Mergers of not-for-profit hospitals in the 1980s: Who were the most likely targets?

Proponents argue that mergers should be encouraged as a legitimate strategy to avert (presumably undesirable) hospital closures. More recently, antitrust activity directed at not-for-profit hospitals has intensified. This study attempts to shed some light on the policy debate by testing whether merger targets are indeed candidates for closure, namely hospitals with persistent losses. Acquisitions of independent not-for-profit hospitals by other hospitals and by multihospital corporations are observed from a national sample for the period 1982–1987. The likelihood of being acquired in during any year within that period is estimated using a discrete-time hazard rate model. We find no evidence to support the notion that hospitals with weak financial indicators are more likely to be acquired. Rather, we find that hospitals with high operating-margins that are located in less regulated markets, and to a certain extent in high-growth markets, are more likely to be acquired. These findings cast doubt on certain predictions found in the theoretical literature, but are in agreement with empirical studies of other industries.