Consolidation in California has raised healthcare prices
Mergers and acquisitions that have consolidated healthcare markets in California have raised prices for procedures and insurance premiums, especially in the northern part of the state, according to a report from the University of California, Berkeley’s Petris Center on Health Care Markets and Consumer Welfare.
The 88-page report found a strong correlation between consolidated hospital, physician and insurance markets and higher prices. Based on the measure the U.S. Department of Justice uses to represent high concentration—a score of 2,500 or higher on what’s called Herfindahl-Hirschman Index, or HHI—the hospital market is highly concentrated in 44 of 58 California counties, with the mean HHI hitting a “staggering” 5,613 in 2016.
“In sum, the pace of market consolidation in California has increased significantly,” the report said. “The vast majority of counties in California warrant concern and scrutiny according to the DOJ/Federal Trade Commission Guidelines. Consumers are paying more for health care as a result of market consolidation. It is now time for regulators and legislators to take action.”
Insurer consolidation has also high, with 42 counties exceeding that high concentration threshold. For physician markets, consolidation was more spotty: 12 counties had highly concentrated primary care markets, 20 counties had highly concentrated orthopedics markets, 22 counties had highly concentrated cardiology markets, 24 counties had highly concentrated hematology/oncology markets and 26 counties had highly concentrated radiology markets.
Northern California was found to be “considerably more concentrated” than Southern California. Even after adjusting for differences in cost of living between the two regions, the report said prices were procedures were “often 20 to 30 percent” higher in Northern California.
The period studied by the Pertis report—2010 to 2016—was a time of constant acquisitions of physician practices by hospitals. The share of physicians worked for hospital-owned organizations increased by 24 percent to 36 percent over the study period. The change was even more pronounced among specialists. In 2010, the average county had 21 percent of its specialists working for a hospital-owned organization. By 2016, that number had increased to 50 percent.
Higher concentration has led to higher prices for both simple and complex procedures. The average cost of treating an acute myocardial infarction could be up to 80 percent higher in a highly concentrated hospital market.
For treating a common cold, the median price from a primary care physician in Orange County, California, would be $131—in a market where 22 percent of primary care doctors work for a hospital or health system. In San Francisco, the hospital-owned share of primary care is 49 percent and the price for treating a common cold would be 56 percent higher at $205.
The study had been commissioned by California Attorney General Xavier Becerra, who told reporters he would use both the power of his office and seek help from state lawmakers to tackle the affordability problems caused by consolidation.
“Something’s going on,” Becerra said. “If you’ve got an apple in one place and an apple in another place, is there any reason why that apple is costing so much more? In this case, it’s not just an apple; it’s a potential life-saving treatment your child might need.”
John joined TriMed in 2016, focusing on healthcare policy and regulation. After graduating from Columbia College Chicago, he worked at FM News Chicago and Rivet News Radio, and worked on the state government and politics beat for the Illinois Radio Network. Outside of work, you may find him adding to his never-ending graphic novel collection.