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  5. Hospital Mergers, Markups, and Executive Compensation
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Hospital Mergers, Markups, and Executive Compensation

Paper Session

Sunday, Jan. 7, 2024 10:15 AM - 12:15 PM (CST)

Grand Hyatt, Presidio B
Hosted By: American Society of Health Economists & American Economic Association
  • Chair: Maura Coughlin, Rice University

How Does Rising Health Care Spending in the U.S. Impact Labor Markets and Mortality? Evidence from Hospital Mergers

Zarek C. Brot-Goldberg
,
University of Chicago
Zack Cooper
,
Yale University
Stuart Craig
,
Yale University
Lev Klarnet
,
Yale University
Ithai Lurie
,
Office of Tax Analysis

Abstract

We analyze how increases in health care spending on the privately insured in the US impact labor market outcomes. We use price increases caused by horizontal hospital mergers as an instrument for local health care spending, and trace the incidence of rising health spending through the labor market using de-identified data from tax records. We find that a 10% increase in health care spending (roughly $500 per person) lowers income by 2.7%, increases the unemployment rate by 0.7 percentage points, and lowers federal income tax receipts by 2.8%.These effects are driven by a worsening of labor market outcomes in non-health-care industries. Likewise, the job losses we observe are concentrated entirely among workers in the bottom third of the income distribution. We find that the same increase in health care spending leads to 3.8 additional “deaths of despair” per 100,000 individuals each year, which implies that individuals who lose their jobs die at a rate of approximately 1 in 200.

Markups and Mergers in the U.S. Hospital Industry

Jan De Loecker
,
KU Leuven
Sebastian Fleitas
,
Pontifical Catholic University of Chile

Abstract

In this paper, we construct a hospital-level panel dataset covering the entire US hospital industry over the period 1996-2018. Using detailed hospital-level expenditure and revenue data, we measure hospital-level markups and document industry-wide increasing markups of about 18 percent. In addition, we confirm hospital-level markup estimates documented in the literature that were obtained using alternative approaches. We then relate markups to merger activity across hospital markets, and we find a strong association between markups and mergers at the market level. In particular, we find that mergers on average can explain about 3 of the 18 percent increase in markups. Our results indicate that market-level markups do not increase due to reallocation of market shares to higher markup hospitals, rather by an increase of markups at hospitals involved in mergers. We confirm that hospital system-wide mergers are the main factor driving the estimated merger-markup effect.

The Determinants of Non-Profit Hospital Executives’ Compensation

Vivian Ho
,
Rice University
Derek Jenkins
,
Rice University
Marah Short
,
Rice University

Abstract

We compare the relative importance of financial performance, community benefit, and quality of care in determining hospital executive compensation. We examine changes in executive pay between 2012 and 2019, when substantial health system consolidation was accompanied by noticeable increases in hospital prices and profit margins. We merge compensation data from IRS 990 forms provided by Candid with financial and community benefit data in the National Academy for State Health Policy (NASHP) Hospital Cost Tool (HCT), as well as quality data from the Medicare Hospital Compare dataset. We examine CEO pay, as well as the combined pay of the top five hospital executives who were not directly providing clinical care. Executive pay is examined at the healthcare system level, and the number of beds and number of hospitals are included as explanatory variables to control for system complexity. We examine the association between changes in executive compensation between 2012 and 2019 and changes in the explanatory variables, as well as differences in the magnitude of the coefficients when regressions are estimated separately for these two years. Preliminary analyses suggest that financial performance measures are closely related to executive compensation. Community benefit measures are not associated with hospital executive pay, and only some measures of quality are related to executive compensation.

Discussant(s)
Haizhen Lin
,
Indiana University
Devesh Raval
,
Federal Trade Commission
Mireille Jacobson
,
University of Southern California
JEL Classifications
  • I1 - Health
  • L1 - Market Structure, Firm Strategy, and Market Performance