Metropolitan Areas Dominated by 1 or 2 Health Systems in 2022

Data from 2022 reveal that 1 or 2 health systems were responsible for the entire market in nearly half of the metropolitan areas in the US, which can affect the price and quality of inpatient care in these areas, according to KFF.¹

Making health care more affordable is a primary concern of policymakers, as national health spending topped $4.5 trillion in 2022. Hospital care makes up one-third of all health spending and is therefore an area of concern, especially as consolidation of hospitals and clinics can lead to a monopoly on health care in an area, driving up prices. According to a study published in 2019, hospital prices in monopoly markets were 12% higher compared with markets with 4 or more health systems.² These health systems also load more risk on insurers due to more cases with prices set as a share of their charges.

KFF conducted an analysis of the markets in health care using RAND Hospital Data to assess the competition among health systems throughout the country. All hospitals included were Medicare certified, which encompassed 97% of the nonfederal general medical and surgical hospitals based in the metropolitan areas of the US. Nonfederal, general short-term hospitals were used for analyses of market shares and the Herfindahl-Hirschman Index (HHI), the latter of which is a measure of concentration to evaluate market competitiveness.

Share of metropolitan statistical areas (MSAs), level of market concentration in MSAs, and the share of hospitals affiliated with health systems over time made up the 3 measurements of competition. HHI is calculated using the number of participants in a market and their respective shares, with scores ranging from 0, where the market is perfectly competitive, to 10,000, where the market is a monopoly. The 3 categories that the Federal Trade Commission uses include not concentrated, when HHI is lower than 1000; moderately concentrated, when HHI is between 1000 and 1800; and highly concentrated, when HHI is higher than 1800.

Through their analysis, KFF found that a single health system controlled 19% of MSAs in the country and 27% were controlled by 2 systems. Also, more than 75% of the market was controlled by 1 or 2 health systems in 82% of the MSAs, which were all deemed highly concentrated markets. A total of 75% of the MSAs had 1 health system controlling at least half of the market, and 98% of the MSAs had at least 1 health system controlling a quarter of the market.

Metropolitan areas often had 1 or 2 health systems making up the majority of the health care services in the region | Image credit: Spiroview Inc. - stock.adobe.com

The population of a region determined the number of health systems in each MSA, according to the data. Health systems numbered 1 or 2 in 79% of MSAs that had a population of 200,000 or less. In this way, only 12% of the US population lives in areas where only 1 or 2 health systems dominate the market, spanning 47% of the MSAs in the nation.

At least 4 health systems were found in 53 of the 54 MSAs that had a population of at least 1 million people, including Phoenix, Arizona; Detroit, Michiga; and Miami, Florida. A total of 79% of the US population lived in an area with at least 4 health systems, making up 35% of all MSAs. Despite there being 4 or more health systems in an area, however, 75% of the market was controlled by the 2 largest health systems in 9 of the MSAs and 50% of the market was controlled by the same 2 health systems in 37 of the MSAs.

From the HHI analysis, highly concentrated markets were found in 97% of MSAs when it came to inpatient hospital care in 2022. More competitive health systems were found in larger metropolitan areas compared with less populated areas in a majority of the MSAs. The only MSAs that were not concentrated or moderately concentrated had more than 1 million residents, but highly concentrated hospital markets were found in 41 MSAs with more than 1 million residents, including Atlanta, Georgia; Denver, Colorado; and Houston, Texas. Highly concentrated hospital markets were the norm for 70% of people living in MSAs.

Rural and nonrural areas both saw an increase in the number of hospitals affiliated with health systems, increasing to 67% in 2022 from 56% in 2010. The number of rural hospitals in a health system remained lower than nonrural hospitals but the number of rural hospitals in a health system increased overall from 43% in 2010 to 52% in 2022. The share of nonrural hospitals in a health system also increased from 69% in 2010 to 83% in 2022.

A total of 22% of system-affiliated hospitals were part of a system with at least 50 hospitals, 53% were part of a system with at least 15 hospitals, and 13% were part of a system with at least 100 hospitals. Different geographic market merging could lead to higher prices in some cases but does not always lead to a reduction of local market competition.

Overall, hospital markets are concentrated in the majority of metropolitan areas, as 1 or 2 health systems make up the majority of each MSA, which can lead to a monopoly on health care in these areas. Preventing consolidation in the future and increasing competition in these areas could help to mitigate the effects of monopolized health care, both in terms of cost and quality of care.

References

1. Godwin J, Levinson Z, Neuman T. One or two health systems controlled the entire market for inpatient hospital care in nearly half of metropolitan areas in 2022. KFF. October 1, 2024. Accessed October 3, 2024. https://www.kff.org/health-costs/issue-brief/one-or-two-health-systems-controlled-the-entire-market-for-inpatient-hospital-care-in-nearly-half-of-metropolitan-areas-in-2022/

2. Cooper Z, Craig SV, Gaynor M, Van Reenen J. The price ain’t right? Hospital prices and health spending on the privately insured. Q J Econ. 2019;134(1)51-107. doi:10.1093/qje/qjy020