The impacts of increasing U.S. hospital consolidation on Medicaid recipients



The U.S. healthcare sector is a consequential part of the overall economy. As of 2021, U.S. healthcare expenditures alone would rank third among the world’s largest economies in terms of estimated GDP.

The importance of understanding the structure of such a large portion of the U.S. economy is self-evident. But it is made all the more essential given healthcare’s profound impact on the well-being of the population. The United States has stark inequality in health outcomes, and as such, the value of better understanding how the structures of the healthcare market contribute to or mitigate these disparities cannot be overstated.

One trend that is rapidly changing the structure of U.S. healthcare delivery is the consolidation of hospital systems. Mergers and acquisitions mean healthcare markets across the country are dominated by fewer and larger health systems. Indeed, 48 percent of U.S. hospitals operate in markets with two or fewer competitors, according to a recent analysis.

Economists and other researchers have long raised concerns about the impacts of reduced competition on healthcare costs, quality-of-care delivery, and whether consolidation could widen inequality and disproportionately harm lower-income populations. These apprehensions are particularly salient to hospital-based care because hospitals play a crucial role in serving individuals from diverse socioeconomic backgrounds with varying levels and types of insurance. More specifically, these concerns are pertinent to populations covered by Medicaid, which typically offers lower reimbursement rates compared to private insurers.

The heightened attention on hospital mergers and concentration is not just from researchers alone. Policymakers and regulators also have raised concerns about the trend and released guidance on several aspects of reduced competition in healthcare. A 2021 White House executive order on promoting competition throughout the U.S. economy, for instance, highlights increasing hospital concentration, acknowledging that such concentration has important impacts on patients’ access to healthcare. The Federal Trade Commission also has warned that Certificates of Public Advantage—laws that favor state oversight over competition in attempts to insulate hospital mergers from antitrust regulation—are insufficient to protect against the downsides of increasing market concentration.

A large share of existing research on this topic does not focus directly on the care provided to low-income patients, instead analyzing data derived from private insurance markets and Medicare. Yet hospital mergers may have meaningful impacts on low-income patients for several reasons.

For one, a plethora of evidence demonstrates that hospitals in more concentrated markets can negotiate higher reimbursement rates from private insurers. These higher prices may widen the gap between what hospitals are reimbursed for when caring for privately insured patients relative to those insured by government programs such as Medicaid. Whether this payment gap harms Medicaid patients is not theoretically clear-cut. On the one hand, it could create a disincentive for hospitals and providers to care for low-income patients or invest in the quality of their care. On the other hand, it also is possible that hospitals may use higher revenues from private insurer payments to subsidize care for low-income patients.

In addition, the large presence of nonprofit hospital systems could shape the effects of consolidation activity on vulnerable populations. Nonprofit hospitals are privately owned hospitals that have special tax status, with the understanding that profits will be reinvested in the hospital and used for improving patient care. They differ from public hospitals, which are owned by a city or state government, are funded by tax revenue, and typically provide a large volume of charity care.

Nonprofit hospital mergers have historically been approved on the basis that they would not raise prices—or if they did, they would invest incremental profits to benefit lower-income patients. Given their ostensible community-serving mission, one might expect exactly this kind of behavior from nonprofit hospitals, but there is ample evidence that nonprofit hospitals act like for-profit organizations.

These challenging-to-predict market dynamics underscore the importance of and need for more empirical work in this area. Indeed, it motivated our own research on the topic, in which we find that increasing hospital concentration is associated with decreases in the number of Medicaid patients admitted to nonprofit hospitals and increases in Medicaid admissions at public hospitals. This suggests that increasing concentration may lead systems to prioritize treating privately insured patients over those insured by Medicaid. It also adds gravity to the question of whether nonprofit hospitals act in accordance with the explicit community-serving mission that their legal status endows.

Our paper, co-authored with our New York University colleagues Prianca Padmanabhan, Alan Z. Chen, Ashley Lewis, and Sherry A. Glied and published recently in the Journal of Health Economics, has direct implications for state and federal policymakers with respect to the impacts of hospital mergers and increasing market concentration on low-income patients. It is particularly relevant in terms of investments in the healthcare delivery system for low-income populations and regulatory approaches to merger and acquisition activity in healthcare.

The remainder of this brief is structured as follows. First, we provide an overview of trends in U.S. hospital mergers and market concentration. Then, we offer a more detailed discussion of the theoretical and empirical impacts of mergers on low-income patients before turning to an overview of our recent research. We close with a summary of the implications of our work in the context of the literature, as well as recommendations for regulators, policymakers, and researchers.

Trends in U.S. hospital mergers and healthcare market concentration

In recent decades, there has been significant consolidation in the U.S. hospital market. A key driver of that trend is mergers and acquisitions of hospitals into larger systems.

A 2022 study by the University of California, Berkeley’s Brent Fulton and his co-authors finds a steady trend toward greater hospital consolidation over time. In 1970, approximately 10 percent of hospitals were part of a hospital system, with the remaining 90 percent being independent hospitals. But Fulton and his co-authors find, in 2019, that 65 percent of hospitals belonged to a system, and between 2010 and 2019, that 1,500 hospitals were acquired or merged with a hospital system.

Another method that economists and regulators use to characterize the level of competition or concentration in a market is called the Herfindahl-Hirschman Index. The HHI is calculated as the sum of each hospital’s squared market share. This measure is sometimes multiplied by 10,000, and therefore can range from 0 to 1 or 0 to 10,000. An HHI of 10,000 corresponds to a monopoly market, with a single hospital controlling the full market, while a lower HHI indicates a more competitive market. An HHI exceeding 2,500 (or 0.25) is considered a highly concentrated market.

Research using HHI as opposed to tallying up mergers over time corroborates Fulton and his colleagues’ 2022 findings of reduced competition among U.S. hospitals. A 2015 study looked at hospital consolidation at the level of metropolitan statistical areas using the Herfindahl-Hirschman Index and found that in 1990, 65 percent of these metropolitan statistical areas were classified as highly concentrated. By 2016, a separate study found that this had increased to 90 percent of U.S. metropolitan statistical areas.

Conceptual and empirical impacts of hospital mergers on low-income patients

One potential impact of mergers on low-income patients stems from increasing hospital market concentration allowing hospitals and healthcare systems to negotiate higher reimbursement rates from private insurers. Depending on how these increased revenues are used, low-income patients may either benefit or be short-changed.

If acting altruistically, a hospital may use increased revenues from insurers to cross-subsidize care by offering more services for low-income patients or improving those that are already in place. Nonprofit hospitals would be expected to do just that. Yet the evidence for nonprofit hospitals cross-subsidizing care is dubious. Indeed, research published in 2020 suggests that nonprofit hospitals are no more likely to provide charity care or increase unprofitable offerings than their for-profit counterparts in response to increased market power.

Alternatively, if hospitals negotiate for increasingly high reimbursements from private insurers while low-income patients remain reliant on charity care or lower-paying government insurers, then an incentive structure arises that may harm low-income patients. As the opportunity cost of taking care of low-income patients rises, hospitals may aim to capture additional earnings by prioritizing care for those insured by higher-paying organizations or by peeling off services used more frequently by low-income patients.

In terms of the quality of care, theory suggests that growing hospital systems may benefit low-income patients via economies of scale. Larger hospital systems may improve efficiency in many spheres, improving care for all patients. Conglomeration of hospitals may also widen access to high-quality tertiary or specialty care for low-income patients that smaller, community hospitals may not otherwise offer. Yet there is not strong evidence that mergers actually do improve healthcare quality on average.

While the conceptual impact of hospital mergers on healthcare for low-income patients is not clear-cut, the present body of empirical evidence does not offer obvious signs of benefit. One study, which focused on rural communities, finds evidence that following mergers, rural hospitals decrease their offerings of obstetric and outpatient primary care services. Additional evidence suggests similar disinvestment in mental health services in recently consolidated rural hospitals.

Much of the remaining research on mergers, however, does not focus directly on the care provided to low-income patients, likely in part due to greater difficulty obtaining granular claims data for uninsured or Medicaid patients. It is this limited evidence on how mergers impact low-income patients that motivated our research, to which we now turn.

Effects of hospital concentration on Medicaid patients

Our study, titled “Hospital concentration and low-income populations: Evidence from New York State Medicaid,” aims to better understand the effects of changes in hospital market concentration on low-income patients using data from New York state. New York maintains one of the largest Medicaid programs in the country, which makes it an effective setting to study this question. We leverage detailed data on the universe of New York state hospital admissions from the Hospital Cost and Utilization Project State Inpatient Data, the most comprehensive source of hospital care data in the country, developed by a federal-state-industry collaboration and sponsored by the federal Agency for Health Care Research and Quality.

We estimate the effects of changes in market concentration on hospital-level inpatient Medicaid volumes overall and for birth-related admissions separately. We narrow in on birth-related admissions because they account for the plurality of Medicaid-funded admissions, so any impact of changes in market concentration may have the strongest effect in this category. Moreover, inequity in birth outcomes is a topic receiving warranted attention in the popular media and in health policy spaces.

Our data covers the years 2006–2012 and includes detailed information on every inpatient admission in New York state. We pair these data with information on hospital characteristics, as well as a database on hospital mergers during those years to study market concentration.

Our study includes 192 hospitals that make up 135 health systems across the state. Eighty-eight percent of hospitals were nonprofit, and 12 percent were public. Due to restrictions on for-profit hospitals in New York, there were no for-profit hospitals in our study. This differs from the composition of hospitals nationally; 24 percent of U.S. hospitals are for-profit.

During our period of study, 17 hospitals were acquired. To measure market concentration, we construct an HHI measure for each hospital’s market—which we term “hospital-specific HHI.” Because there are many forces that may increase market concentration beyond mergers and acquisitions, such as hospital closures, we construct a second concentration statistic that isolates the effects of mergers and acquisitions, which we call “merger-induced HHI.”

We find that for the average hospital in our study, an increase in hospital concentration—as measured by hospital-specific HHI—is associated with a decrease in Medicaid admissions. Using merger-induced HHI, we find an even more pronounced effect, though only for birth-related admissions as opposed to the birth- and non-birth-related admission effects we see with the hospital-specific HHI measure. 

To test whether these results are simply a function of declining patient volumes across all payer groups following a merger, we evaluate for a decrease in Medicaid patient mix, or the proportion of a hospital’s admitted patients insured by Medicaid. We find a statistically significant decrease, suggesting that these decreases in Medicaid admissions were disproportionate, as opposed to being in line with overall decreases among all patients regardless of insurance type.

We then measure changes in Medicaid volumes at nonprofit and public hospitals and identify an important difference between the two. Namely, we note a decrease in Medicaid patients at nonprofit hospitals and an increase at public hospitals, suggesting patient flows from the former to the latter. Using merger-induced HHI, we find that a 1 percent increase in HHI is associated with a 2.2 percent decrease in Medicaid birth-related admissions at nonprofit hospitals and a 9.8 percent increase in Medicaid birth-related admissions at public hospitals.

A back-of-the-envelope calculation, then, suggests an estimated decrease of 1,977 Medicaid birth-related admissions in nonprofit hospitals and an increase of 1,580 Medicaid birth-related admissions to public hospitals in a year. This suggests that with market concentration, nonprofit hospitals may become disincentivized to treat lower-paying Medicaid patients. Public hospitals, which have different objectives with respect to serving Medicaid patients, appear to absorb a significant share of this population—in the above calculation, 80 percent of birth-related admissions.

How exactly might a hospital go about reducing the number of Medicaid admissions? In the case of childbirth, a birthing parent’s hospital choice is largely determined by the hospital at which their physician has admitting privileges. Hospitals may reduce their Medicaid patient mix by not granting admitting privileges to providers who treat a large share of Medicaid patients. Indeed, we find evidence that fewer physicians who serve large shares of Medicaid patients admit patients to hospitals in more concentrated markets. Yet it is also possible that such providers elect to send fewer patients to hospitals in concentrated markets for any number of reasons.

Other potential mechanisms by which hospitals could reduce Medicaid volumes, which we were not able to test, include simply being less likely to grant admission to Medicaid patients or to making efforts to direct or transfer Medicaid patients to other hospitals. Some evidence of this practice exists in the literature.

Policy implications and recommendations

Our results, taken together with literature on the effects of mergers on patient health outcomes, suggest that increasing hospital market concentration may have deleterious effects on care for low-income patients. There is an absence of strong evidence that, on average, patients benefit from quality improvements following mergers.

While our work does not speak to healthcare quality, it does suggest that with increasing hospital market concentration, healthcare systems may prioritize treating privately insured patients over those insured by Medicaid, leaving public hospitals to pick up the slack. These issues are challenging, and predicting the behavior of hospital markets is exceedingly difficult.

Still, high-level policymakers and regulators can play a role in addressing the effects of increasing hospital market concentration in the United States. Our findings yield several policy implications:

  • The uninsured and those insured by Medicaid are an important subpopulation to directly consider and analyze in antitrust enforcement. Because of their differing needs and lower reimbursement rates, the impacts of market concentration on Medicaid populations may differ from those on privately insured or Medicare patients. As a result, when considering a proposed hospital merger, examining consumer well-being solely based on Medicare and privately insured patients may overlook detrimental impacts on these vulnerable populations. Such impacts may manifest in changes in quality or accessibility, such as patient flows away from nonprofit hospitals and toward public hospitals that are already overburdened and under-resourced.
  • Investments must be made in data assets that facilitate research on Medicaid patients. Inadequate data has long been a barrier to analyzing impacts on Medicaid uninsured populations. The Agency for Health Care Research and Quality’s Hospital Cost and Utilization Project State Inpatient Data, which we used in our study, provides one excellent resource to study this population. Continued investment in expanding and improving the accessibility and usability of this and similar data is essential.
  • The impacts of mergers on childbirth admissions deserves particular attention. The necessity of attending to these effects when considering policy reform is important because infant and maternal outcomes are an area in which the United States already markedly underperforms compared to peer nations and in which we observe unacceptable disparities across various segments of our nation’s population.
  • Granting nonprofit status to hospitals does not necessarily guarantee actions for public good. Our findings bring into question whether nonprofit hospitals broadly act in sufficient concordance with their charter for public good and, more specifically, the justification for special treatment of nonprofit hospitals when it comes to merger approvals. Our research adds to the body of evidence that nonprofit hospitals behave similarly to their for-profit counterparts. Relatedly:
  • Payment designs that encourage consolidation within the healthcare market should be reassessed and restructured. Martin Gaynor of Carnegie Mellon University and his co-authors succinctly highlight opportunities for intervention, such as Medicare’s facility fee and reform of the 340B drug pricing program.
  • Market consolidation activity should be considered when making investments in healthcare programs for low-income populations or establishing Medicaid payment rates. Our research suggests that in increasingly concentrated markets, patient flows across hospital types may be affected. When constructing policies to bolster care for low-income populations, it is important that these interventions are directed at providers who are prioritizing the medical care of the target population.

Understanding the impacts of mergers on Medicaid and uninsured patients is important. Our work presents evidence that financial incentives may contribute to the deprioritization of care for patients who, on average, are already more vulnerable. Ensuring that the well-being of these patients is considered closely when evaluating the impacts of hospital market concentration is of the utmost importance.

—Sunita Desai is an assistant professor in the Department of Population Health at NYU School of Medicine, with secondary appointments in the Department of Economics at NYU Stern and Health Policy at NYU Wagner. Kyle Smith is a medical student at NYU’s Grossman School of Medicine.



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