Medical debt has been a major burden on households’ financial well-being and health across the United States. About 27 million consumers had such debt in collections on their credit reports in 2022, and communities of color and people living in the South were disproportionately affected.
At the same time, health care costs have grown faster than inflation. Some speculate this may be attributable to increased concentration in health care provider markets, which is when a small number of providers dominate a market and reduce competition. In 2017, 90 percent of hospital markets in the US were highly concentrated (PDF). Since then, hospital market concentration has continued to grow to an all-time high.
Evidence shows that increased hospital market concentration harms consumers and generally raises prices. Prices at monopoly hospitals are 12 percent higher than those in more competitive markets. Elevated costs can then be passed on to patients, likely increasing the chances that people incur medical debt. With fewer alternatives and higher prices, patients may have limited options to seek more affordable care. As a result, they might delay seeking treatment, potentially leading to worse health outcomes and even higher medical debt in the future.
Using 10 years of data from Urban’s Changing Medical Debt Landscape tool, we explore the link between hospital market concentration and people’s ability to pay their health care bills on time. Our findings offer important insights for policymakers and other stakeholders with the power to address these issues and improve both financial and health outcomes for individuals and communities facing the largest debt burdens.
Higher hospital market concentration is associated with higher medical debt
While medical debt on credit reports declined across most US counties between 2012 and 2022, increases in hospital market concentration prevented such improvements in many areas of the country.
We find that counties that experienced larger increases in hospital market concentration, as measured by the Herfindahl-Hirschman Index (HHI), experienced smaller declines in the share of residents with medical debt. The correlation between a county’s change in medical debt and its HHI is 0.2. For comparison, this correlation is similar in magnitude to that observed between a county’s medical debt and its racial and ethnic makeup but is a weaker correlation than that between a county’s medical debt and its health insurance coverage rates and chronic disease prevalence.
For instance, Delaware County, Pennsylvania, had one of the largest increases in hospital market concentration between 2012 and 2022 at 113 percent. (Concentration increased because two of the county’s four hospitals closed.) Over the same period, the share of adults in the county with medical debt in collections in their credit file increased 0.9 percentage points. At the national level, the share of adults with medical debt in collections dropped 7.7 percentage points over this period.
Conversely, residents of Tuscaloosa County, Alabama, experienced an 18.3 percent decline in hospital market concentration between 2012 and 2022. The share of the population with medical debt in collections dropped 18.7 percentage points over the same period, more than double the national-level decline.
Four steps policymakers can take to address medical debt burdens
Our findings suggest the following policies could mitigate medical debt issues by encouraging competition and limiting provider consolidation.
- Implement more-stringent requirements on nonprofit hospitals, which often have price and charity care practices similar to those of for-profit hospitals.The Internal Revenue Service could specify a stricter amount of charity care and community benefits (PDF) as a condition for nonprofit hospitals’ tax-exempt status.
- Better enforcing antitrust laws to promote a more competitive health care market. The Federal Trade Commission could prohibit more anticompetitive mergers and address other anticompetitive practices of hospitals.
- Reducing incentives for consolidation by changing the Medicare payment schedule. Often Medicare pays a higher price for similar health care services provided in hospital outpatient departments than in a physician’s office, giving hospitals an incentive to buy physicians’ practices.
- Introducing a public insurance option plan to reduce health care costs. A public option could lower premiums and out-of-pocket expenses for consumers and reduce administrative costs for the health care system.
- Preventing hospital closures to avoid higher market concentration. Our analysis of the COVID-19 Provider Relief Fund demonstrates that well-targeted financial support can enhance the financial stability of vulnerable hospitals, potentially preventing closures.
By comprehensively addressing the challenges that hospital market concentration and rising medical debt pose, these strategies could help more people afford health services, experience better health outcomes, and access greater financial stability.
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