Market Consolidation on Trial

Market Consolidation on Trial

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California Attorney General Xavier Becerra alleges that Sutter Health used its pre-eminent market power to artificially inflate prices. Photo: Rich Pedroncelli/Associated Press

As a jury trial draws near in a major class-action lawsuit alleging anticompetitive practices by Northern California’s largest health system (PDF), a new CHCF study shows the correlation between the prices consumers pay and the extensive consolidation in the state’s health care markets. Importantly, the researchers estimated the independent effect of several types of industry consolidation in California — such as health insurers buying other insurers and hospitals buying physician practices. The report, prepared by UC Berkeley researchers, also examines potential policy responses.

While other states have initiated antitrust complaints against large hospital systems and medical groups in the past, the case against Sutter Health is unique in both the expansive nature of the alleged conduct and in the scale of the potential monetary damages. The complaint goes beyond claims of explicit anticompetitive contract terms and argues that by virtue of its very size and structure, the Northern California system imposed implicit or “de facto” terms that led to artificially inflated prices. Sutter Health vigorously denies the allegations.

The formation of large health systems like Sutter is neither new (PDF) nor unique to California (PDF). Several factors seem to be encouraging their growth, including payment models that place health care providers at financial risk for the cost of care, increased expectations from policymakers and payers around the continuum of patient needs that must be managed, and economies of scale for investments in information technology and administrative services. Some market participants also point to consolidation in other parts of the health care system, such as health plans and physician groups, as encouragement for their own mergers.

Economic Consolidation in California

In general, economists study two major categories of market consolidation:

  • Horizontal consolidation: Entities of the same type merge, such as the merger of two hospitals or insurance companies, or the merger of providers into a physician network.
  • Vertical consolidation: Entities of different types merge, such as when a hospital purchases a physician practice or when a pharmacy buys an insurance company.

To measure market consolidation, the CHCF study relied on the Herfindahl-Hirschman Index (HHI), a metric used by the US Department of Justice and the Federal Trade Commission. An HHI of between 1,500 and 2,500 is considered moderately concentrated, and 2,500 or above is considered highly concentrated. According to this measure, horizontal concentration is high in California among hospitals, insurance companies, and specialist providers (and moderately high among primary care physicians), even though the level of concentration in all but primary care has remained relatively flat from 2010 to 2018.

The percentage of physicians in practices owned by a hospital or health system increased dramatically in California between 2010 and 2018 — from 24% in 2010 to 42% in 2018. The percentage of specialists in practices owned by a hospital or health system rose even faster, from 25% in 2010 to 52% in 2018.

Consolidation Is Not Clinical Integration

While this study defined and quantified the extent of consolidation across several industry segments in California, it is important to note that it did not define, quantify, or evaluate clinical integration within the state. Clinical integration has been defined by others in many ways, but generally involves arrangements for coordinating and delivering a wide range of medical services across multiple settings.

As the CHCF study authors point out, other analysis has shown that various types of clinical integration can lead to broader adoption of health information technology and evidence-based care management processes. Data from the Integrated Healthcare Association suggests that certain patient benefit designs and provider risk-sharing arrangements associated with clinical integration can lead to higher quality and lower costs.

Crucially, an emerging body of law (PDF) suggests that clinical integration does not require formal ownership and joint bargaining with payers.

Relationship Between Consolidation and Health Insurance Premiums

Among the six variables analyzed in the CHCF study, three showed a positive and statistically significant association with higher premiums: insurance company mergers, hospital mergers, and the percentage of primary care physicians in practices owned by hospitals and health systems. The remaining three variables studied — specialist provider mergers, primary care provider mergers, and the percentage of specialists in practices owned by a hospital and health system — were statistically insignificant.

The figure below shows the independent relationship between market concentration and premiums for these three variables. As the lines move left to right, concentration increases — that is, fewer individual insurers, hospitals, or providers occupy the market. The vertical axis shows the average premiums associated with each level of market concentration. In short, regardless of the industry structure represented by the other variables, insurer consolidation, hospital consolidation, and hospital-physician mergers each lead to higher premiums.

Unexplained Price Variation and Growth

Health insurance premiums rise when the underlying cost of medical care increases. California ranks as the 16th most expensive state on average in terms of the seven common services the researchers studied, after adjusting for wage differences across states. Among all states, California has the eighth-highest prices for normal childbirth, defined as vaginal delivery without complications. Childbirth is the most common type of hospital admission, and the relatively standardized procedure is comparable across states.

Even within California, prices vary widely and are growing rapidly. For example, the 2016 average wage-adjusted price for a vaginal delivery was twice as high in Rating Area 9 (which has Monterey as its largest county) as it was in Rating Area 19 (San Diego) — $22,751 versus $11,387. (See next figure.) Prices for the service are increasing rapidly across counties — rising anywhere from 29% in San Francisco from 2012 to 2016 to 40% in Orange County over the same period.

The authors of the CHCF report investigated the impact of various types of consolidation on the prices of individual medical services in California. For cesarean births without complications, a 10% rise in hospital HHI is associated with a 1.3% increase in price.

Potential Policy Responses to Consolidation

While the study shows significant associations between various types of market concentration and the prices consumers pay, policymakers should carefully consider implementing steps that restrain the inflationary impact of consolidation while allowing the benefits of clinical integration to proliferate. To that end, the authors of the CHCF report offered a series of recommendations, which include:

Enforce antitrust laws. Federal and state governments should scrutinize proposed mergers and acquisitions to evaluate whether the net result is procompetitive or anticompetitive.

Restrict anticompetitive behaviors. Anticompetitive behaviors, such as all-or-nothing and anti-incentive contract terms, should be addressed through legislation or the courts in markets where providers are highly concentrated.

Revise anticompetitive reimbursement incentives. Reimbursement policies that reduce competition, such as Medicare rules that implicitly reward hospital-owned physician groups, should be adjusted.

Reduce barriers to market entry. Policies that restrict who can participate in the health care market, such as laws prohibiting nurse practitioners from practicing independently from a physician, should be changed when markets are concentrated.

Regulate provider and insurer rates. If antitrust enforcement is not successful and significant barriers to market entry exist — including those in small markets unable to support a competitive number of hospitals and specialists — regulating provider and insurer rates should be considered.

Encouraging meaningful competition in health care markets is an exceedingly difficult task for policymakers. It is no easier to promote the benefits of clinical integration while restraining the inflationary aspects of economic consolidation through public policy. Despite these challenges, the rapid rise in health care premiums and prices in the state require a fresh look at the consequences of widespread horizontal and vertical consolidation in California.

 

 

 

New Hampshire AG rebuffs Partners acquisition

https://www.modernhealthcare.com/mergers-acquisitions/new-hampshire-ag-rebuffs-partners-acquisition?utm_source=modern-healthcare-daily-dose-tuesday&utm_medium=email&utm_campaign=20190924&utm_content=article6-readmore

New Hampshire officials opposed Partners HealthCare‘s continued expansion into the state, claiming that the health system’s proposed acquisition of Exeter Health Resources would diminish competition.

Partners’ Massachusetts General Hospital’s plans to acquire Exeter (N.H.) Health Resources, an independent system that includes a hospital, a physician group, home health and hospice agency, and a real estate management subsidiary. Exeter would merge with Dover, N.H.-based Wentworth-Douglass Hospital, which Mass General acquired in 2017, to create NewCo, a New Hampshire not-for-profit entity. NewCo was also the name used for the first iteration of what is now Beth Israel Lahey Health.

After a year-long review by the Consumer Protection and Antitrust Bureau, Attorney General Gordon MacDonald said the combination would violate state law requiring free and fair competition.

“New Hampshire patients already pay some of the highest prices for health care in the country,” he said in prepared remarks. “Based on our investigation, we have concluded that this transaction implicates our laws protecting free and fair competition and therefore threatens even higher health care costs to be borne by New Hampshire consumers.”

The AG’s Charitable Trusts Unit report followed a notice of intent to take civil enforcement action issued on Sept. 13 by the Consumer Protection and Antitrust Bureau.

Partners officials said they look to continue talks with the attorney general to allay antitrust concerns.

“We remain fully committed to seeing this transaction through and are confident that the Attorney General’s Office will ultimately determine that our affiliation will pass antitrust review based on the thorough review that the expert economists have completed on this proposal,” Dr. Peter Slavin, Massachusetts General Hospital president, said in prepared remarks.

In a public forum last year, Exeter officials said that the new regional health system would bolster their electronic health record capabilities and streamline care, offer scale to grow services, and enhance care quality.

Economists counter that hospital consolidation often inflates prices thanks to reduced competition and that so-called efficiencies don’t often reach expectations.

Under the deal, NewCo would be substituted as the sole member of Exeter Health Resources and Wentworth-Douglass Hospital. Mass General would become the sole member of NewCo, giving it significant control over the governance and operations, which is a matter of “considerable interest to this state,” the report said.

Exeter Hospital, a 100-bed hospital with outpatient programs in surgery, radiation, oncology and cardiac catheterization, and Wentworth-Douglass Hospital are within 18 miles of each other and provide similar inpatient and outpatient services, according to the report. Both Exeter and Wentworth-Douglass own a significant number of physician practices, such as Exeter’s 140-doctor group that offers primary care, pediatrics, orthopedics, gastroenterology and other specialties. Within the seacoast region, there are a limited number of healthcare entities of size and breadth similar to Exeter and Wentworth-Douglass that also own physician practices, the report said.

“Should EHR, WDH and MGH take further steps to consummate the transaction despite the objection set forth in this report, the Charitable Trusts Unit will bring judicial proceedings and seek injunctive relief,” New Hampshire authorities said in the report.

Partners has continued to try to expand into neighboring states, with varying success. The Boston-based integrated health system was targeting an entry point into the Rhode Island market through a deal with Care New England, adding Lifespan to the proposed talks early last year. It later dropped Lifespan and ultimately nixed the entire deal in June.

Establishing a presence in Rhode Island was an emphasis of Dr. David Torchiana, former president and CEO of Partners. Torchiana retired in April, making way for Dr. Anne Klibanski, who took on the interim CEO role in February and officially became the system’s first female chief executive in June.

Partners has been criticized for its high prices stemming from higher than average inpatient and academic medical center utilization. Beth Israel Deaconess Medical Center and Lahey Health said that a significant driver behind their merger late last year was to keep Partners in check.

Partners reported operating income of $309.9 million on operating revenue of $13.31 billion in 2018, up from $52.6 million in operating income on $13.37 billion of operating revenue in 2017, according to Modern Healthcare’s Health System Financials database.

Through three quarters of its fiscal 2019, Partners reported operating income of $450 million on total operating revenue of to $10.4 billion. That was up from $275 million of operating income on $10 billion of total operating revenue over the same period the year prior.

 

 

 

Sutter Antitrust Class Action Could Upend Industry Consolidation

https://news.bloomberglaw.com/health-law-and-business/sutter-antitrust-class-action-could-upend-industry-consolidation

Health-care consolidation and antitrust allegations are the focus of litigation that alleges Sutter Health Systems uses its Northern California dominance to force higher fees out of employer-funded health plans and consumers.

Jury selection begins Sept. 23 in San Francisco in a case that could translate into more than a billion-dollar liability for California’s third-largest hospital system. Sutter denies the allegations.

Employers, payors, and the health-care industry are closely watching the case. Success in California could spill into other states and undermine consolidation efforts by other health-care providers, observers said.

“If I’m a system somewhere else and these guys lose, these class-action lawyers I assume are going to start putting pins in the map around the country and say, ‘OK let’s go look at Utah, Florida, other parts of California’” that have dominant players, said Glenn Melnick, a health-care economist at the University of Southern California. “They have a template now.”

Total Revenue Hit $13 Billion in 2018

Sutter Health is a California behemoth, consisting of 24 acute care hospital facilities, 36 ambulatory surgery centers, nine cancer centers, six specialty care centers, nine major physician organizations, with 12,000 physicians and 53,000 employees located in 19 counties in Northern California. The system reported $13 billion in revenue in 2018.

“There is no evidence that Sutter has hurt competition, as demonstrated by the fact that new hospitals continue to open and existing facilities continue to expand in markets that Sutter Health serves, including in the San Francisco Bay Area and the greater Sacramento region,” Sutter said in a statement.

Northern California has experienced more rapid consolidation of hospital, physician, and insurance markets from 2010 to 2016 than Southern California, University of California Berkeley researchers found. And inpatient prices were 70% higher, outpatient prices 17%-55% higher depending on physician specialty, and Affordable Care Act premiums 35% higher in the northern part of the state.

Sutter inflated prices by an average 15.5% between 2003 and 2016, a United Food & Commercial Workers & Employers Benefit Trust expert analysis said. The UFCW trust sued Sutter first, followed by the state. For trial purposes, the court joined California’s lawsuit with the UFCW class action.

The inflated prices translated into $756 million in overcharges, the state and class members allege. More than 90% of class members for which measurements were available paid higher average prices at Sutter than class members paid for services at other California hospitals, they said.

Patients Protected, Sutter Says

The hospital system says its offerings shield patients from unforeseen expenses.

“Our broad provider network gives patients greater choice and predictability and protects patients from surprise billing. It also prevents patients from paying more in co-pays and deductibles for out-of-network doctor and hospital visits,” Sutter’s statement said.

Treble damages and attorneys’ fees are available if the UFCW and state win under the Cartwright Act, California’s antitrust law. The union trust fund, representing a class of large California employers who self insure their health-care costs, seeks damages from the jury while the California Attorney General wants to stop the practices alleged.

Jury selection is set for Sept. 23-24 with a two-week break while the parties argue over issues including sealing contracts negotiated with third parties including Anthem Inc., Blue Shield of California Inc., United Healthcare Services Inc., Teamsters Benefit Trust, Apple Inc., and HealthNet of California Inc. The trial is expected to last 60-90 days.

Consolidation Concerns

Health-care costs are one of the most important concerns in the U.S., said Jaime King, associate dean of the University of California Hastings School of Law and director of the Concentration on Law and Health Sciences.

“I know that attorneys general in other states are paying very close attention to what’s happening because concentration is not something that is just happening in California—it’s happening all over the country. If successful we will start to see a rollout of lots of similar cases across country,” King said.

“I think we will see ripple effects that go well into the future,” she said.

The case has implications especially in Northern California and could have legs elsewhere, Attorney General Xavier Becerra (D) said.

“Does this have an impact outside California? I would say that most everything that California does has an impact on this country and dare say the world. We hope that in our effort to pursue lower costs and higher quality of care in health care that the beneficiaries are not just Californians but people throughout the country,” Becerra said.

 

 

 

Hospital Giant Sutter Health Faces Legal Reckoning Over Medical Pricing

Hospital Giant Sutter Health Faces Legal Reckoning Over Medical Pricing

Economists and researchers long have blamed the high cost of health care in Northern California on the giant medical systems that have gobbled up hospitals and physician practices — most notably Sutter Health, a nonprofit chain with 24 hospitals, 34 surgery centers and 5,000 physicians across the region.

Now, those arguments will have their day in court: A long-awaited class-action lawsuit against Sutter is set to open Sept. 23 in San Francisco Superior Court.

The hospital giant, with $13 billion in operating revenue in 2018, stands accused of violating California’s antitrust laws by leveraging its market power to drive out competition and overcharge patients. Health care costs in Northern California, where Sutter is dominant, are 20% to 30% higher than in Southern California, even after adjusting for cost of living, according to a 2018 study from the Nicholas C. Petris Center at the University of California-Berkeley cited in the complaint.

The case was initiated in 2014 by self-funded employers and union trusts that pay for worker health care. It since has been joined with a similar case brought last year by California Attorney General Xavier Becerra. The plaintiffs seek up to $900 million in damages for overpayments that they attribute to Sutter; under California’s antitrust law, the award can be tripled, leaving Sutter liable for up to $2.7 billion.

The case is being followed closely by industry leaders and academics alike.

“This case could be huge. It could be existential,” said Glenn Melnick, a health care economist at the University of Southern California. If the case is successful, he predicted, health care prices could drop significantly in Northern California. It also could have a “chilling effect” nationally for large health systems that have adopted similar negotiating tactics, he said.

The case already has proved controversial: In November 2017, San Francisco County Superior Court Judge Curtis E.A. Karnow sanctioned Sutter after finding it had intentionally destroyed 192 boxes of documents sought by plaintiffs, “knowing that the evidence was relevant to antitrust issues.” He wrote: “There is no good explanation for the specific and unusual destruction here.”

Antitrust enforcement is more commonly within the purview of the Federal Trade Commission and U.S. Department of Justice. “One of the reasons we have such a big problem [with consolidation] is that they’ve done very little. Enforcement has been very weak,” said Richard Scheffler, director of the Nicholas C. Petris Center. From 2010 to 2017, there were more than 800 hospital mergers, and the federal government has challenged just a handful.

“We feel very confident,” said Richard Grossman, lead counsel for the plaintiffs. “Sutter has been able to elevate their prices above market to the tune of many hundreds of millions of dollars.”

Or, as Attorney General Becerra put it at a news conference unveiling his 2018 lawsuit: “This is a big ‘F’ deal.”

Sutter vigorously denies the allegations, saying its large, integrated health system offers tangible benefits for patients, including more consistent high-quality care. Sutter also disputes that its prices are higher than other major health care providers in California, saying its internal analyses tell a different story.

“This lawsuit irresponsibly targets Sutter’s integrated system of hospitals, clinics, urgent care centers and affiliated doctors serving millions of patients throughout Northern California,” spokeswoman Amy Thoma Tan wrote in an emailed statement. “While insurance companies want to sell narrow networks to employers, integrated networks like Sutter’s benefit patient care and experience, which leads to greater patient choice and reduces surprise out-of-network bills to our patients.”

There’s no dispute that for years Sutter has worked aggressively to buy up hospitals and doctor practices in communities throughout Northern California. At issue in the case is how it has used that market dominance.

According to the lawsuit, Sutter has exploited its market power by using an “all-or-none” approach to contracting with insurance companies. The tactic — known as the “Sutter Model” — involves sitting down at the negotiating table with a demand: If an insurer wants to include any one of the Sutter hospitals or clinics in its network, it must include all of them. In Sutter’s case, several of its 24 hospitals are “must-haves,” meaning it would be almost impossible for an insurer to sell an insurance plan in a given community without including those facilities in the network.

“All-or-none” contracting allows hospital systems to demand higher prices from an insurer with little choice but to acquiesce, even if it might be cheaper to exclude some of the system’s hospitals that are more expensive than a competitor’s. Those higher prices trickle down to consumers in the form of higher premiums.

The California Hospital Association contends such negotiations are crucial for hospitals struggling financially. “It can be a great benefit to small hospitals and rural hospitals that don’t have a lot of bargaining power to have a larger group that can negotiate on their behalf,” said Jackie Garman, the CHA’s legal counsel.

Sutter also is accused of preventing insurers and employers from tiering benefits, a technique used to steer patients to more cost-effective options. For example, an insurer might charge $100 out-of-pocket for a procedure at a preferred surgery center, but $200 at a more expensive facility. In addition, the lawsuit alleges that for years Sutter restricted insurers from sharing information about its prices with employers and workers, making it nearly impossible to compare prices when selecting a provider.

Altogether, the plaintiffs allege, such tactics are anti-competitive and have allowed Sutter to drive up the cost of care in Northern California.

Hospitals in California and other regions across the country have watched the success of such tactics and taken note. “All the other hospitals want to emulate [Sutter] to get those rates,” said Anthony Wright, executive director of the advocacy group Health Access.

A verdict that finds such tactics illegal would “send a signal to the market that the way to compete is not to be the next Sutter,” said Wright. “You want them to compete instead by providing better quality service at a lower price, not just by who can get bigger and thus leverage a higher price.”

Along with damages, Becerra’s complaint calls for dismantling the Sutter Model. It asks that Sutter be required to negotiate prices separately for each of its hospitals — and prohibit officials at different hospitals from sharing details of their negotiations. While leaving Sutter intact, the approach would give insurers more negotiating room, particularly in communities with competing providers.

Consolidation in the health care industry is likely here to stay: Two-thirds of hospitals across the nation are part of larger medical systems. “It’s very hard to unscramble the egg,” said Melnick.

California legislators have attempted to limit the “all or nothing” contracting terms several times, but the legislation has stalled amid opposition from the hospital industry.

Now the courts will weigh in.

 

 

 

Trial approaching in Sutter Health antitrust case

https://www.modernhealthcare.com/legal/trial-approaching-sutter-health-antitrust-case?utm_source=modern-healthcare-daily-finance&utm_medium=email&utm_campaign=20190923&utm_content=article1-readmore

Spurred in part by the Affordable Care Act, hospitals across the country have merged to form massive medical systems in the belief it would simplify the process for patients.

But a simpler bill doesn’t always guarantee a cheaper bill.

That’s a key issue in an antitrust lawsuit against one of California’s largest hospital systems set to begin Monday.

About 1,500 self-funded health plans have sued Sutter Health, a system that includes 24 hospitals across Northern California. The case has dragged on since 2014, but it picked up steam last year when Attorney General Xavier Becerra filed a similar lawsuit. The cases have been combined and jury selection begins Monday. Opening arguments are scheduled for October.

The lawsuit alleges Sutter Health gobbled up competing medical providers in the region and used its market dominance to set higher prices for insurance plans, which means more expensive insurance premiums for consumers.

Becerra points to a 2018 study that found unadjusted inpatient procedure prices are 70% higher in Northern California than Southern California. The lawsuit notes Sutter Health’s assets were $15.6 billion at the end of 2016, up from $6.4 billion in 2005.

“We never meant for folks to use integration to boost their profits at the expense of consumers,” Becerra said.

It’s rare for antitrust lawsuits of this size to go to trial because the law allows for triple damages — a prospect that often spooks companies into settling outside of court to avoid an unpredictable jury. Health plans in this case are asking for $900 million in damages, meaning Sutter Health could take a nearly $3 billion hit.

Atrium Health, a North Carolina-based hospital system, settled a similar anti-trust lawsuit with the federal government last year. And CHI Franciscan, a health system based in Washington state, also settled similar claims in March that had been brought by the state.

But Sutter Health is fighting the case. The company says the lawsuit is not about its prices, but about insurance companies who want to maximize their own profits. Sutter Health officials insist the company faces fierce competition, vowing to detail in court the expansion of other health systems in the San Francisco Bay Area and the Sacramento Valley.

Four Sutter Health hospitals had operating losses in 2018, totaling $49 million.

“The bottom line is that this lawsuit is designed to skew the healthcare system to the advantage of large insurance companies so they can market inadequate insurance plans to Californians,” said Sutter Health Director of Public Affairs Amy Thoma Tan.

At issue are several of Sutter Health’s contracting policies that Becerra says have allowed the company to “thoroughly immunize itself from price competition.”

One way insurance companies keep costs down is to steer patients to cheaper health care providers through a variety of incentives. Becerra says Sutter Health bans insurance companies from using these incentives, making it harder for patients to use their lower-priced competitors.

Becerra also says Sutter has an “all or nothing” approach to negotiating with insurance companies, requiring them to include all of the company’s hospitals in their provider networks even if it doesn’t make financial sense to do so.

The case was originally filed by a trust of Northern California’s largest unionized grocery companies in 2014. A representative for the trust said it was “unknowingly forced to pay Sutter’s artificially high prices.”

But the company says these contracting practices are designed to protect patients. People often are unable to pick which hospital they go to in a medical emergency, which can lead to surprise bills when they learn a hospital or doctor was not in their network.

Jackie Garman, lawyer for the California Hospital Association, said these contracting practices are standard at a lot of hospitals. If the lawsuit is successful, she said it could “disrupt contracting practices at a lot of other systems.”

But the consequences of not bringing the lawsuit could be greater, Becerra said.

“We are paying every time we allow an anti-competitive behavior to drive the market,” he said.

 

 

 

On same day of hospital concentration study, AMA says payers are the ones with less competition

https://www.beckershospitalreview.com/payer-issues/on-same-day-of-hospital-concentration-study-ama-says-payers-are-the-ones-with-less-competition.html?oly_enc_id=2893H2397267F7G

Image result for highly concentrated health insurance market

 

In 2018, 75 percent of commercial health insurance markets were highly concentrated, according to a study published by the American Medical Association.

For its study, AMA analyzed market concentration in 382 metropolitan areas across the nation. AMA estimated that 73 million Americans with commercial health plans live in highly concentrated markets and don’t have many health plans to choose from. 

“Americans in three-quarters of commercial health insurance markets have a limited number of health insurers from which to choose,” AMA President Patrice Harris, MD, said in a prepared statement. “In almost half of metropolitan areas, a single health insurer has 50 percent or more of the market, and patients are not benefiting from this degree of market power. While health insurers grow corporate profits, networks are too narrow, premiums are too high, and benefits are too watered down.”

The study was published the same day the Health Care Cost Institute published an analysis finding a growing number of metropolitan areas have highly concentrated hospital markets. HCCI found that by 2016, hospital markets in the majority (72 percent) of 112 metro areas the institute studied were highly concentrated. HCCI said this “reflects the fact that most metros became increasingly concentrated over time.”

Read the full AMA study here.

 

Report: 3 in 4 hospital markets are now ‘highly concentrated’

https://www.fiercehealthcare.com/hospitals-health-systems/report-three-four-hospital-markets-are-now-highly-concentrated?mkt_tok=eyJpIjoiT1dJNE5tUTFZV0k1TVdRNCIsInQiOiJMakFtS1IzZmxaRDlQNUtjdFdMUHVYUFdBd1wvXC9EZFR3ekhHU3ZsYVNib2t3bTlEb0Z2bklLZndEZXFOTjZ1RVZ0bURYMXI5dGFNcW92SXFYV25HTVh4d01tNEY4YkVCUnBMamhpbllXSytVTW5ybGJ1OTh0UjJmVDRmSWJ6c1wveCJ9&mrkid=959610

Photo of two men shaking hands in front of a hospital

Nearly 3 in 4 hospital markets around the U.S. are “highly concentrated,” according to a new Healthy Marketplace Index report by the Health Care Cost Institute (HCCI).

Researchers examined more than 4 million commercial inpatient hospital claims between 2012 and 2016 and found 81 out of 112 (72%) were considered “highly concentrated” using the Department of Justice’s Herfindahl-Hirschman Index (HHI). That’s up from 67% in 2012. 

“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 CEO of HCCI, in a statement.

Funded by the Robert Wood Johnson Foundation, the report found:

  • 69% of markets studied experienced an increase in concentration.
  • Metro areas with smaller populations tended to have higher concentration levels. For instance, Springfield, Missouri; Peoria, Illinois; Cape Coral, Florida; and both Durham and Greensboro, North Carolina, had the most concentrated markets in the U.S.
  • Larger metropolitan areas including New York City, Philadelphia and Chicago had the lowest levels of concentration.
  • Some of the less concentrated metros in 2012 like Trenton, New Jersey, experienced larger increases in concentration over time.

“Our findings add to the growing consensus that most localities have highly concentrated hospital markets, and this is becoming increasingly true over time,” Bill Johnson, Ph.D., a senior researcher at HCCI and an author of the report, said in a statement. “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.”

Previous, HCCI reports found inpatient hospital prices were rising in nearly every metro area studied. This new study found a positive relationship—but not a causal relationship—between price increases and increases in hospital market concentration. Those findings align with similar findings correlating consolidation with rising healthcare prices including from the Harvard Global Health Institute and the Robert Wood Johnson Foundation and The Urban Institute.

However, the American Hospital Association recently released its defense of consolidation in a report that argues mergers can improve costs by increasing scale, improving care coordination, reducing capital costs and improving clinical standardization.