Which Parts of the United States Have the Most Consolidated Medicare Hospital Spending?

Hospital and health care consolidation has been found to harm access to care, quality of care, and provider choice for Medicare beneficiaries. More specifically, the consequences of highly concentrated hospital markets can include worse health outcomes, higher readmission rates, and higher per capita Medicare spending than less-concentrated markets. Research also has suggested that market concentration negatively affects patient satisfaction. To understand where Medicare beneficiaries across the United States may be most affected by such market dynamics, we examined the concentration of inpatient hospital Medicare spending within health systems and how this varies across the country.

Using Medicare claims data from 2021 analyzed by CareJourney, a health care analytics company, we examined the concentration of traditional Medicare spending within regional health care markets known as hospital referral regions (HRRs). HRRs are geographic areas made up of zip codes and are designed to define health care market regions based on referral patterns of specialized hospital care, like major cardiovascular surgical procedures. The 306 HRRs in the U.S. have boundaries that often cross state lines. Spending data for Medicare Advantage plans, which comprise a large share of beneficiaries in some markets, is not available and therefore excluded from this analysis.

In Many Hospital Referral Regions, Medicare Inpatient Spending Is Highly Concentrated in Two Hospital Systems

Two hospital systems accounted for more than half of traditional Medicare inpatient hospital spending in 258 HRRs and accounted for more than three-quarters of spending in 110 of the total 306 HRRs in the U.S.

The extent to which spending was concentrated varied greatly across the country. In 2021, the HRR with the most concentrated Medicare inpatient spending was Bloomington, Ill., where 100 percent of such spending was attributable to the only two health systems in the HRR. In Bend, Ore., and St. Joseph, Mich., both relatively rural areas, three hospitals accounted for 99 percent of Medicare inpatient spending.

In other parts of the country, spending was much less concentrated. Two health systems accounted for less than one-third of Medicare inpatient spending in San Bernardino, Calif. (27%), Chicago (27%), and Los Angeles (27%), all large metropolitan areas with more than 30 hospitals in the region.

In 10 States, Medicare Inpatient Hospital Spending Is Dominated by Two Health Systems

In 10 states plus the District of Columbia, two hospital systems account for the majority of Medicare inpatient hospital spending in the state. In Utah, Rhode Island, and Vermont, two-thirds of Medicare inpatient hospital spending is attributable to two health systems. In 16 states plus D.C., a single system accounted for at least one-quarter of all Medicare inpatient hospital spending.

In 2021, HCA Healthcare, a for-profit health system, accounted for the largest share of all traditional Medicare inpatient hospital spending in the country ($21 billion, or 5% of annual national Medicare inpatient hospital spending; data not shown). In eight states, HCA was also among the two largest systems with the greatest share of Medicare inpatient hospital spending.

Policy Implications

Evidence has shown that health care prices are higher in consolidated markets, particularly for commercial insurers. If hospital consolidation continues to increase prices in the commercial market, there could be pressure on Medicare to raise rates in line with commercial insurers to avoid access issues for beneficiaries; in 2016, the growing gap between commercial and Medicare rates led the Medicare Payment Advisory Commission to examine whether Medicare should increase its rates to keep pace with commercial insurance. If the gap between commercial prices and Medicare prices for the same services grows too wide, there is concern some physicians might decide to stop accepting Medicare. It is less likely, however, that hospitals will stop accepting Medicare patients.

Market consolidation could indirectly affect Medicare spending through payments to Medicare Advantage plans. This analysis only examined the concentration of traditional Medicare spending, because Medicare Advantage plans’ spending is not available. However, if Medicare Advantage plans do not have negotiating leverage with dominant hospital systems, and need to pay higher rates to dominant hospital systems, then plans’ costs would rise as would the payments made to plans by the Medicare program.

To help address concentration in hospital markets and to try to avert negative outcomes for beneficiaries, policymakers could strengthen federal merger review tools. They also could consider the Commonwealth Fund Task Force on Payment and Delivery System Reform’s recommendations on health care markets and consumers.

In addition, more research could help improve our understanding of how consolidation affects quality of and satisfaction with care, as well as outcomes, particularly for people enrolled in Medicare. In particular, research comparing hospital concentration with quality of care indicators like hospitals’ overall star ratings could provide further insights into this relationship. Tracking health care consolidations and the downstream effect on Medicare beneficiaries’ access to care could also help to inform Medicare payment policy. Monitoring is important to ensure that beneficiaries receive high-quality care and a choice of providers, and that Medicare Advantage plans can negotiate fair rates.