Nearly 75% of US Hospital Markets Highly Concentrated, HCCI Report Shows

September 17, 2019

The Health Care Cost Institute (HCCI) Tuesday released their final Healthy Marketplace Index, which also showed that 69% of markets studied showed an increase in concentration.

The Health Care Cost Institute (HCCI) Tuesday released their final Healthy Marketplace Index on hospital market concentration, showing that almost 75% of US hospital markets are now designated as “highly concentrated.”

The authors measured market concentration by computing Herfindahl-Hirschman Indices (HHIs); the HHI is a standard measure used by the Federal Trade Commission and Department of Justice to assess competition. HHIs are low in markets served by many providers, signaling a more competitive market, and are higher as providers narrow. HHI ranges from 0 to 1, where 0 represents perfect competition and 1 represents a monopoly.

Over 4 million inpatient hospital claims of those with employer-sponsored health insurance from 2012 to 2016 were used to create the interactive report.

Compared with 2012, nearly 75% of 112 metropolitan areas were deemed highly concentrated by 2016, compared with 67% of 75 metro areas in 2012. In addition, 69% of markets studied showed an increase in concentration.

Other research has shown that more concentrated (ie, less competitive) hospital markets correlate with higher prices.

“Increasingly concentrated hospital markets have been linked to the rising cost of hospital care by nearly every expert in the field,” said Niall Brennan, president and chief executive officer of HCCI, in a statement. “This report provides a comprehensive look at concentration levels in hospital markets across the country, allowing users to intuitively explore the data to understand how their market uniquely compares.”

Previous reports show that inpatient hospital prices rose in nearly every area studied; this new study finds a positive relationship between those price increases and increases in hospital market concentration.

“Our findings add to the growing consensus that most localities have highly concentrated hospital markets, and this is becoming increasingly true over time,” said Bill Johnson, PhD, senior researcher at HCCI, and an author of the report. “The increased concentration we observed can be driven by many factors such as hospital closures, mergers and acquisitions, changes in hospital capacity, patient preference, or changes in patients’ insurance networks.”

Areas with smaller populations tend to have higher concentration levels, such as Cape Coral, Florida and Springfield, Missouri, both areas with populations under 300,000.

But hospital markets tend to be less concentrated in larger areas; for example, New York City, Philadelphia, and Chicago had 3 of the 5 least concentrated markets. One factor in hospital market concentration is the degree to which patients from one metro area seek care in a neighboring region; for example, both New York and Philadelphia draw people seeking care from a wide area.

Over time, markets that were moderately concentrated in 2012 were highly concentrated by 2016, such as Milwaukee, Wisconsin and Houston, Texas.

The most often cited reason for increasingly concentrated markets is consolidation due to mergers and acquisitions. There have been 680 hospital mergers in the past decade.

HCCI is an independent, nonpartisan research organization that analyzes the causes of the rise in health spending. The HMI series was funded by the Robert Wood Johnson Foundation.