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Our Take: New report shows hospital market concentration growing

Sep 23, 2019

A nereport from the Health Care Cost Institute (HCCI) shows that nearly three-quarters of U.S. hospital markets are highly concentrated. Further, 13% of markets are considered very highly concentrated. According to the researchers, highly concentrated hospital markets are associated with higher inpatient prices.

HCCI uses the Herfindahl-Hirshman Index (HHI) as its measure of market concentration; a higher value signifies a more highly concentrated market, where a smaller number of hospital systems account for a larger share of admissions. The HHI ranges from 0 (perfect competition) to 1 (a monopoly).

HCCI analyzed more than 1.8 billion commercial insurance claims from 2012 to 2016 in 112 metropolitan areas in 43 states. The work was funded by a grant from the Robert Wood Johnson Foundation.

Our Take: Let’s acknowledge the excellent ongoing work that HCCI does to inform policymakers and other researchers like us. The organization’s database includes 50 million commercially insured individuals per year (2008-2016) and as a “Qualified Entity” has 100% of Medicare fee-for-service claims on 40 million individuals per year. Now, let’s dig a little deeper into the findings.

First, with consolidation, markets are becoming more concentrated and less competitive. HCCI found that the number of highly concentrated markets rose from 67% in 2012 to 72% in 2016.

Second, these increases in concentration levels happened in more than two-thirds of the markets studied from 2012 to 2016, with a median increase in HHI of 0.0391. For instance, Milwaukee and Houston were moderately concentrated in 2012 but were highly concentrated by 2016.

Why this matters: As HCCI points out, “A merger that causes an increase in HHI of 0.0200 is sufficiently large enough to warrant further DOJ investigation within moderately concentrated markets and above per their guidelines.”

We typically associate consolidation through mergers as the driving factor for increased market concentration. But as the researchers wrote: “[A]n increase in market concentration can happen for a multitude of reasons, such as changes in patient preferences, quality improvements by certain providers, or changes in insurance networks, among other factors.”

These are the most concentrated markets, including the HHI (in 2016) and the dominant local system:
1. Springfield, Mo. (0.7795) — CoxHealth
2. Peoria, Ill. (0.7764) — OSF HealthCare
3. Cape Coral, Fla. (0.6930) — Lee Health
4. Greensboro, N.C. (0.6498) — Cone Health (Atrium)
5. Durham, N.C. (0.6437) — UNC Health Care
6. Albuquerque, N.M. (0.6394) — Presbyterian Healthcare Services
7. Ft. Collins, Colo. (0.5993) — UCHealth
8. Provo, Utah (0.5549) — Intermountain
9. Reno, Nev. (0.5372) — Renown Health
10. Omaha, Neb. (0.5289) — CHI Health (CommonSpirit)

Not surprisingly, some of our largest cities were the least concentrated (most competitive), including New York City (0.0759), Philadelphia (0.0964), and Chicago (0.1337). Also among the most competitive cities were Washington, D.C., Riverside, Calif., and Miami.

The researchers found a modest but statistically significant positive association between market concentration and price. For example, Salt Lake City had the sixth-largest increase in inpatient prices and the seventh-largest increase in market concentration.

Other cities, like Memphis, Tenn., showed no correlation between price and market concentration.

“Although consistent with previous literature, our analysis does not necessarily show that increases in concentration caused increases in prices,” the researchers wrote. “Changes in both measures could be due to many factors other than market consolidation which are related to both concentration and prices.”

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