Economics and Accounting Honors Theses

Date of Creation

5-1-2020

Degree Type

Departmental Honors Thesis - Restricted Access

Abstract

This paper details a study conducted on 59 Florida counties from 2013 to 2018, on the effect of hospital consolidation on bankruptcy rates. The basis of exploring this connection is the rise in mergers and acquisitions in the healthcare industry over the past 20 years. Increased consolidation in the hospital market has been associated with higher prices. Many hospitals consolidate to cut costs and increase bargaining power relative to insurance companies, however, the financial effects on patients are not well understood. Uninsured patients often pay medical costs out-of-pocket. This increases their likelihood of being adversely affected by rising prices relative to their insured counterparts, who only pay an average of 2-3% of total costs. I calculated a Herfindahl–Hirschman Index for each county and year, then measured the effects on the bankruptcy rate. I expected to find that increased consolidation would cause prices to go up, and thus a higher bankruptcy rate. However, I found that there is an inverse relationship between these two variables. The results show that increased market concentration is associated with lower bankruptcy rates, even when controlling for other leading causes of bankruptcy. This effect is magnified when independent variables are lagged for 1-2 years and bankruptcy rates are measured later. This finding, in conjunction with previous research that established prices increase with market concentration, suggests that hospitals price discriminate. My findings suggest that even though prices may increase for insurance companies, they do not necessarily increase for uninsured patients to the point where it would cause bankruptcy. I speculate that hospitals may be using profits from insurance companies to cover unaffordable medical bills for those who are uninsured, and thus decreasing bankruptcy rates following consolidation.

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