Cross-market hospital consolidation is on the rise and understudied, researchers say

The last several years of hospital consolidation have led to a sharp increase in U.S. health systems operating across multiple markets, a finding policy researchers say “warrants concern and scrutiny” due to possible anti-competitive power during payer negotiations.

In a new analysis published Monday, researchers found that 55% of the 1,500 hospitals targeted for a merger or acquisition between 2010 and 2019 were located in a separate geographic market than the acquirer.

During that same period, the number of health systems located in urban commuting zones that “potentially” could wield increased cross-market negotiating power grew by 54%, they wrote in November’s Health Affairs.

The researchers said their analysis concurs with existing literature on cross-market hospital mergers, which they noted have received limited academic and regulatory attention compared to those occurring within the same market. Rather, there is a “pervading view” that a deal involving entities that did not directly compete against each other cannot be anti-competitive, they wrote.

“Given that more than half of all hospital mergers during 2010–19 qualified as cross-market, this trend is worthy of investigation into its effects on market competition,” the University of California-affiliated researchers wrote in the journal. “Evidence is accumulating that cross-market mergers may sometimes enable hospital systems to increase prices through cross-market power, such as from tying hospitals across markets that have common customers (primarily insurers) or because of multimarket contact that leads to mutual forbearance.”

The team conducted its analysis using data from the American Hospital Association’s annual survey. They categorized health systems that owned hospitals in multiple commuting zones as cross-market systems.

The researchers noted that the share of hospitals that were part of a broader health system had increased significantly in recent decades, from 10% in 1970 to 67% in 2019.

Among the 1,500 merged or acquired hospitals of the 2010s, 55% were located in different commuting zones and 21% in different states than the acquiring hospital or system, the researchers found.

By the latter year, 3,436 of the country’s 5,141 community hospitals were part of 368 hospital systems, with for-profit and urban facilities more often part of larger organizations, they wrote. The average system comprised 9.3 hospitals and operated 3.2 hospitals per commuting zone. Fifty-nine percent of systems were categorized as cross-market.

The researchers also conducted an analysis of the sample’s urban commuting zone hospitals to determine which could "potentially benefit from enhanced cross-market power.” A system with one market below the threshold but another above could leverage its out-of-market bargaining power during payer negotiations involving the smaller-share market, the researchers wrote.

To measure this, they looked at whether a system had multiple commuting zone presences in which inpatient admissions-based market shares were both above and below the 30% threshold often cited in antitrust analyses.

The total number of systems that met those conditions increased from 37 to 57 organizations between 2010 and 2019, the researchers found. At the hospital level, the number of facilities potentially benefitting from cross-market power increased from 460 to 588, they wrote, increasing from 15.6% of such hospitals to 19%.

The researchers noted that not a single one of the cross-market mergers identified in the analysis were challenged by regulators on cross-market grounds.

In 2020, however, California’s attorney general became the first to intervene in a proposed affiliation (between Cedars-Sinai Health System and Huntington Memorial Hospital) while citing cross-market competitive impact. The attorney general used the justification to impose specific terms that were challenged in court by the providers as overly burdensome and unprecedented before eventually reaching a settlement.

Still, that “initial victory” will likely remain an outlier as there is little understanding or consensus on how to identify an anti-competitive cross-market merger in its early stages, the researchers wrote.

“The growing prevalence of cross-market hospital mergers accompanied by empirical evidence that such mergers are associated with price increases demands further investigation by economists, legal scholars and antitrust enforcers to determine the circumstances in which cross-market mergers can harm competition in health care markets,” they wrote.

Hospital industry analysts have highlighted a slowdown in hospital merger and acquisition deal announcements during 2022, though those that do seek to join up are often larger. Federal regulators have also adopted a hard stance on (in-market) hospital deals and have notched a few high-profile cancellations in 2022.