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California Consolidation Causes Rising Premiums, Outpatient Visit Prices

By Jack O'Brien  
   September 05, 2018

Ongoing consolidation in the Golden State's provider market is creating higher prices for ACA premiums and outpatient vists, according to a new study.

Provider consolidation in the last eight years has spurred on rising healthcare prices across California, according to a new academic study released Tuesday afternoon

The influx of provider mergers and hospital acquisitions has resulted in more than a dozen California counties being deemed "hot spots," or markets that deserve additional regulatory review. These "hot spots" have been part of a statewide trend where ACA marketplace premiums rose 12% from 2013 to 2016, physician outpatient visit prices rose 9% for specialists, and primary care prices increased 5%. 

The study was conducted by researchers from the RAND Corporation in coordination with the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare School of Public Health at the University of California, Berkeley, which also issued a report on provider consolidation in March.

Related: Consolidating California: Concentrated Provider Markets and Rising Prices

The study highlighted three primary areas of concern: the adverse effects of horizontal and vertical consolidation, cross-market power, and the ability of providers to acquire systems which force rivals to close their business or drastically raise prices.

  • As a result of widespread vertical integration, the percentage of physicians working in practices owned by a hospital rose by 15% from 2010 to 2016.
  • The report also found that 41 counties with populations totalling less than 500,000 people had highly concentrated hospital markets for the entirety of the study period.
  • While the effects have been closely followed across the state, the most consolidated provider markets are in rural northern California.

As was the case in the Berkeley study issued in March, researchers suggest legislative action to counteract the effects of rapid provider consolidation. Some state leaders have already taken steps to curb anticompetitive behavior, like state Attorney General Xavier Becerra, who sued Sutter Health in late March for anticompetitive practices.  

Below are three policy proposals the study cited as potentially effective measures to address the adverse effects of provider consolidation.

  • SB-932, proposed in 2016, would have any proposed merger subject to public hearings to ensure no adverse effects from its passage, along with required approval from the director of the California Department of Managed Health Care.
  • Additionally, the bill would prohibit anticompetitive demands from negotiations with insurers.
  • AB-595, which was proposed in 2017, outlined similar measures found in SB-932.
  • SB-538, proposed in 2017, would institute anticompetitive rules for how hospitals negotiate with insurers. One provision would bar systems from requiring insurers cover every partnered hospital in the system as part of the agreement.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


California's provider market consolidation has caused a noticeable increase in ACA premium prices along with outpatient visit prices.

In 2016, 40% of physicians worked in a practice owned by a hospital, up from 25% in 2010.

Researchers urge state legislators to pass additional oversight measures to examine the potential consequences of healthcare M&A activity.

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