Just A Few Health Systems Dominate Medicare Inpatient Spending

Medicare inpatient spending is highly concentrated in many parts of the US, causing concerns about the impact hospital consolidation will have on prices in the future.

In 10 states plus the District of Columbia (DC), just two hospital systems account for the majority of Medicare inpatient hospital spending in the state, the Commonwealth Fund reports. The Commonwealth Fund examined trends in Medicare claims data from 2021 analyzed by CareJourney, a healthcare analytics company.

They found that two-thirds of Medicare inpatient spending was attributable to two health systems, and in 16 states plus DC, a single system accounted for a least a quarter of all Medicare spending on hospital inpatient services that year.

Specifically, for-profit health system HCA Healthcare accounted for the largest share of all traditional Medicare inpatient spending that year with $21 billion. That equates to about 5 percent of annual national Medicare inpatient spending, according to Commonwealth Fund.

HCA Healthcare was also among the two largest systems with the greatest share of Medicare inpatient hospital spending, the report shows.

The findings raise even more concerns over hospital consolidation, Commonwealth Fund says.

“Evidence has shown that [healthcare] 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,” they state in the report.

Commonwealth Fund fears that a growing gap between Medicare and commercial prices for the same services could prompt some physicians to stop accepting Medicare patients. Although it is unlikely hospitals would do that, they admit.

There are also concerns that hospital consolidation could indirectly impact Medicare spending through payments to Medicare Advantage plans, the report states. The report only examined traditional Medicare inpatient hospital spending because Medicare Advantage spending data as 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,” Commonwealth Fund explains.

National healthcare spending is still on an accelerated track, with the US paying $4.3 trillion on health-related services in 2021. Medicare spending, in particular, rose last year to $734.0 billion. At this rate, Medicare is expected to be insolvent by 2020, according to the Committee for a Responsible Federal Budget.

The recent hospital consolidation trend has sparked concerns that prices will go up despite no or minimal quality improvements. Industry leaders, including the Commonwealth Fund, call on stronger federal merger review tools, including larger transaction thresholds for investigation and expanded market definitions.