Google and Facebook. Coca-Cola and Pepsi. Those tech and pop conglomerates are considered to be duopolists in their fields. But even they can’t hold a candle to hospitals’ market power.
A recent financial filing from a large, tax-exempt hospital system in Orlando provides a glimpse, and serves as a reminder, of just how concentrated America’s hospital markets are.
Orlando Health is borrowing $300 million to build new facilities and make upgrades, and the system filed paperwork last month for this debt offering. In filings like this, hospitals usually describe the characteristics of their markets, like the percentage of inpatient admissions they control, to attract interest from municipal investors.
In Orlando, just two giants run the show. Orlando Health and AdventHealth together control 77% of the entire inpatient hospital market in the four-county Orlando metro area, according to Orlando Health’s bond filing. Those two not-for-profit systems also own two-thirds of the pediatric hospital market. Orlando Health and AdventHealth control closer to 90% of inpatient services in a narrower three-county slice of Orlando, according to older filings. For-profit hospital chain HCA Healthcare places third, with a meager 10% of the inpatient market.
By the most common measures of market concentration, the Orlando hospital market is a highly concentrated oligopoly. But those numbers didn’t surprise experts who have spent decades studying hospital consolidation.
“It’s certainly high, but not at the top of the list by any means,” said Chris Whaley, a health economist at the think tank RAND Corp. He pointed to the Health Care Cost Institute’s index of hospital market power, which ranked Orlando 70th of 186 metro areas.
“The majority of geographic areas are dominated by one or two health systems. That is very typical,” added Martin Gaynor, a health economist at Carnegie Mellon University.
Orlando Health and AdventHealth said no one was available for interviews.
Hospitals have some natural market power due in part to how expensive they are to operate. They require a lot of upfront investment, which creates a big hurdle for anyone who would want to start a new hospital.
But over the past two decades, hospitals have turbocharged their dominance by consistently acquiring other nearby hospitals and doctor practices.
“There used to be more competition than this,” Roger Blair, an antitrust economist at the University of Florida, said of the Orlando hospital market. Orlando Health had a little under $2 billion of annual revenue a decade ago, and it has morphed into a $5.3 billion organization by gradually acquiring more hospitals and large physician groups in the area, in addition to building new facilities.
Research has repeatedly shown hospital consolidation leads to higher prices and no better quality for patients and workers. That’s because in places like Orlando, hospitals hold more negotiating leverage with health insurance companies.
“If one firm decides they’re going to play hardball with all the insurers and keeps rates high, and the other firm follows the leader and does the same thing, you’re going to get noncompetitive results,” Blair said. “They might just say, ‘We’re not going to fight that hard.’ Then rates tend to creep up.”
Health insurers can counter by threatening to exclude hospitals from their network, but they may be reluctant to do so with just two organizations controlling a market, or with organizations that reach so many people.
“It’s unlikely a health insurer is going to be able to offer an attractive product without at least one of those two systems,” Gaynor said. “And if [the hospitals] know insurers can’t offer attractive products without both of them, they don’t have to compete that hard, do they? A key question will be whether patients regard those systems as reasonably substitutable.”
In Orlando, the power has paid off for the big players’ bottom lines. Despite the broader trends around higher staffing and supply costs, Orlando Health ended its 2022 fiscal year with an 8.2% operating margin — well above industry norms. AdventHealth is usually among the most profitable systems in the country, but it had a lower 3.5% operating margin in 2022 due to health technology upgrades as well as pandemic staffing costs, executives said at this year’s J.P. Morgan Healthcare Conference. However, AdventHealth plans to build even more hospital beds to fortify its market share.