is
attributed to the hospital consolidation and thus, is included as part
of the hypothesized instigator on changes in the quality of care.
Implications of these findings are significant as they add crucial
insight into the heated discussion surrounding hospital consolidation
and antitrust law. As aforementioned, legal and economic fascination
around hospital consolidation and quality of patient care was spurred
by the use of quality of patient care as one of three benchmarks by
several state antitrust laws discerning the legality of hospital merg-
ers. With the results reached in this study, the common presumption
that hospital mergers are a detriment to patient care is challenged
and invites further necessary study into this topic of consolidation.

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