California's lesson on consolidation of health care markets, but can we learn?

Consolidation in California’s Health Care Market 2010-2016: Impact on Prices and ACA Premiums

By Richard Scheffler, Ph.D., Director, Nicholas C. Petris Center on Health Care Markets and Consumer Welfare
University of California, Berkeley, School of Public Health, March 26, 2018

Executive Summary

This report details the rapid consolidation of the hospital, physician, and insurance markets in California from 2010 to 2016. According to the U.S. Department of Justice and Federal Trade Commission’s Horizontal Merger Guidelines, 44 counties had highly concentrated hospital markets. For physician markets, 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. The commercial insurance market was also highly concentrated with 42 counties considered highly concentrated according to the Guidelines. There was also an increasing trend of hospitals purchasing physician practices. The percent of physicians working for foundations owned by hospitals increased from 24% to 39% between 2010 and 2016.

We found evidence that highly concentrated markets are associated with higher prices for a number of hospital and physician services and Affordable Care Act (ACA) premiums. In markets with Herfindahl-Hirschman Indices (HHIs) above 1,500, average inpatient procedures prices were 79% higher than the prices in markets with HHIs below 1,500. Likewise, average outpatient physician prices ranged from 35% to 63% higher (depending on the physician specialty) in markets with HHIs above 1,500. In Northern California – which is considerably more concentrated than Southern California across all measures of health care market concentration that we analyzed – inpatient prices were 70% higher, outpatient prices were 17- 55% higher (depending on the specialty of physician performing the procedure), and ACA premiums were 35% higher than they were in Southern California. Even after adjusting for input cost differences (i.e. wages) between Northern California and Southern California, procedure prices are still often 20-30% higher in Northern California than Southern California.

In sum, the pace of market consolidation in California has increased significantly. The vast majority of counties in California warrant concern and scrutiny according to the DOJ/FTC 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.


It is clear that the market for health care and health insurance is now highly concentrated in California. The vast majority of counties in California warrant concern and scrutiny according to the DOJ/FTC Guidelines. This has likely reduced the level of competition, which has resulted in higher prices and ACA premiums in California. The significant variation in prices and ACA premiums across the state suggests regulatory and legislative solutions need to be implemented. Consumers are paying prices for health care that are considerably above what a more competitive market would produce.


Single-payer health care is a giant leap. Here are 14 steps California might take to get there

By Michelle Faust and Paul Glickman
KPCC, March 23, 2018

Key state lawmakers are set to introduce a series of bills designed to lower costs and expand access to health insurance on California's individual market, following through on a strategy they embraced earlier this month that calls for an incremental approach to reform rather than an immediate push for government-backed universal health coverage.

(Use the link to see the various legislative proposals.)



By Don McCanne, M.D.

Numerous recent reports have shown that consolidation of health care markets has resulted in higher health care prices. This study of California is particularly useful for observing the impact of consolidation because of the large size of the population and the successful implementation of the Affordable Care Act. In spite of ACA, reduced competition due to market concentration has resulted in higher prices and higher ACA premiums in most regions of the state.

The report concludes, "Consumers are paying prices for health care that are considerably above what a more competitive market would produce." The variations in prices and ACA premiums across the state "suggests regulatory and legislative solutions need to be implemented."

In a way this represents the primary flaw in the U.S. approach to health care financing - misplaced dependence on the dynamics of the private marketplace. The regulatory oversight and administered pricing of a well designed single payer national health program - an improved Medicare for all - is precisely what we need to overcome this. But the reaction of much of the policy community - academically and legislatively - is to look for policy solutions that would enhance private market competition. That has greatly contributed to the mess that we are in, and current incremental approaches such as establishing accountable care organizations (ACOs) and alternate payment models (APMs) will only make it worse.

The single payer bill in California has been killed and replaced with a package of 14 bills (at last count), several of which are designed to enhance the markets. California's lesson? Don't go there. Other nations have better performing health care systems at a much lower cost, made possible through egalitarian public (government) policies. California should join with the rest of our nation in leading us also to health care justice for all through a national single payer Medicare for all program.

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