Local markets and systems: hospital consolidations in metropolitan areas.

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OBJECTIVE. This study examines the formation of local hospital systems (LHSs) in urban markets by the end of 1992. We argue that a primary reason why hospitals join LHSs is to achieve improved positions of market power relative to threatening rivals. DATA SOURCES/DATA COLLECTION. The study draws from a unique database of LHSs located in and around metropolitan statistical areas (MSAs). Data were obtained from the 1991 AHA Annual Hospital Survey, updated to the year 1992 using information obtained from multiple sources (telephone contacts of systems, systems lists of hospitals, published changes in ownership, etc.). Other measures were obtained from a variety of sources, principally the 1989 Area Resources File. STUDY DESIGN. The study presents cross-sectional analyses of rival threats and other factors bearing on LHS formation. Three characteristics of LHS formation are examined: LHS penetration of urban areas, LHS size, and number of LHS members located just outside the urban boundaries. LHS penetration is analyzed across urban markets, and LHS size and rural partners are examined across the LHSs. PRINCIPAL FINDINGS. Major hypothesized findings are: (1) with the exception of the number of rural partners, all dependent variables are positively associated with the number of hospitals in the markets; the rural partner measure is negatively associated with the number of hospitals; (2) the number of doctors per capita is positively associated with all but the rural penetration measure; and (3) the percentage of the population in HMOs is positively associated with local cluster penetration and negatively associated with rural system partners. Other findings: (1) average income in the markets is negatively associated with all but the rural penetration measure; (2) LHS size and rural partners are both positively associated with nonprofit system ownership; and (3) they are also both negatively associated with the degree to which their multihospital systems are geographically concentrated in a single state. CONCLUSIONS. The findings generally support the argument that LHS formation is the product of hospital providers attempting to improve positions of power in their local markets.

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