The Growing Influence of Hospital Market Concentration: Impacts on Quality, Profitability, and Medicaid Expansion

Abstract

This doctoral dissertation investigates the impact of hospital market concentration on healthcare quality, profitability, and investment decisions across three interconnected chapters. The first chapter presents a model that demonstrates how profit-maximizing hospitals can be motivated to compromise the quality of care as their market power strengthens. To examine the relationship between hospital market concentration and healthcare quality, patient survey data from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) and readmission rates from the Hospital Readmissions Reduction Program (HRRP) were utilized. Hospital market concentration was measured using the 15-mile Herfindahl–Hirschman index (HHI) and a fixed effects methodology was employed on a nationwide sample of hospitals from 2012 to 2021. Findings reveal a negative association between hospital market concentration and quality, particularly within patient survey metrics.The second chapter investigates the impact of hospital market concentration on profitability and the effects of mergers on profit margins. Using propensity score matching, hospitals in concentrated markets demonstrated 2.74 percentage points higher profit margins compared to similar hospitals in competitive markets. However, a difference-in-differences analysis utilizing a unique dataset on hospital mergers revealed that both intra-market and cross-market mergers tended to decrease operating profit margins, challenging assumptions about the benefits of hospital consolidation. The third chapter examines the role of hospital market concentration as a moderator on the relationship between Medicaid expansion and hospital quality. Prior research found that the implementation of Medicaid expansion improved the quality and profitability of hospitals located in states that chose to expand Medicaid. This chapter hypothesized that hospitals in competitive markets saw greater quality improvements post-Medicaid expansion compared to hospitals in concentrated markets, due to greater incentivization to invest in quality-improving processes and equipment. Results indicate that hospital quality improved more post-Medicaid expansion in competitive markets compared to concentrated markets, particularly in terms of readmissions for heart failure, acute myocardial infarction, and COPD. These findings contribute to the growing body of literature that highlights the benefits of competition in healthcare and warns of the potential negative consequences of increased hospital market concentration, suggesting a need for enhanced antitrust scrutiny.