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How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry

Publication ,  Journal Article
Eliason, PJ; Heebsh, B; McDevitt, RC; Roberts, JW
Published in: Quarterly Journal of Economics
February 1, 2020

Many industries have become increasingly concentrated through mergers and acquisitions, which in health care may have important consequences for spending and outcomes. Using a rich panel of Medicare claims data for nearly one million dialysis patients, we advance the literature on the effects of mergers and acquisitions by studying the precise ways providers change their behavior following an acquisition. We base our empirical analysis on more than 1,200 acquisitions of independent dialysis facilities by large chains over a 12-year period and find that chains transfer several prominent strategies to the facilities they acquire. Most notably, acquired facilities converge to the behavior of their new parent companies by increasing patients' doses of highly reimbursed drugs, replacing high-skill nurses with less-skilled technicians, and waitlisting fewer patients for kidney transplants. We then show that patients fare worse as a result of these changes: outcomes such as hospitalizations and mortality deteriorate, with our long panel allowing us to identify these effects from within-facility or within-patient variation around the acquisitions. Because overall Medicare spending increases at acquired facilities, mostly as a result of higher drug reimbursements, this decline in quality corresponds to a decline in value for payers. We conclude the article by considering the channels through which acquisitions produce such large changes in provider behavior and outcomes, finding that increased market power cannot explain the decline in quality. Rather, the adoption of the acquiring firm's strategies and practices drives our main results, with greater economies of scale for drug purchasing responsible for more than half of the change in profits following an acquisition.

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Published In

Quarterly Journal of Economics

DOI

EISSN

1531-4650

ISSN

0033-5533

Publication Date

February 1, 2020

Volume

135

Issue

1

Start / End Page

221 / 267

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 14 Economics
 

Citation

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Eliason, P. J., Heebsh, B., McDevitt, R. C., & Roberts, J. W. (2020). How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry. Quarterly Journal of Economics, 135(1), 221–267. https://doi.org/10.1093/qje/qjz034
Eliason, P. J., B. Heebsh, R. C. McDevitt, and J. W. Roberts. “How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry.” Quarterly Journal of Economics 135, no. 1 (February 1, 2020): 221–67. https://doi.org/10.1093/qje/qjz034.
Eliason PJ, Heebsh B, McDevitt RC, Roberts JW. How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry. Quarterly Journal of Economics. 2020 Feb 1;135(1):221–67.
Eliason, P. J., et al. “How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry.” Quarterly Journal of Economics, vol. 135, no. 1, Feb. 2020, pp. 221–67. Scopus, doi:10.1093/qje/qjz034.
Eliason PJ, Heebsh B, McDevitt RC, Roberts JW. How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry. Quarterly Journal of Economics. 2020 Feb 1;135(1):221–267.
Journal cover image

Published In

Quarterly Journal of Economics

DOI

EISSN

1531-4650

ISSN

0033-5533

Publication Date

February 1, 2020

Volume

135

Issue

1

Start / End Page

221 / 267

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 14 Economics