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Special Communication |

Hospitals, Market Share, and Consolidation

David M. Cutler, PhD1; Fiona Scott Morton, PhD2
[+] Author Affiliations
1Department of Economics, Harvard University, Cambridge, Massachusetts
2Yale University School of Management, New Haven, Connecticut
JAMA. 2013;310(18):1964-1970. doi:10.1001/jama.2013.281675.
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A large reduction in use of inpatient care combined with the incentives in the Affordable Care Act is leading to significant consolidation in the hospital industry. What was once a set of independent hospitals having arms-length relationships with physicians and clinicians who provide ambulatory care is becoming a small number of locally integrated health systems, generally built around large, prestigious academic medical centers. The typical region in the United States has 3 to 5 consolidated health systems, spanning a wide range of care settings, and a smaller fringe of health care centers outside those systems. Consolidated health systems have advantages and drawbacks. The advantages include the ability to coordinate care across different practitioners and sites of care. Offsetting this is the potential for higher prices resulting from greater market power. Market power increases because it is difficult for insurers to bargain successfully with one of only a few health systems. Antitrust authorities are examining these consolidated systems as they form, but broad conclusions are difficult to draw because typically the creation of a system will generate both benefit and harm and each set of facts will be different. Moreover, the remedies traditionally used (eg, blocking the transaction or requiring that the parties divest assets) by antitrust authorities in cases of net harm are limited. For this reason, local governments may want to introduce new policies that help ensure consumers gain protection in the event of consolidation, such as insurance products that charge consumers more for high-priced clinicians and health care centers, bundling payments to clinicians and health care organizations to eliminate the incentives of big institutions to simply provide more care, and establishing area-specific price or spending targets.

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Figure 1.
Trends in Use of Short-term Hospitals, 1981-2011
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Figure 2.
Cumulative Market Share Across All Hospital Referral Regions

All hospitals in the hospital referral region (HRR) belonging to the same system are grouped together as 1 institution. The cumulative market share is based on the number of inpatient days in each facility.

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Figure 3.
Hospital Referral Region Concentration Across the United States

The designation of concentration is based on the HHI, with categories of concentration defined by the Department of Justice and Federal Trade Commission.5 Both maps show that high concentration of hospitals is pervasive across the country. There are no hospital referral regions with a “highly competitive” HHI (<100).

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Figure 4.
Defining a Safety Zone in the Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations (ACOs) Participating in the Medicare Shared Savings Program

The Department of Justice and Federal Trade Commission released antitrust guidance for hospitals participating in the ACO program.25 Antitrust safety is provided to institutions with a low share of patients and nonexclusive access to their facilities, or to larger institutions with nonexclusive access in some settings. Being outside the antitrust safety zone does not indicate that a consolidation will be opposed. Rather, it indicates that a greater degree of scrutiny will be applied. aAccountable care organization services include physician services (categorized by physician specialty); inpatient services (categorized by major diagnostic criteria); and outpatient services (categorized by Centers for Medicare & Medicaid Services outpatient facilities definitions). bThe primary service area for each ACO participant is the minimum number of contiguous zip codes needed to reach at least 75% of the participant’s patients. cA physician or physician group with a primary office in a zip code classified as “isolated rural” or “other small rural.”

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