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Markets Matter—But Maybe Not the Way We Think

By Atul Grover, MD, PhD, Executive Director, AAMC Research and Action Institute
May 1, 2024
Notes & Insights from the AAMC Research and Action Institute

We hear a lot of concern about consolidation in the health care provider market — hospitals buying physician practices, big health systems buying up hospitals, health systems merging — all of which has the potential to lead to reduced competition, higher prices, and fewer benefits for patients. It is certainly reasonable to have concerns about such consolidation. But while policymakers, regulators, and state legislators have focused much of their attention on health systems and hospitals, we think that consolidation in the insurance market deserves equal scrutiny.  

Take the recent Change Healthcare cyberattack. The disastrous data breach that disrupted pharmacies, provider claims, and patient access for more than a month revealed just how far-reaching insurer market power is and the significant consequences that come with it. 

Change Healthcare, owned by the insurance giant UnitedHealth Group, annually processes 15 billion health care transactions, which is approximately half of all U.S. medical claims. This single insurer controls an astounding 1 in 3 patient records each year.  

There’s a lot of other consolidation in health care you don’t hear about at all — more than 70% of the U.S. dialysis market is controlled by just two companies, and electronic health records are mostly provided by just two companies as well. Yet we rarely hear calls to regulate those industries.  

To better understand the presence of consolidation in the U.S. health system, the AAMC Research and Action Institute’s newest data snapshot examines the market share of both providers and insurers. 

See the Impact of Health Care Consolidation in Your State

It turns out that, on average across all states, even the largest health systems (as measured by total inpatient hospital discharges) account for only a fifth of the state health system market, while the largest health insurers account for over half of the state large-group insurer market. Across the United States, the three or four largest health systems in a state combined have an average of 43.1% of the market share in each state, while the top three large-group insurers hold an average of 82.2% of the market share. 

And the data is even more staggering in several states. For example, in Alabama, Blue Cross Blue Shield has over 95% of the health insurance market, and in Iowa, Wellmark Blue Cross Blue Shield has 80% of the health insurance market.  

When the market share of an insurer far exceeds the market share of an individual health system, insurers can dictate higher premiums for patients as well as lower rates paid to providers, which can lead to detrimental effects for health systems, including discontinued specialized services, hospital closures, and other cuts.  

Consolidation of the insurance industry has influenced how health systems behave and (try to) compete in the marketplace. 

Regulators and courts concerned about the consolidation of health care providers must consider all sides of the market for health care goods and services, including the impact of both insurer and provider consolidation on payment rates, patient access, out-of-pocket costs, and quality of care.  

There is simply no world in which most small hospitals and physician practices can survive if they must negotiate in a private market where one insurer controls 90% of the private market (and the public market dictates that they care for patients at a loss). 

With escalating consequences like medical data breaches, clinical closures, and high patient premiums on the line, we hope this snapshot provides insight into what's really going on in a consolidated health care market — and why this matters for providers and the patients they serve. 

Be sure to also view our accompanying explainer video on health care market consolidation and learn more about our work at AAMCResearchInstitute.org

As always, I welcome your advice and insight.