Healthcare M&A leading to higher prices in California
Highly concentrated markets in California are causing higher prices for hospitals, physician services and Affordable Care Act (ACA) premiums, especially in northern California, according to a new report from the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare School of Public Health at the University of California, Berkeley.
Northern California, which is “considerably more concentrated” than southern California, had inpatient prices 70% higher and outpatient prices between 17% and 55% higher compared to southern California in 2014. ACA premiums were 35% higher in northern California than southern California in 2016.
The report said market consolidation in most California counties are of concern and regulators and legislators need to take action.
These findings won’t interest just California health officials and the state’s Department of Justice. The findings confirm concerns voiced by others in healthcare who are worried that greater consolidation is affecting healthcare prices and costs.
Healthcare organizations have increasingly turned to mergers and acquisitions as a way to improve scale, gain market share, reduce costs and survive in an increasingly difficult industry.
Advocate Health Care and Aurora Health Care is the latest major merger and is expected to close April 1.
There’s also concern that mergers are causing wages to stall. A recent Center for Economic and Policy Research report said savings enjoyed through merger and acquisition deals are not going back into staff training or improved wages. They’re instead helping healthcare organizations’ finances.
The new report looked into “the rapid consolidation of the hospital, physician and insurance markets in California from 2010 to 2016.”
Of the state’s 58 counties, 44 were highly-concentrated hospital markets, 12 were highly concentrated in primary care, 20 in orthopedics, 22 in cardiology, 24 in hematology/oncology and 26 in radiology.
The number of counties that had highly concentrated commercial insurance markets was 42. Those results are based on the U.S. Department of Justice and Federal Trade Commission’s Horizontal Merger Guidelines, the new report said.
The report also found more hospitals purchased physician practices. The percent of physicians working for organizations owned by hospitals increased from 24% in 2010 to 39% in 2016.
A huge disparity in healthcare prices between northern California and southern California was found. For 2014, the report found:
Average inpatient procedure price
- Northern California — $223,278
- Southern California — $131,586
- Difference — 70%
Average outpatient primary care procedure price
- Northern California — $802
- Southern California — $588
- Difference — 36%
After adjusting for input cost differences, such as wages, procedure prices in northern California were still between 20% and 30% higher than southern California.
Average ACA benchmark plan monthly premiums from 2016 also differed:
- Northern California — $367
- Southern California — $271
- Difference — 35%
- University of California, Berkeley Consolidation in California’s Health Care Market 2010-2016: Impact on Prices and ACA Premiums