Rasi Bhadramani/istock via Getty

Hospital consolidation shrinks metro inpatient care market

Just one or two health systems controlled the entire inpatient hospital care market in nearly half of metropolitan areas in 2022, highlighting hospital consolidation trends.

Hospital consolidation, a result of mergers and acquisitions, has shrunk the inpatient hospital care market in metropolitan areas, according to KFF data. Just one or two health systems dominated the entire market for inpatient hospital care in 47% of metropolitan areas in 2022.

KFF analyzed RAND Hospital Data, a cleaned version of Medicare-certified hospital cost reports, as well as American Hospital Association survey data to examine the competitiveness of markets for hospital care.

"Hospital consolidation has been a subject of particular focus in part because nearly one third of all health spending goes towards hospital care," the report stated.

"Consolidation may allow providers to operate more efficiently and help struggling providers keep their doors open in underserved areas, but often reduces competition. A substantial body of evidence has found that consolidation can contribute to higher prices, with unclear effects on quality."

Researchers measured competition in the following three ways:

  • The share of metropolitan statistical areas (MSAs) controlled by a small number of health systems.
  • The level of market concentration in MSAs based on the Herfindahl-Hirschman Index (HHI).
  • The share of hospitals affiliated with health systems over time.

The analysis revealed that 97% of metropolitan areas had highly concentrated markets for inpatient hospital care, specifically when applying HHI thresholds to MSAs based on federal antitrust guidelines. The HHI is based on the number of participants in a market and their shares, ranging from zero to 10,000, with 10,000 signifying a monopoly market.

Additionally, the number of health systems in an MSA tended to increase along with its population.

For example, in smaller MSAs such as Napa, Calif., and Muncie, Ind., one or two health systems controlled the entire inpatient care market. However, nearly all MSAs with a population of at least one million people had at least four health systems, with the caveat that the two largest health systems often still controlled the majority of the market.

What's more, researchers found that approximately 67% of hospitals were part of a larger health system in 2022, signifying an increase from 56% in 2010. Rural hospitals also felt the effects of consolidation, though less significantly.

KFF noted that hospitals merging with or acquired by larger health systems does not always reduce local market competition, but cross-market mergers between hospitals in different geographic areas might still lead to price increases in some cases.

In addition to inflating costs, survey data from The Physician's Foundation found that hospital mergers and acquisitions might play a role in driving physician burnout. Half of surveyed physicians said that hospital mergers and acquisitions affected their job satisfaction.

As consolidation in healthcare continues, researchers are continuing to examine its effects on care quality, costs and physician burnout.

Jill McKeon has covered healthcare cybersecurity and privacy news since 2021.

Dig Deeper on Healthcare payment policy and regulation