Recent trends in hospital market concentration and profitability: the case of New Jersey

Lu, Rose, Chakravarty, Sujoy, Wu, Bingxiao and Cantor, Joel C. (2024) Recent trends in hospital market concentration and profitability: the case of New Jersey. Journal of Hospital Management and Health Policy, 8. ISSN 2523-2533

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Abstract

Background: The United States (U.S.) and other countries rely on systems of private negotiations between insurance companies and hospitals to set hospital prices. To shed light on the implications of recent trends in hospital market consolidation in the U.S., particularly in New Jersey where not-for-profit hospitals dominate, we examined changes in hospital financial margins in New Jersey during a period of sustained consolidation activities. Methods: We documented trends in hospital market concentration and operating margins for the state overall as well as each of eight hospital market areas (HMAs) from 2010 to 2020 and examined the associations in trends between these measures. Market concentration was measured using the standard Herfindahl-Hirschman Index (HHI). We employed hospital-level ordinary least squares (OLS) regression to examine the relationship between market concentration and operating margins in quadratic models. For robustness, three alternative specifications were considered, controlling for observed hospital characteristics and hospital fixed effects. Sensitivity analyses were conducted to test the impacts of the pandemic, a time lag, and hospital size. Results: We found that hospital markets in New Jersey underwent increasing consolidation during our study period. By 2020, six HMAs, accounting for 71% of the total admissions in the state, were considered “highly concentrated” (HHI >0.25). On average, while there were some increases in operating margins in the earlier years, almost all HMAs exhibited relatively lower levels around 2020. Our regression model revealed that hospital market concentration was positively associated with hospital operating margins, but only at higher levels of concentration—above an HHI threshold level of 0.361. This finding is robust to controls for hospital characteristics, including hospital ownership status, and hospital fixed effects. As effect sizes from the lagged models did not differ much from our main results, it appears that the potential effect of increased concentration on margins occurred without much delay. Conclusions: Our findings demonstrate the need for continued scrutiny of proposed consolidation activity, rigorous enforcement of antitrust regulations, and development of policies by state and federal authorities to monitor and regulate prices and quality of care in markets that are already highly concentrated.

Item Type:	Article
Official URL:	https://jhmhp.amegroups.org/
Additional Information:	© 2024 Journal of Hospital Management and Health Policy
Divisions:	LSE
Subjects:	R Medicine > RA Public aspects of medicine
Date Deposited:	22 Apr 2024 08:39
Last Modified:	15 Nov 2024 05:57
URI:	http://eprints.lse.ac.uk/id/eprint/122700

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