Merger rationales and drivers

There are a variety of reasons or rationales for mergers among higher education institutions. At the level of the superstructure (Clark 1983) or central government, and as a policy instrument mergers are expected to: enhance system integration (rationalization); improve the quality of teaching and research; address equity considerations (e.g. enrolment contraction) as well as improve the (cost-)efficiency of domestic higher education systems (Harman 1986; Kyvik 2002).

A recent review of the literature, covering the period from the 1970s to the 1990s, identified the most important reasons for merging as relating to the need to:

• boost efficiency and effectiveness;
• deal with organizational fragmentation;
• broaden student access and implement equity strategies;
• increase government control over higher education systems;
• enhance decentralization (autonomy); and
• establish larger organizations (Ahmadvand et al. 2012).

All in all, mergers are thought to have the potential to produce substantial long-term benefits for individual providers and the system as whole. These include, but are not limited to: (a) the establishment of larger and more comprehensive institutions; (b) stronger academic programmes; (c) improved student services; (d) enhanced student choice; (e) greater institutional flexibility; and (f), under certain conditions, increased efficiencies and cost savings (Harman and Harman 2003; Harman and Meek 2002). A common rationale for resorting to mergers of academic institutions is based on the establishment of larger units, in the form of academic and administrative economies of scale (Norgard and Skodvin 2002; Pinheiro 2012).¹

At the level of the individual higher education institution, the rationale and motivation for embracing mergers as a strategic management/planning mechanism (Toma 2010) pertains to the urge to address financial problems and emerging external threats, such as falling student demand and fiercer competition (Goedegebuure and Meek 1994; Harman and Harman 2003; Pinheiro and Stensaker 2014), in addition to the changing needs and demands of key external stakeholder groups (Pinheiro 2012; Pinheiro et al. 2012b). In comparison, studies from the private higher education sector (period 1960–1994 and employing statistical regression analysis) reveal that mergers are more likely to occur amidst rises in faculty salaries and the decline in tuition rates (Bates and Santerre 2000).

Mergers can be broadly categorized as either voluntary (institutionally driven) or forced (mandated) by government (Harman and Harman 2003). Qualitative studies from Australia in the 1980s suggest that voluntary amalgamations tend to take place when institutions fear governments will mandate restructuring (Curri 2002). More recently, and in a number of countries, there has been a shift from mergers initiated from the “top down” by government as a means of dealing with so-called “problem cases” towards institution-initiated amalgamation processes involving “strong” institutions with clear strategic objectives (Harman and Harman 2008).

Goedegebuure and Meek (1994: 128) define a merger involving higher education institutions as pertaining to

These authors also make a distinction between mergers and takeovers or acquisition. The former is considered to be a takeover only if one of the organizations involved retains its original form and thereafter does not alter the legal base of its charter.

There have been several attempts to make typologies of higher education mergers, based on the institutional profiles and missions of the organizations involved. Goedegebuure and Meek (1994: 129; see also Cai et al. 2016) have proposed the following typology:

• Horizontal – similar academic fields, similar type of product;²
• Vertical – similar academic fields, different type of product;
• Diversification – different academic fields, similar type of product; and
• Conglomerate – different academic fields, different kind of product.

The process

Similar to what is the case in the private sector, merger processes involving higher education institutions are something of a “black box” – that is under-researched phenomena. That said, it is generally recognized in the literature that mergers are a complex and painstaking activity for institutions and staff alike (Bresler 2007; Cartwright et al. 2007; Wan 2008). A number of key challenges come to the fore as far as merger processes are concerned. Not only do mergers bring profound leadership/managerial- related challenges (Goedegebuure 2011b), but coherent, cohesive and sustainable integration efforts tend to take a long time to materialize, usually about a decade (Mao et al. 2009).

Studies from South Africa on staff perceptions of mergers indicate that staff are not necessarily opposed to the process, but that careful consideration needs to be given to certain personal factors (e.g. staff fears and anxieties) in order to ensure an effective merger (Hay and Fourie 2002). More recent studies (from South Africa and the UK) highlight the stressful potential of the pre-merger period on the staff involved, as well as the positive role of consultation and involvement during the merger process, from design and implementation to evaluation (Becker et al. 2004; Cartwright et al. 2007).

Another crucial issue relates to the spatial aspects of mergers. Research in Australia indicates that integrated merged campuses provide more scope for tighter cultural integration (around the notion of “integrated communities”) when compared with federal structures, and that expert leadership is a key condition for minimizing cultural conflict and the development of new loyalties around a shared sense of community (Harman 2002; for similars accounts from South Africa, see Kamsteeg 2011 and Bresler 2007). “A particular cultural challenge for higher education leaders is to manage the merging of divergent campus cultures into coherent educational communities that display high levels of cultural integration and loyalty to the new institution” (Harman and Harman 2003: 38; see also Pinheiro and Berg 2016).

Various studies from South Africa have provided statistical evidence of the effect of a drastic life-changing event like mergers in the actualization of academics’ intellectual potential and emotional skills, thus accentuating the importance of timely and continued assessment of the ongoing functioning and well-being of academics involved in mergers (Maree and Eiselen 2004; see also Theron and Dodd 2011). In other contexts, there is evidence of the critical role played by certain agents during the design and implementation phases. For example, a merger leading to the establishment of the third largest public higher education institution in the state of Ohio, USA, points to “the efforts of a number of [key] individuals who recognized the potential advantages of a merger and worked quickly through challenges by early engagement of stakeholders [including local politicians] in the merger process” (McGinnis et al. 2007: 1187).

A UK-based study covering a total of thirty mergers instigated between the late 1980s and the mid-1990s found that in two out of three cases, the final formal decision to merge was preceded by a period of inter-institutional collaboration, yet the latter factor was not found to be critical for success per se (Rowley 1997; see also Kyvik and Stensaker 2013). Evidence from Australia suggests that, in order to achieve organizational change resulting from a merger, the congruence between a set of key factors is critical to achieve desired outcomes, with the data pointing to the relationship between dimensions such as leadership, restructuring, the management of staff relations, organizational development, external pressure for change and organizational change (Curri 2002). Similarly, in China, Cai (2007) has demonstrated how academic staff integration resulting from a merger between three separate institutions was aided by factors such as cultural compatibility amongst the pre-merger institutions and managerial transparency. In Australia, Gamage (1992: 89) cites the critical factors that aided the successful merger between two institutions in the mid-1980s as: the voluntary nature of the merger; the lengthy, deliberative and consultative period taken to finalize the agreement; and the pace at which this was executed.

A study adopting a social identity approach – suggesting that pre-merger group membership, socio-structural characteristics and underlying motivational processes affect people’s responses to mergers – provides empirical evidence for the fact that discrepancies between what merger partners want and what they get out of the merger affects outcomes that are essential to merger success (Gleibs et al. 2013). On the basis of a government-mandated merger between two UK-based institutions, the authors were able to predict and demonstrate empirically that members of the university and polytechnic groups involved in the process desired merger patterns that would optimize their status in the newly merged organization (Gleibs et al. 2013). Whereas members of the “low-status” group (polytechnic) preferred a merger pattern where both groups were equally represented, members of the “high-status” group were keen on integration proportionality and assimilation. More specifically, it indicates that a negative outcome (loss of status) for the pre-merger group leads to decreased support for the merger. In contrast, misfit that indicates a positive outcome (gain in status) for the in-group was not found to have a negative effect on merger support. According to Cai (2006: 223):

A comprehensive review of the literature by Harman and Harman (2003) revealed the following:

• Voluntary mergers are easier to organize and tend to be more successful than forced ones, “largely because it is possible to achieve a substantial degree of staff involvement in negotiations and implementation, leading usually to a strong sense of ownership” (Harman and Harman 2003: 31–32).
• Consolidations (i.e. mergers involving similar institutions) are, generally speaking, more demanding and involve difficult trade-offs, such as choice of the new academic structure, the portfolio of courses to be offered and so on.
• Cross-sectoral mergers pose special dilemmas since institutions from different sectors often have distinct missions, roles and cultures, in addition to distinct funding bases.
• Finally, mergers of institutions possessing the same or a similar range of disciplinary fields often mean greater commonality in academic cultures, thus easing cultural integration, yet they also tend to require considerable rationalization of course offerings in order to realize cost savings.

In short, some evidence points to the complexity of the process surrounding mergers, either voluntary or forced, and to the criticality of key variables in predicting successful outcomes. Nonetheless, scholars are careful not to draw bold conclusions from specific case situations and highlight the criticality of the contextual circumstances surrounding mergers; ranging from changes in national regulations, demographic trends and migration patterns, regional and national competition, institutional histories, resource dependencies, leadership structures, academic aspirations, timing, the role of external actors, and so on. (Cai 2007; Goedegebuure 2011a; Goedegebuure and Meek 1994; Kyvik 2002; Locke 2007; Pinheiro and Stensaker 2014; Pinheiro et al. 2016a; Stensaker et al. 2016).

Effects

What do we know when it comes to the mid- and long-term effects or outcomes of mergers involving higher education institutions? From a comparative standpoint, it is interesting to discuss what kinds of indicators and aspects are used in the assessment of mergers. Whether a specific merger has been “successful” is contingent on the criteria used.

Skodvin (1999) proposes the following three dimensions or levels of analysis: governance, management and administration; economics; and academic activities. Based on a comprehensive review of the literature (in the late 1990s), Skodvin indicates that many merged institutions result in a more professional and efficient administration. That said, it was also revealed that economies of scale are less common, due to both the legal framework (unions) and human resources (HR) policies. Furthermore, growth in organizational size was found to be positively correlated with increasing internal complexity. In the realm of economics, Skodvin concludes that, in the short run, mergers are rather costly, but also that there are economies of scale over the long term. On this point, the data suggest considerable differences between network organizations spread across different locations and those located within a specific geographic area, with much higher transaction costs in the former. Finally, regarding academic activities, the status and prestige of the departments/fields involved were found to be obstacles in some circumstances, but, on the whole, mergers were thought to result into broader and more multidisciplinary programmatic offerings. More specifically, as regards research activities, results were found to be uncertain yet mergers seem to trigger positive developmental activities. Overall, Skodvin concludes that the greater the differences in terms of size and scope, the higher the probability that mergers will be successful.

Whilst investigating the short-term effects (after three years) of the merger between two Australian institutions in the mid-1980s, Gamage (1992) found realizable synergies and shortcomings. On the positive front, significant progress had been made with respect to the upgrading of existing and the development of new academic programmes, as well as an enhanced institutional profile and market recognition (e.g. by becoming the sixth-largest university in the country) – reflected in increased student demand and membership of the prestigious domestic “League of Big Universities.” Yet, despite this, academic integration in the realm of teaching (staff synergies) was found to be far from optimal; and, more importantly, economies of scale (financial efficacy) had not been realized (see also Aagaard et al. 2016).

In their review of the existing international literature, Harman and Harman (2003: 42) conclude the following with respect to the outcomes generated by mergers involving higher education institutions:

In his study of merger processes (1987–1994) involving UK-based higher education institutions (thirty cases), Rowley (1997: 12) concludes that 90 per cent of the mergers can be considered rather successful. In retrospect, the author stresses that, “while most HE [higher education] mergers are the outcome of a rational planning process, like corporate mergers they include many unanticipated consequences, some of which are strategically significant.”

In China, Wan and Peterson (2007) found that the most significant benefit of a merger dating back to 1994 was an enhanced academic portfolio, with limited gains when it came to administrative effectiveness. According to these authors:

Recent studies from South Africa (Eastern Cape Province) tentatively suggest that the synergic effects, both administrative and academic, emanating from mergers have the potential for a stronger degree of academic engagement with regional actors at a variety of levels, thus augmenting the potential benefits of the presence of a university (i.e. its various educational sites or multiple campuses) across a given geography (Pinheiro 2010, 2012; see also Pinheiro et al. 2012a). Other recent studies from Scandinavia illustrate how a perceived “new” university has the potential to attract significantly more students than the earlier HEIs (Geschwind et al. 2016). This effect appears immediately after the completed merger, preceding the foreseen quality boost as an outcome of the process.

Yet another way to discuss post-merger effects is based on the attitudes of staff. In a study of the long-term effects of a forced merger – the creation of the University of Ulster in 1984, described as “a shotgun marriage” – Pritchard and Williamson (2008) found that twenty years after the merger almost two-thirds of survey respondents thought the former organization was “a happier place.” However, the general picture that mergers are always stressful for the people involved has been questioned by some scholars. In a study of two UK universities, Cartwright et al. (2007) found that employees were relatively healthy in terms of stress.

Rationale

In the 1980s, the merger trend reached the healthcare sector, starting in the US (Choi 2011). To justify the mergers, financial and operational improvements were promised. That said, as is often the case, scholars disagree on the rationale for merging hospitals, with some arguing that they will improve efficiency, lower costs and enhance health outcomes, while others contend that there is little evidence to support this view (Cuellar and Gertler 2003).

In the Nordic countries, most of the healthcare is publicly owned and managed (Häkkinen and Jonsson 2009). Since the 1990s the sector has been characterized by new public management reforms, and the main drivers behind the reforms have been attempts to improve economy, efficiency and equity – that is, improve regional variations in quality and accessibility. There have been concerns regarding low productivity and increasing costs. The costs are financed through a publicly governed tax system (Magnussen et al. 2009; Rehnberg et al. 2009) and all citizens are offered “universal coverage,” which does not specify the types of services included. Two major trends have occurred in the Nordic countries in recent years. Reforms with effects on the production side have been implemented in Norway and Denmark. Sweden has prepared a reform, and Finland has taken a decision on such a reform (Häkkinen and Jonsson 2009). The long tradition of decentralizing responsibility for healthcare to local government (Rehnberg et al. 2009) has been challenged through reforms focusing on the production side (Häkkinen and Jonsson 2009). Mergers and the centralization of decision-making authority have been the primary means to enhance productivity and control rising costs.

In Sweden major restructuring of the healthcare sector during the 1980s paved the way for mergers (Choi 2011), which became a common strategy in the mid-1990s (Häkkinen and Jonsson 2009). In the late 1990s a merger resulted in the establishment of Sahlgrenska University Hospital in the western part of the country; in 2004, Karolinska University Hospital merged with Huddinge University Hospital; and in 2010 Skåne University Hospital was formed out of the amalgamation between two other university hospitals (Choi 2011). Healthcare legislation has not been substantially changed in Sweden, but there have been attempts to merge regional authorities which have responsibility for healthcare. In 2007 a proposal to reduce the number of authorities from eighteen counties and two regions to six–nine regional authorities by 2015 was introduced.

Similar debates, supported by the Ministry of Health, took place in Finland, but no changes in legislation have been introduced so far. Since the 1990s, there have been reforms aimed at merging health centres and regional hospitals with the purpose of enhancing cooperation between primary and secondary healthcare and social welfare services. A few voluntary mergers have occurred, including the merger of three hospitals in the Helsinki area in 2007. During the 1990s, the central government made several recommendations regarding the internal organization of health units (Häkkinen and Jonsson 2009), but the municipalities did not cooperate. This resulted in a reform project which ended with the enactment of a new law in 2007, under the terms of which municipalities that decide to merger voluntarily receive financial support. As a result, in 2009 the number of municipalities was reduced from 415 to 348. This has had an impact on primary healthcare, but hospital care is still organized under federations of municipalities.

In Norway the number of hospitals fell from eighty before the reform in 2002 (HD 2001) to twenty in 2012 (Kjekshus and Bernstrøm 2010, 2013). This was achieved partly by merging existing hospitals and partly by closures. The country is divided into four health regions, organized as health enterprises. The strategic aim behind the merger processes was to enhance performance, quality, efficiency, and equity. Stronger central government control and responsibility were the main tools, together with clearer defined responsibilities for the enterprises, and increased operational flexibility (Lægreid et al. 2005).

Finally, in Denmark no major reforms affecting the number of public hospitals have been undertaken (Häkkinen and Jonsson 2009). That said, in tandem with the structural reform in 2007 – which led to the reduction of regional authorities from fourteen counties to four regions, and 275 municipalities to 98 (Häkkinen and Jonsson 2009) – there is also a political desire to concentrate hospital activities in larger entities (Kristensen et al. 2010). The regions have responsibility for hospitals, but the 2007 reform transferred responsibility for rehabilitation and health prevention to the municipalities.

Moving beyond the Nordic region, in the UK the focus of hospital politics changed after the Labour Party came to power in 1997 (Gaynor et al. 2012). The Conservative governments from 1979 to 1997, including those under Margaret Thatcher, emphasized competition, whereas Labour (1997–2010) put a premium on cooperation. The latter party sought to deal with the problems in the sector by merging hospitals that had failed to reach financial or qualitative goals, as defined by waiting times (Gaynor et al. 2012). Between 1997 and 2006, a total of 112 public hospitals were forced to merge.

On the other side of the Atlantic, in the USA, more than 900 hospital mergers and acquisitions occurred throughout the 1990s (Capps et al. 2002). One purpose for merging was to eliminate duplicated services and capacity, a strategic response to the increasing shift from in-patient care to out-patient care from the 1980s onwards. A second motive, which was barely mentioned, was to enhance market power or choice.

The process

Few studies have been concerned with process- and implementation-related issues surrounding mergers involving public hospitals. That said, we were able to identify a handful of studies, from the Nordic and English contexts, that were concerned with such matters.

A major bottleneck or barrier for the implementation of mergers involving Norwegian hospitals pertains to the lack of autonomy among the CEOs in terms of decision-making and strategy (Hippe and Trygstad 2012). There is a culture of consultative decisions in the hospital sector, with the central actors being local politicians, employee representatives, professionals and users. Although this is considered to be a barrier for implementation, it also works as a quality assurance mechanism for the decisions that are taken, in addition to increasing legitimacy and facilitating the implementation of the decisions. One of the main organizational solutions in the wake of the Norwegian health enterprise reform is the multidivisional form and enterprise, with its alleged advantages (Kjekshus and Bernstrøm 2013). Most hospitals in Norway have adapted to the divisionalized structure. The latter has paved the way for a significant amount of centralization, structural rationalization and functional specialization in the forms of: (a) formal mergers between hospitals; (b) a significant reduction of activities; and (c) closing down local hospitals (Bykjeflot and Neby 2008; Kvåle and Torjesen 2014). Such measures have been met with much antagonism by civic society, local politicians and grassroots movements. This kind of resistance can be identified as grassroots resistance and organized civic resistance against strategic measures from the top down (Spicer and Böhm 2007). This movement has especially been triggered by health enterprises’ decisions or proposals to close or reduce the scale of emergency treatment units and obstetrics and maternity wards in local hospitals. This, in turn, resulted in local torchlight processions all over the country and even a national protest march in Oslo on December 7, 2010.

In contrast to Denmark and Sweden, the actions and rhetoric of the local hospital movement in Norway clearly show that health and the distribution of care and treatment are important political issues and a manifestation of local communities insisting on maintaining decentralization as a strong value and tradition in Norwegian local democracy (Baldersheim and Rose 2010). The irony is that the 2002 hospital reform, which was partially meant to depoliticize the sector at the local level by handing it to professional managers, seems to have created a situation that is more politically charged than was the case before (Kvåle and Torjesen 2011, 2014). In the wake of the health enterprise reform in 2002 extensive restructuring in the university hospital sector received considerable public attention. Three hospitals were merged into the “new” University Hospital of North Norway in 2006. In this case, national quality indicators showed unchanged or improved results after the merger process was finalized in 2011: waiting times for patients had increased, but so had productivity (measured in DRG points per employee-month); financial outcome had improved by 12 per cent; and most of the employees were satisfied with their jobs after the merger (Ingebrigtsen et al. 2012). Similarly, Kronborg and Tangen (2014) found that the 2002 mergers did not have any significant effect on either volume or quality of care.

The merger of the university hospitals in Oslo from 2009 has created far more turbulence and conflict. The Office of the Auditor General of Norway concluded in a report in 2011 that Norwegian health authorities were unaware of the challenges a merger of three university hospitals in the Oslo region may generate, especially as the consequences for patients were not sufficiently examined and clarified beforehand. Later, the merger of Oslo’s university hospitals became a scandal that ended in a public hearing in parliament. The CEO of the regional health enterprise was held accountable and had to leave her position (Riksrevisjonen 2012).

In Sweden a study of mergers involving the Karolinska University Hospital pointed out that management at all levels played an important role in both the development and the outcome of the merger process (Choi 2011). Moreover, although the process was planned as a top-down exercise – from hospital level to clinical level – it contributed to unintended or unexpected results, which has led researchers to describe it as a non-linear, uncontrolled and unpredictable process. Choi (2011) suggests a bottom-up approach with incremental and emergent steps as a post-merger strategy. This process works better for a professional organization (like a hospital) due to the lack of knowledge of the professional activities among management. The professionals are viewed as autonomous experts, and there is a risk that they will leave the organization following top-down implementation. Internal changes therefore depend on both the willingness and trustworthiness of these autonomous experts (Choi 2011; Montgomery 2001), and findings from the above study reveal that health professionals do take part in the early stages of mergers. “Horizontal” cultural differences between merged organizations is expected to be the main challenge in mergers, but this study shows that the main conflict lines occurred in the vertical hierarchy (Choi 2011). The main barriers detected were the competing institutional logics (Thornton and Ocasio 2008) between managerialism and professionalism. It is challenging to build trust among physicians as the key profession among health professionals, and the above study claims that this is a primary explanatory factor for the success of mergers (Choi 2011).

Similarly, studies of mergers involving hospitals in the UK have shed light on the criticality of management, and specifically the management of human resources (Shield et al. 2002). The conclusions from this study indicate that the lack of proper human resource policies and strategies results in problems surrounding the evaluation of the merger process as such. Management was found to be an important element not only when it came to achieving successful merger outcomes, but also with respect employees’ overall job satisfaction.

Effects

The bulk of the literature on hospital mergers focuses on the accrued effects as well as the possible explanations for the observed (positive, neutral or negative) effects.

A study comparing merger effects in the Nordic countries has revealed that the Finnish hospitals appear to be more efficient than the others – 10 per cent more efficient than those in Denmark and Norway, and 25 per cent more efficient than Swedish hospitals. One explanation for this is the Finnish system of cost control exercised via the municipalities, which are the main funders of public hospitals via taxation. According to the authors, the former is more efficient than either governmental or regional control (Häkkinen and Jonsson 2009). That said, it must be stated that the authors do not compare quality outcomes.

In the period 1992–2000, seventeen Norwegian hospitals merged into seven hospitals. Studies of the effects of these mergers show a significant negative effect on cost efficiency of about 2.5 per cent. In general, there was also no effect on technical efficiency (Kjekshus and Hagen 2003, 2007). Others enquiries shed light on the short-term effects of health reforms in Norway, which include: increased productivity; shorter waiting lists and better accessibility; a decline on the performance variations between hospitals, yet ongoing regional variations (Häkkinen and Jonsson 2009). A more recent study comparing cost efficiency between Norwegian hospitals that have merged with that of non-merged hospitals shows that mergers do not necessarily have a positive effect on economics of scale (Brakestad and Sjåstad 2013). The same study, which was carried out between 2002 and 2011, reveals that some hospitals experienced a positive effect after merger whereas others suffered a negative effect.

The 1996 merger between Sweden’s Karlskrona County Hospital and Karlshamn General Hospital, which led to the establishment of Blekinge Hospital, was driven by the conviction that larger hospitals lead to improved clinical quality and lower average costs (Ahgren 2008). However, this case study revealed that the interviewed staff did not believe that costs were reduced after the merger. The quality of care has, on the other hand, increased slightly, but the health professionals involved believed that evidence-based medicine and care had a greater impact on quality when compared to the increased volume of patients.

In Denmark the government is investing more than €5.3 billion in hospitals this decade alone. The hospital sector is expected to undergo a major restructuring culminating with the closure of larger hospitals. A study calculating the potential gains from the mergers predicts significant cost reductions and technical efficiency due to better practice and the exploitation of economies of scale, but, at the same time, points to the risk that some hospitals might become too large (complex) and, as a result, will experience diseconomies of scale (Kristensen et al. 2010).

A Norwegian review of the merger literature, including cases from the USA, the UK and Norway, concludes that, all things being equal, hospital mergers can result in a 10 per cent cost reduction (Ingebrigtsen 2010). However, it is pointed out that this reduction comes as a direct result of reduced rises in costs, rather than reductions in per unit costs per se. The growth in costs can be effected by avoiding duplication of services and aided by the development of a shared organization culture.

A study of British hospitals that merged between 1997 and 2006 shows that in the long run their overall financial situation worsened (Gaynor et al. 2012). There were no reductions in numbers of administrative staff, and no significant productivity increases (e.g. as regards hospitalization rates). Waiting times increased slightly, as did the numbers of patients on the waiting lists. Lastly, there was no improvement in quality, measured by re-hospitalization and mortality rates among particular patient groups. A literature review by Posnett (1999; see also Posnett 2002) shows that there is no empirical support for the assumption that larger UK hospitals (run under the National Health Service) lead to benefits in the realms of economies of scale or improved patient outcomes. As far as economies of scale go, there is evidence to suggest that mergers of small hospitals (fewer than 200 beds) give the best results, and that hospitals with 200–400 beds are the most cost effective, while costs per treated patient tend to increase when the number of beds surpasses 600.

Notwithstanding the existing evidence, it is worth outlining that there are several biases surrounding studies of mergers in the public hospital sector (Dafny 2009). Dafny (2006) contends that one way of overcoming this is to include in the study sample the merged hospitals as well as the hospitals with which the merged institutions were competing in a certain geographically area. By comparing data from the period 1989–1996, it was revealed that prices increased by 40 per cent following the mergers of rival hospitals near by. Finally, the author points out that there have been only a few studies concerning quality outcomes from mergers.

A case study from North Carolina, USA, focusing on in-patient claims to four care insurers to calculate the effects of mergers on in-patient prices shows mixed results (Thompson 2011). For two of the insurers, the prices increased substantially; there was no particular effect on the third insurer; while the fourth insurance company had a significant price reduction. The differences in results between the insurers can be explained by different opportunities to bargain, the different types of plan offered, and the kind of service provided. The merged hospitals had less competition from other hospitals, due to the relative distance to the next hospital (twenty miles), and this factor alone, the author argues, might have contributed to a rise in average prices. Thompson (2011) also questions whether the hospitals’ “non-profit” status might have contributed to the lack of exercised market power. Finally, a decrease in costs might be explained by the consolidation of medical specialties, which also improves quality of care.

Similarly, other findings support the claim that mergers often lead to increased costs. The merger of the non-profit Sutter and Summit hospitals in Oakland, California, in 1999 turned out to be anti-competitive (Tenn 2011). The question being investigated relates to geographic distances and, more specifically, whether travel costs to nearby hospitals limit competitive pricing. The data show that the merger led to increased prices due to the fact that the larger (merged) hospital improved its bargaining power to negotiate with health insurers. These findings are corroborated by other enquiries, for example into the merger between a non-profit hospital and a for-profit hospital in Santa Cruz, California in 1990, which also resulted in increased costs and a market power that led to price–cost mark-ups (Vita and Sacher 2001).

Finally, a review of sixty hospital mergers in the USA surveyed in 1991 focuses on mergers as an expeditious possibility to change hospitals’ internal organizational structures (Bogue et al. 1995). In this scenario, the mergers served as strategic mechanisms to transform acute in-patient functions into other types of treatment. This was done by merging direct competitors located in the same geographic areas. Another strategy was to expand networks of acute care. This was preferred in larger geographically areas and became a major factor in managed healthcare contracting.