Cost reductions or reputation enhancement as motives for mergers: The logic of multihospital systems

David Dranove*, Mark Shanley

*Corresponding author for this work

Research output: Contribution to journalArticle

89 Scopus citations

Abstract

This paper examines two motives for the formation of local multihospital systems: cost reduction and reputation enhancement. Systems may reduce costs by eliminating redundancies and reducing administrative costs. Integration may also lower costs for consumers seeking consistently high qualiiy. We hypothesize that if systems achieve either cost or reputation benefits, then member hospitals will ‘look’ different from random collections of hospitals. We find that local systems do not appear to have lower costs but do appear to enjoy reputation benefits over nonsystem hospitals. Our findings challenge the assumptions behind popular health reform initiatives.

Original languageEnglish (US)
Pages (from-to)55-74
Number of pages20
JournalStrategic Management Journal
Volume16
Issue number1
DOIs
StatePublished - 1995

Keywords

  • Economies of scale
  • diversification
  • hospital systems
  • medical economics
  • mergers

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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