Market consolidation worse among payers than health systems

There has been a large focus on how market consolidation among hospitals and health systems, including physician practice acquisitions, affects competition, pricing, and access to care. However, new data from the Association of American Medical Colleges (AAMC) shows that health payers are actually more consolidated than health systems.

The data released May 1 shows that the largest health systems hold, on average, a combined 43.1% of the market share in each state as measured by total inpatient hospital discharges. In contrast, the top three large-group insurers have an average of 82.2% of the market share in each state.

Market consolidation among payers is especially prevalent in states that Massachusetts where large-group insurers with the highest enrollment — Blue Cross Blue Shield of MA (60.7%), Point32Health, Inc. Group (23.5%), and UnitedHealth Group (4.2%) — also hold a combined 88.4% of the market share. The large health systems — Mass General Brigham (19.8% of inpatient hospital discharges), Beth Israel Lahey Health (19.5%), and Steward Health Care System (8.3%) — have 47.6% of the market share in the state altogether.

California was also unique in the fact that Kaiser Permanente dominated market share in both markets, being the health system with the most discharges at 13.1% and the largest payer at 51.6%, AAMC pointed out.

The data also shows that health systems with the largest share of hospitals in a state (30.2% combined, on average) still had significantly less market share than health systems with the largest share of total hospital discharges (43.1%) and the top three payers in the large-group market by enrollment (82.2%).

Understanding how consolidated payer markets are in each state matters in the debate around consolidation in healthcare, AAMC explained.

“When the market share of an insurer far exceeds the market share of an individual health system — as is the case in most states, according to our analysis — that can negatively impact the amount that insurers are willing to pay hospitals and health systems for patient care,” the trade association said.

“Indeed, consolidation of commercial insurers has been associated with lower payments to providers because of improved market power during negotiations. Lower reimbursements may then result in a reduction in the types of services offered or even (in extreme cases), the closure of practices or hospitals,” they continued.

The data gives policymakers and other healthcare stakeholders more information on how concentrated markets are within states. AAMC used this to measure consolidation versus metropolitan statistical areas because of “patient mobility, virtual care, and the fact that licensure and insurance are often regulated at the state level.”

AAMC also emphasized segregating health systems by their share of discharges in the state versus how many hospitals they own in that state. Health systems may have several small hospitals and still have less combined inpatient volume compared to a single, large hospital, for example.

At the end of the report, AAMC found that the number of health systems has not changed significantly in recent years— from 626 in 2016 to 637 in 2018 to 635 in 2021. However, the number of payers has declined from 2011 to 2020, going from 640 to just 472 large-group market insurers. The individual market saw an even steeper drop, going from 1,529 insurers to 563 during that time.

“This increased consolidation of insurers suggests that policymakers’ exclusive focus on regulating provider consolidation is problematic,” AAMC stated. “Insurer consolidation has resulted in lower prices (or charges), but the impact on reimbursements to providers is unclear. Importantly, there has not been evidence of reduced premiums for patients and some studies have found evidence that insurer consolidation increases premiums.”