Consolidation and concentration in the German hospital market: the two sides of the coin

In many countries, policy makers try to increase quality and efficiency in the hospital sector by fostering competition. The German hospital market is a good example of this approach and the challenges that come with it. We focus on market concentration which is both a result of and a potential threat to more competition. This study gives a detailed account of health reform in the German hospital sector and illustrates international experience with regard to market concentration. For the first time, concentration measures are consistently calculated at hospital system level. To make the results exploitable for comparative studies, this approach is described in detail. Patient flows are analyzed using data from the German hospital census, which is augmented with external data such as an indicator for the structures of urban and rural development. Our findings indicate that just some years after hospital competition was intensified, more than one third of German hospitals are located in strongly concentrated markets. Rural areas are especially prone to this development. If system membership is not accounted for, concentration is considerably underestimated. Policy makers are strongly advised to take precautions against excessive market concentration before promoting competition, as once consolidated, structures are difficult to unbundle.