Does The Effect of Hospital Consolidation On Provision of Services Vary By Profitability? Findings From Examining Long Run Trends In Massachusetts Hospital Markets

Traditionally, health economics research has focused on the effects of hospital consolidation on price and quality of care. However, alongside these effects, such changes in market structure may adversely impact patients’ access and choice of providers, reflected in patients travelling increased distances for specific inpatient services. Distance travelled may increase as consolidation leads to localization of services within hospital systems in an effort to avoid duplication. The effects may, however, differ by hospital service lines and patient characteristics, reflecting provider strategic considerations relating to serving certain populations or the profitability of delivering specific services.

We analyze Massachusetts hospital discharge data over 2001-2011 to examine trends in hospital market competition and distance travelled by patients overall and by specific categories of inpatient services. We use competition indices pioneered by Kessler and McClellan to assess changes between and within hospital markets.  We first calculate patient flow-based hospital level concentration indices and next assign a competition index to every patient zip code that reflects patient choice. We also classify inpatient services on the basis of profitability and compare profitable procedures coming under the broad category of circulatory system to a less profitable control procedure, appendectomy. 

Examining the Massachusetts Hospital Referral Regions (HRRs), we find that average distance travelled in 2011 was 25% higher in the most concentrated HRR relative to the lowest concentration HRR.  Travel distance also exhibited a sharper increase over time in more concentrated HRRs. Distance travelled is further associated with source of insurance and type of procedure. Patients with private insurance travelled a greater distance than Medicare beneficiaries, with differences substantially higher for profitable services (46%) compared to appendectomy procedures (18%). Patients also travelled a greater distance for profitable services. However, this distance remained virtually unchanged over our study period compared to a 6% increase in the average distance travelled for all services.

Average changes over time mask substantial variations across markets characterized by different levels of hospital concentration.  Patients residing in the most concentrated zip codes experienced 12% increase in the distance travelled over time, reflecting a decrease in consumer choice. Examining patients with private insurance we find a positive monotonic relation between market concentration and distance travelled for profitable procedures. This trend is consistent with our hypothesis that hospital systems may drop elective profitable services from some of the newly acquired facilities resulting in patients travelling greater distances. Such a trend was not evident for Medicare insured patients who have less network restrictions, and also for the average distance travelled to receive non-elective appendectomy procedures.

Our findings assume importance in view of recent hospital mergers and acquisitions in several states as well as expected future rounds of consolidation that could potentially arise out of efforts to protect financial margins in response to payment realignments in the Affordable Care Act. While there has been increased emphasis on monitoring the effects of such consolidations on price and quality, our findings highlight additional areas of concern related to diminished patient access and choice due to these hospital market changes.