The Impacts of Hospital Market Concentration in Medicaid: Evidence from New York State

The past decade has seen rapid consolidation in the health care delivery system. However, there has been limited research examining the impacts of consolidation on care for low-income populations, particularly the Medicaid-insured. Following consolidation, non-profit hospitals might use surplus revenue to expand care for low-income populations. On the other hand, consolidation could increase hospital bargaining power with private insurers, resulting in renewed focus on private patients at the expense of Medicaid patients. Given this theoretical ambiguity, we empirically study the impact of hospital mergers on care for Medicaid beneficiaries using data from New York State (NY). NY is an ideal setting for this study, because it has experienced substantial consolidation and has a large low-income population insured by Medicaid. Our primary empirical strategy leverages changes in hospital market concentration with respect to inpatient admissions for privately insured patients, as measured by hospital-level Herfindahl-Hirschmann Index (HHI). Our analysis uses several data sets: the American Hospital Association (AHA) Annual Survey identifies mergers and hospital characteristics and is merged to inpatient data which supplies details on all inpatient admissions across payer groups in NY. This data is supplemented with NY Medicaid enrollment, encounters, and claims data. The primary outcomes, which are at the hospital-year level, are the log-transformed number and proportion of admissions for Medicaid patients overall and across major diagnostic categories (MDCs) disproportionately experienced by Medicaid patients. In secondary analyses, we will examine impacts on quality of care for Medicaid patients, including 30-day readmission rates. Our study period ranges from 2006 to 2012.

We estimate a hospital-year level model in which the coefficient of interest is the hospital-level HHI, and we control for market-level factors including the number of Medicaid enrollees in a hospital’s county as well as hospital- and year-level fixed effects. Standard errors are clustered at the market level, which are defined as counties. The estimate on HHI reflects the average change in a hospital’s admissions for Medicaid patients that is associated with a change in HHI from a completely competitive to a completely concentrated market controlling for time-invariant hospital-level factors and the size of the Medicaid population in the county. Our preliminary results suggest that greater concentration is associated with relative decreases in the number of Medicaid patients admitted to a hospital and in the proportion of admissions for Medicaid patients. In particular, our preliminary results suggest that moving from a perfectly competitive market to a monopoly market leads to a 60% (p<0.05) reduction in admissions for Medicaid patients. In secondary analyses, we will explore the extent to which these decreases in hospital admissions for Medicaid reflect overall decreases in admissions for Medicaid patients or redistribution of Medicaid admissions to different hospitals. Our findings, which suggest that hospital consolidation may lead to reduced provision of inpatient care for Medicaid patients, may have important antitrust and policy implications.