Abstract
Publicly traded firms being held by common owners may affect product prices set by these firms. Common ownership usually refers to a scenario when a few competing firms from the same industry and competing firms are also held by large common owners. Previous literature has studied the anticompetitive effects of common ownership in a few industries. In this paper, we use comprehensive data on 6200 hospitals in the U.S. from the American Hospital Association, Healthcare Cost Report Information System, and Wharton Research Data Services, and we test whether the presence of common ownership in the hospital industry affects hospitals’ charges. We find that common ownership in the hospital industry has anticompetitive effects on hospital prices. Our estimates are also robust to controlling for other compounding effects and under a range of alternative specifications of the model. Specifically, both lagged regressions and difference-in-differences strategies yield statistically significant positive impacts of common ownership on hospital prices, while economic magnitudes of the difference-in-differences results are much larger with more observations in analysis.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
An institutional investor usually has a portfolio in which it holds stock shares of a number of competing firms in the same industry.
For example, consumers could choose to drive if airline ticket prices are high and choose to hold cash if bank deposit interest rates are low.
The hospital referral region (HRR) code is constructed by the Dartmouth Atlas Project. HRRs represent regional healthcare markets for tertiary medical care. Each HRR contains at least one hospital that performs major cardiovascular procedures and neurosurgery. HRRs were defined by assigning local hospital care markets to the region where the greatest proportion of major cardiovascular procedures were performed, with minor modifications to achieve geographic contiguity, a minimum population size of 120,000, and a high localization index.
Psychiatric Solutions (94 hospitals) was acquired by the Universal Health Service (127 hospitals) in 2009. RehabCare Group was acquired by Kindred Healthcare in 2011. The $3.9 billion acquisition of Health Management (71 hospitals) by Community Health Systems (135 hospitals) occurred in 2014 (Dafny et al. 2016).
The intuitive example of MHHIdelta as the measure of common ownership is illustrated in Table 4.
The primary services include different types such as general medical and surgical, surgical, psychiatric, obstetrics and gynecology, rehabilitation, orthopedic, other specialty treatment, children’s psychiatric, acute long-term care, alcoholism, and other chemical dependency.
According to Azar et al. (2018), following the financial crisis that began in 2007, Barclays tried for several months to strengthen its balance sheet. On March 16, 2009, Barclays had received a \(\$4\) billion bid by CVC Capital Partners for its iShares family of exchange-traded funds, along with an option to solicit competing offers. BlackRock announced a bid to acquire iShares’ parent division Barclays Global Investors (BGI) for \(\$13.5\) billion on June 11, 2009. The bid was successful, and the acquisition was formally completed in December 2009.
References
Amel-Zadeh A, Kasperk F, Schmalz M (2022) Mavericks, universal, and common owners: the largest shareholders of US public firms. In: CESifo Working Paper, No. 9926, Center for Economic Studies and ifo Institute (CESifo), Munich
Anton M, Ederer F, Gine M et al (2021) Innovation: the bright side of common ownership? SSRN Electron J. https://doi.org/10.2139/ssrn.3099578
Antón M, Ederer F, Giné M et al (2023) Common ownership, competition, and top management incentives. J Polit Econ 131(5):1294–1355
Azar J (2011) A new look at oligopoly: implicit collusion through portfolio diversification. SSRN Electron J. https://doi.org/10.2139/ssrn.1993364
Azar J, Schmalz MC, Tecu I (2018) Anticompetitive effects of common ownership. J Finance 73(4):1513–1565. https://doi.org/10.1111/jofi.12698
Azar J, Raina S, Schmalz M (2022) Ultimate ownership and bank competition. Financ Manage 51(1):227–269
Backus M, Conlon C, Sinkinson M (2021) Common ownership in America: 1980–2017. Am Econ J: Microecon 13(3):273–308
Backus M, Conlon C, Sinkinson M (2018) The common ownership hypothesis: theory and evidence. In: Brookings working paper
Backus M, Conlon C, Sinkinson M (2021b) Common ownership and competition in the ready-to-eat cereal industry (no. w28350). National Bureau of Economic Research
Bertrand M, Mullainathan S (2003) Enjoying the quiet life? Corporate governance and managerial preferences. J Polit Econ 111(5):1043–1075. https://doi.org/10.1086/376950
Brav A, Jiang W, Kim H (2015) The real effects of hedge fund activism: productivity, asset allocation, and labor outcomes. Rev Financ Stud 28(10):2723–2769. https://doi.org/10.1093/rfs/hhv037
Brav A, Jiang W, Li T et al (2020) Picking friends before picking (proxy) fights: how mutual fund voting shapes proxy contests. Tech. rep, Columbia Business School Research Paper, pp 16–18
Bresnahan TF, Salop SC (1986) Quantifying the competitive effects of production joint ventures. Int J Ind Organ 4(2):155–175. https://doi.org/10.1016/0167-7187(86)90028-7
Connor RA, Feldman RD, Dowd BE (1998) The effects of market concentration and horizontal mergers on hospital costs and prices. Int J Econ Bus 5(2):159–180. https://doi.org/10.1080/13571519884495
Cornett MM, Hovakimian G, Palia D et al (2003) The impact of the manager–shareholder conflict on acquiring bank returns. J Bank Financ 27(1):103–131. https://doi.org/10.1016/s0378-4266(01)00210-2
Cutler DM (1990) Empirical evidence on hospital delivery under prospective payment. Unpublished Paper
Cutler DM (1995) The incidence of adverse medical outcomes under prospective payment. Econometrica 63(1):29–50
Dafny L (2005) How do hospitals respond to price changes? Am Econ Rev 95(5):1525–1547
Dafny L (2009) Estimation and identification of merger effects: an application to hospital mergers. J Law Econ 52(3):523–550
Dafny L, Ho K, Lee RS (2016) The price effects of cross-market hospital mergers (no. w22106). Tech. rep., National Bureau of Economic Research. https://doi.org/10.3386/w22106
Dewatripont M, Tirole J (1994) A theory of debt and equity: diversity of securities and manager-shareholder congruence. Q J Econ 109(4):1027–1054. https://doi.org/10.2307/2118355
Dranove D, Lindrooth R (2003) Hospital consolidation and costs: another look at the evidence. J Health Econ 22(6):983–997. https://doi.org/10.1016/j.jhealeco.2003.05.001
Dranove D, White WD (1994) Recent theory and evidence on competition in hospital markets. J Econ Manag Strategy 3(1):169–209
Gaynor M, Vogt WB (2003) Competition among hospitals (no. w9471). National bureau of economic research. Document Object Identifier https://doi.org/10.3386/w9471
Gilman BH (2000) Hospital response to DRG refinements: the impact of multiple reimbursement incentives on inpatient length of stay. Health Econ 9(4):277–294
Gowrisankaran G, Nevo A, Town R (2015) Mergers when prices are negotiated: evidence from the hospital industry. Am Econ Rev 105(1):172–203. https://doi.org/10.1257/aer.20130223
Gramlich J, Grundl S (2017) Estimating the competitive effects of common ownership. Finance and Economics Discussion Series 2017(029r1). https://doi.org/10.17016/feds.2017.029r1
Haas-Wilson D, Garmon C (2011) Hospital mergers and competitive effects: two retrospective analyses. Int J Econ Bus 18(1):17–32
Hart OD (1979) On shareholder unanimity in large stock market economies. Econometrica: J Econom Soc 1057–1083. https://doi.org/10.2307/1911950
He JJ, Huang J (2017) Product market competition in a world of cross-ownership: evidence from institutional blockholdings. Rev Financ Stud 30(8):2674–2718. https://doi.org/10.1093/rfs/hhx028
Janakiraman S, Radhakrishnan S, Tsang A (2010) Institutional investors, managerial ownership, and executive compensation. J Account Audit Finance 25(4):673–707
Lewis MS, Pflum KE (2017) Hospital systems and bargaining power: evidence from out-of-market acquisitions. RAND J Econ 48(3):579–610. https://doi.org/10.1111/1756-2171.12186
Mccahery JA, Sautner Z, Starks LT (2016) Behind the scenes: the corporate governance preferences of institutional investors. J Finance 71(6):2905–2932. https://doi.org/10.1111/jofi.12393
Melnick G, Keeler E, Zwanziger J (1999) Market power and hospital pricing: are nonprofits different? Health Aff 18(3):167–173. https://doi.org/10.1377/hlthaff.18.3.167
Rotemberg J (1984) Financial transaction costs and industrial performance
Schmitt M (2017) Do hospital mergers reduce costs? J Health Econ 52:74–94
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Liu, M., Yao, L. Players behind the scenes: common ownership in the hospital industry. Empir Econ 66, 2277–2309 (2024). https://doi.org/10.1007/s00181-023-02519-2
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00181-023-02519-2