Hospital mergers in the mid 1990s: Predicting likely targets

Consolidation of the hospital industry is occurring at an increasing pace in the 1990s. This recent rise in mergers and acquisitions has prompted interest in what characteristics make certain hospitals good takeover targets. This study compares hospital and regional differences between 11 acquired versus 296 non-acquired hospitals in Texas one year prior to takeover in 1995. A stochastic frontier model and PROBIT model were used to determine which characteristics suggest takeover likelihood. The findings indicate that inefficiency is highly significant in predicting which hospitals make good takeover candidates. Hospitals in counties with large populations and with a large senior citizen community are also significant indicators of potential acquisition. The results suggest that these acquisitions are a market mechanism for disciplining inefficient hospitals.