Factors Impacting Market Concentration of Not-for-Profit Hospitals

Abstract

We attempt to identify and evaluate the association between key characteristics of not-for-profit (NP) hospitals and market concentration, as measured by the Herfindahl–Hirschman Index, using data available from the American Hospital Association, the Centers for Medicare and Medicaid Services, and the Internal Revenue Service Form 990. Our goal is to provide decision support to policy makers on factors that contribute to market competitiveness, which has been linked to improvements in efficiency, costs, and access to health care. We find that contributions are positively associated with market concentration. This could indicate that well-run NP hospitals (that deliver on their mission) are rewarded both financially (through increased contributions) as well as with increased market share. We also find that a higher percentage of Medicare patients is positively correlated with market concentration (i.e., reduces the competitiveness of the NP market). This could be explained by the fact that Medicare reimbursement rates are generally lower than those paid by private insurers (approximately 80%); thus, hospitals might not necessarily choose to operate in areas with high Medicare populations. Further, median income is negatively associated with market concentration. One explanation for this effect could be the fact that a population with a higher median income is in a better position to pay for services, making them attractive to hospitals as a potential market. Finally, we find that the presence of managers with voting rights on the boards of directors has no significant impact.