Private providers play an important role in health systems in low-and middle-income countries. In many such contexts, markets are characterized by a high number of relatively small private facilities. The potential risks from highly concentrated healthcare markets are well-researched, and feature in the "Theories of Harm" investigated by competition regulators. However, there is limited evidence on markets that exhibit substantial harms as a result of very low concentration. This paper explores the risks associated with such market fragmentation, drawing on the example of Georgia, which has a largely privatized provider network. We used a mixed-method study design to analyze the inpatient market in Georgia. Market structure was described using administrative data on bed capacity and discharge numbers and geo-location data on travel time between facilities. The implications of the market structure were explored through in-depth interviews (n = 35) with policymakers, healthcare managers, and local experts and an anonymous online survey of similar groups (n = 97). Georgia's inpatient sector is characterized by a high number of small hospitals in terms of bed numbers and inpatient volumes, mitigated to a limited degree by the presence of provider networks. Travel time to the 3rd nearest competitor was extremely short, ranging from 3 to 5 min in big cities to 10 min in small towns and 33 min in remote locations. The fragmented nature of the market, together with inadequate regulatory and purchasing mechanisms, was argued to exacerbate challenges in the availability and competence of clinical staff, while the financial challenges caused by intense competition encouraged wasteful marketing, harmful cost-cutting measures, and demand inducement. We present "Theories of Harm" from market fragmentation, and argue that an effective policy response requires market-shaping activities using regulatory, financing, and purchasing mechanisms to encourage appropriate levels of market consolidation and so enhance quality, efficiency, and effective governance.