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Factors Impacting Market Concentration of Not-for-Profit Hospitals

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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.

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Notes

  1. For consistency, all monetary variables in our analysis have been adjusted for inflation to 1998 dollars.

  2. Given concerns that the political climate in a state might be highly correlated with charity care, we determine correlations between these variables. These results are presented in Table 7. We did not note anything that raises concerns.

  3. Some additional literature that highlights the relationship between shorter LOS, better quality of care, and higher customer satisfaction includes but is not limited to: Thomas et al. (1997), Kossovsky et al. (2002), Nguyen Thi et al. (2002), Coffman and Rundall (2005), White and Glazier (2011).

  4. Medicare reimbursement rates (80% of private insurance) are higher than Medicaid reimbursement rates (56% of private insurance); however, they are still much lower than open market rates in general, as evidenced in Luhby (2014), Beaulieu-Volk (2012), and Matthews (2015), among others.

  5. We validate our rationale by replacing Medicare share with private insurance patients in our models. As expected, our results indicate that private insurance share has a statistically significant negative correlation with market concentration. This finding holds for both our modeling specifications—i.e., one featuring licensed beds (coefficient = −1.286, p value = 0.032) and one wherein inpatient market share forms the basis for HHI (coefficient = −1.356, p value = 0.017).

  6. Here we are referring to long-term planning implications and not alluding to a scenario wherein it is easy for a hospital to open a new hospital or leave a market abruptly.

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Authors and Affiliations

  1. Department of Economics, Finance, and Quantitative Analysis, Kennesaw State University, 560 Parliament Garden Way, Kennesaw, GA, 30144, USA

    Jomon A. Paul & Leo MacDonald

  2. School of Accountancy, Kennesaw State University, 560 Parliament Garden Way, Kennesaw, GA, 30144, USA

    Benedikt Quosigk

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  1. Jomon A. Paul
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Correspondence to Jomon A. Paul.

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Jomon A. Paul, Benedikt Quosigk, Leo MacDonald declare that they have no conflict of interest.

Appendix

Appendix

See Tables 2, 3, 4, 5, 6, 7.

Table 2 Variable description and data source
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Table 3 Full results from models on market concentration metrics
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Table 4 Summary statistics for variables (hospital-years level)
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Table 5 Full results from models on market concentration metrics (HRR approach)
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Table 6 Full results from models on market concentration metrics (robust standard errors)
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Table 7 Correlation between political climate and charity care
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Paul, J.A., Quosigk, B. & MacDonald, L. Factors Impacting Market Concentration of Not-for-Profit Hospitals. J Bus Ethics 154, 517–535 (2019). https://doi.org/10.1007/s10551-017-3477-7

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