Urban hospital markets are getting more top-heavy, drawing concern from economists and researchers who warn that less competition can inflate healthcare costs.
Nearly three-quarters of 112 metropolitan areas across 43 states had "highly concentrated" hospital markets in 2016, according to a new report by the Health Care Cost Institute. The share of highly concentrated markets, as defined by the Herfindahl–Hirschman Index, increased to 72% in 2016, up from 67% in 2012.
"Prices are the reason people are concerned about concentration," said Bill Johnson, HCCI senior researcher and author of the report, noting the growing body of evidence that has shown a positive association and a causal relationship between concentration and price. "Not surprisingly, we found a loose positive correlation between concentration and price."
More than two-thirds of metro areas had more lopsided hospital markets in 2016 than in 2012, according to the analysis of more than 4 million commercial claims. Areas where hospital markets became increasingly concentrated also tended to see larger increases in their inpatient prices, and vice versa, HCCI researchers found.
Salt Lake City, for example, had the seventh-largest increase in concentration and the sixth-largest increase in inpatient prices. Although some cities like Memphis, Tenn.—which had nearly the same growth in inpatient concentration as Salt Lake City but saw its inpatient prices decrease—bucked the trend.
It is worth taking a closer look at cities like Memphis to understand why inpatient prices decreased, Johnson said. But he noted the analysis does not necessarily show that increases in concentration caused increases in prices; factors like patient preferences, quality improvements by certain providers, or changes in insurance networks may also factor in.
Other analyses have demonstrated a stronger link, one of which concludes that prices at monopoly hospitals are 12% higher than those in markets with four or more rivals.
Hospital prices are the main driver of U.S. healthcare spending inflation, HCCI data show.
For inpatient care, hospital prices grew 42% from 2007 to 2014 while physician prices rose 18%, according to related research facilitated by HCCI data. Similarly, for hospital-based outpatient care, hospital prices increased 25% while physician prices grew 6%. Prices, not higher utilization, have boosted spending, research shows.
As a share of total healthcare spending, hospitals account for about a third.
"Increasingly concentrated hospital markets have been linked to the rising cost of hospital care by nearly every expert in the field," Niall Brennan, president and CEO of HCCI, said in prepared remarks.
Lawmakers have found some middle ground on stemming surprise billing and rising drug prices. Concurrently, hospital trade groups have staunchly opposed efforts to level pay for hospital-owned outpatient departments and independent physician offices, attempts to cap payments, and cuts to Medicaid disproportionate-share hospital payments. Hospitals are often highly touted economic engines, which can stymie political action.
Meanwhile, hospital mergers and acquisitions aren't expected to slow. Reimbursement pressure, the push to acquire physicians, rising IT costs and other factors will likely lead to more consolidation, Johnson said. Hospital concentration will likely continue to produce a cascading effect and cause other sectors in healthcare to consolidate, he said.
"These trends have been going on for the last decade and are not going away," Johnson said. "It is likely that hospital concentration will continue to increase, which will likely spill into other markets."
