Hospital Market Consolidation and Efficiency: A Difference-in-Differences Assessment Using RAND Data

Hospital consolidation has increased in the USA, raising concerns about reduced competition and higher costs. This study investigates whether recent consolidations have enhanced efficiency or boosted market power. Data from 2017 to 2024, collected from RAND Hospital Data, which combines Medicare Cost Reports and hospital ownership information, were analyzed using a difference-in-differences approach to assess efficiency changes before and after hospitals joined multihospital systems. The treatment group consisted of hospitals affiliated with a hospital system between 2019 and 2020, while standalone hospitals served as the comparison group. The analysis examined overall, operating, and cash flow margins. Fixed-effects models with clustered standard errors accounted for hospital-level differences. Results showed a significant increase in overall margins (β = 0.0064, SE = 0.0028, p = 0.021) and operating margins (β = 0.0068, SE = 0.0025, p = 0.006), but no significant change in cash flow margins (β = 0.0019, p = 0.415) for hospitals that joined systems between 2019 and 2020. Pre-trend lines support causal inference. These findings suggest efficiency improvements rather than increased market dominance. The results differ from previous studies on cost inflation but reflect recent efficiency gains under new regulations following the public healthcare law.