The past decade has seen profound changes in how the hospital industry has organized itself, including the rising importance of hospital systems. Theoretically, system consolidation can have positive effects from improved efficiency and quality or negative effects from greater market power. This study examines which hospitals consolidate and finds that hospitals were more likely to join systems if they were for-profit institutions, were located in urban areas, or had high managed care loads. Furthermore, the evidence suggests that system formation has primarily served to increase market power, not improve patient care quality or hospital efficiency, at least in the short run.