Hospital Market Concentration, Pricing, and Profitability

Hospitals have been merging with and acquiring nearby facilities, creating local and regional chains that potentially wield greater bargaining leverage than do stand-alone facilities.1 Concerns over the potential impact of health reform on hospital consolidation and pricing have been raised recently in Massachusetts and California, where hospital mergers and large hospital systems have been associated with high costs of care. Market consoidation is gaining new attention as a result of two provisions in the 2010 health reform legislation. The expansion of coverage is to be financed in part via a slowdown in Medicare payment rate updates relative to predicted trends, which may lead to further increases in the prices charged by hospitals to private insurers where those hospitals have pricing leverage.2 The consolidation of local markets may also be accelerated by the provisions of the legislation that encourage hospitals and physicians in local markets to integrate and form “accountable care organizations” (aCos) that provide the full spectrum of inpatient and outpatient services.3