COST REDUCTIONS OR REPUTATION ENHANCEMENT AS MOTIVES FOR MERGERS - THE LOGIC OF MULTIHOSPITAL SYSTEMS

This paper examines two motives for the formation of local multihospit al systems: cost reduction and reputation enhancement. Systems may red uce costs by eliminating redundancies and reducing administrative cost s. Integration may also lower costs for consumers seeking consistently high quality. We hypothesize that if systems achieve either cost or r eputation benefits, then member hospitals will 'look' different from r andom collections of hospitals. We find that local systems do not appe ar to have lower costs but do appear to enjoy reputation benefits over nonsystem hospitals. Our findings challenge the assumptions behind po pular health reform initiatives.