Inpatient markets have consolidated rapidly, and most major metro markets are now oligopolies with a small number of competing provider systems selling inpatient services to a small number of health insurers. In a sample of 36 major metro markets between 2010 and 2018, the median market share for the top two health insurers was 52%, and the median inpatient market share for the top three provider systems was 61%.a Creating horizontally and vertically integrated delivery systems has enhanced health systems’ competitive position, built their brands and expanded their access to capital markets, all of which has improved their financial performance. Consolidation has been especially important for academic medical centers, which need substantial scale to support their academic missions.
Over the past few years, the pace of inpatient consolidation has slowed.b As long as anti-trust laws are enforced — and it appears they will be — most of today’s metro market oligopolies are likely to remain relatively stable.c Existing players will continue to pick up the few remaining stand-alone hospitals, and national players (e.g., HCA, Providence St. Joseph Health, CommonSpirit Health) will acquire local and regional systems across markets. But the fundamental structure of most metro inpatient markets will not change much.
a. BDC Advisors LLC, analysis based on HealthLeaders Market Overview data, 2019.
b. The average annual increase in inpatient care concentration in 112 core-based statistical areas (CBSAs), as measured by the Herfindahl-Hirschman Index (HHI), was 53 out of 10,000 points from 2012 to 2016, which is not statistically significant. [Healthcare Cost Institute and the RWJ Foundation, “Healthy Marketplace Index”; BDC Advisors analysis
c. Many health economists believe that hospital consolidation has enabled health systems to use their market power to stifle competition and increase prices without clearly improving quality. See, for example, Gaynor, M., and Town, R., “The impact of hospital consolidation – Update,” Robert Wood Johnson Foundation: The Synthesis Project, June 2012. The FTC recently announced it will be evaluating them more closely in the future. See Prvulovic, M., “FTC Commissioner Warns Hospital Mergers Will Be Closely Scrutinized In 2020,” The Motley Fool, Jan. 17, 2020.