Why Do Acquisitions Negatively Affect Patient Outcomes at Target Hospitals: Quiet Life Hypothesis or Disruptions Caused by Acquisition Integrations?

Abstract

Care quality declines at target hospitals following mergers and acquisitions (M&A) by multihospital health systems (MHSs). The declines have been attributed to the M&A’s consolidation and competitive intensity reduction effects. Insulated from competition, managers may choose to enjoy the “quiet life” instead of taking on difficult tasks to improve care quality. In addition to subjecting this hypothesis to empirical scrutiny, we propose and test a disruption hypothesis: IT M&A integrations and medical service integrations between an MHS and a target could cause disruptions to the target’s care processes and reduce the quality of patient outcomes. We find support for both hypotheses in a sample of 629 M&A transactions conducted by 179 unique MHSs and 579 unique target hospitals in the U.S. hospital industry during 2009-2017. Reduced competitive intensity increases mortality rates. IT M&A integrations increase readmission and mortality rates whereas service integrations increase only readmission rates in target hospitals.