Provider Consolidation in California

By October 3, 2018 Commentary

As we have noted repeatedly, consolidation among providers, and health plans, is one of the most pernicious trends in health care over the last decade.  Research has again and again demonstrated the increase in cost and the lack of increase in quality, that has accompanied this consolidation.  A new analysis in Health Affairs details some of the specific effects in the state of California.   (HA Article)   The study looked at both horizontal and vertical integration over the period 2010 to 2016, looked at the impact of that integration on exchange plan premiums and on outpatient office visit prices.   The hospital market in 41 largely rural counties were deemed highly concentrated, as measured by share of admissions, throughout the entire study period.  The insurer market was similarly highly concentrated, as was the specialty physician market, while the primary doctor segment was moderately concentrated.  Vertical integration in the form of hospitals employing doctors or owning physician practices, went from 25% in 2010 to 40% in 2016, with the acquisition of specialty practices being particularly notable.  And there was an effect on premiums.  A 10% increase in market concentration of hospitals was associated with a 2% increase in premiums on the exchanges, as was a 10% increase in insurer concentration.  This effect was larger when there had been more vertical integration between hospitals and physicians in a local market.  All consistent with common sense and prior research.  Primary care prices were also significantly higher in markets where there was a high level of vertical integration, while there appeared to be much less impact in regard to specialists.  As the authors note, California needs to take steps to stop further consolidation and should consider unwinding much of the integration that has already occurred.  The only other alternative is price and premium regulation.

 

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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