In 2024, 47% of U.S. metropolitan areas had their entire inpatient hospital market under the control of just one or two health systems, according to a recent KFF analysis that raises new red flags around consolidation and rising healthcare prices.
Additionally, 83% of metropolitan areas had more than three-quarters of their markets controlled by one or two health systems. And, echoing similar recent research into the topic, hospital markets became less competitive over the prior decade and almost uniformly meet antitrust regulators’ general threshold for high market concentration.
“Consolidation may allow providers to operate more efficiently and help struggling providers keep their doors open in underserved areas, but it often reduces competition,” analysts from the health policy research group wrote in their Friday report. “A substantial body of evidence has found that consolidation can contribute to higher prices, with unclear effects on quality.”
KFF’s review looked at RAND Hospital Data (a cleaned-for-analysis version of Medicare annual cost report data) and American Hospital Association survey data from 2024, the most recent year for which such information was available, and excludes federal hospitals.
They used Metropolitan Statistical Areas (MSAs), as defined by the Census Bureau, as a geographic proxy for hospital markets. They determined market concentration using the Herfindahl-Hirschman Index (HHI), the metric the Federal Trade Commission (FTC) and the Department of Justice (DOJ) use to determine when they should intervene in a transaction on competitive grounds.
That approach found that 19% of MSAs were entirely controlled by a single health system, with 27% controlled by two systems. A single health system controlled at least half of a market in 76% of MSAs, and at least a quarter of the local market in 98% of MSAs.
The concentration tends to increase in less populated areas, KFF found. Nearly four in five MSAs with populations under 200,000 people had their inpatient hospital market fully controlled by one or two systems, and all but one of the 55 MSAs with populations of at least 1 million people had four or more competing health systems (though 14 of these also had 75% of their markets controlled by the two largest local systems).
Separately, 97% of the country’s MSAs had HHIs of more than 1,800 (regulators’ current cutoff for highly concentrated markets). HHIs again tended to be lower for less populated MSAs, meaning that 72% of people living in a metropolitan area highly concentrated hospital markets.
Per the American Hospital Association data, the portion of hospitals affiliated with a larger health system increased from 56% in 2010 to 80% in 2024, with gains in both rural and urban areas. KFF found that the trend was paralleled by a rise in market concentration, with the market concentration in 80% of metropolitan areas rising between 2015 and 2024.
“Concentration declined in only 20% of markets. In some cases, increases or decreases in concentration were very small,” KFF wrote.
KFF’s numbers on the share of highly concentrated markets are a few percentage points above other estimates, which may have used older HHI cutoffs or travel distance-based definitions of a local market, but broadly aligns in painting a picture of limited competition in much of the country.
Policymakers, insurers and purchasers have jumped on the issue of provider consolidation as an avenue for potential pricing correction.
A Government Accountability Office literature review from last fall, for instance, concluded that consolidation among providers (in this case, physician offices joining systems) has increased and driven higher Medicare spending and commercial prices. A similar trend was highlighted a few weeks back during a congressional subcommittee hearing, in which testimony from the Purchaser Business Group on Health and a health policy researcher galvanized Republican lawmakers’ calls for policies to slow down provider consolidation.
American Hospital Association President and CEO Rick Pollack, during that hearing, pushed back on the characterization by telling the lawmakers that merging health systems reduces operating costs by an average 3.3%, improves quality outcomes and decreases revenue per adjusted admission. Representatives seemed skeptical of Pollack’s argument as other witnesses flatly opposed those claims.
Meanwhile, Friday’s KFF analysis became quick fuel for the payer lobby, the negotiations with whom hospitals often cite as a driving force in their need to combine.
“Hospital costs account for more than 40 cents of every premium dollar—more than any other category—and many hospital systems continue to raise their prices at rates that dwarf inflation while also sticking patients with layers of opaque fees,” Chris Bond, a spokesperson for AHIP, said in a statement included alongside an email blast highlighting KFF’s report. “Instead of looking around for someone else to blame, the hospital industry should stop the anticompetitive consolidation, opaque billing practices and unaffordable price hikes that continue to drive Americans’ premium costs higher.”