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Hospital consolidation in California linked to higher prices, premiums, study finds

A joint study by researchers at the University of California, Berkeley and the RAND Corporation found increasing consolidation among hospitals and physician practices in California correlated with higher insurance premiums and higher prices for specialty and primary care.

The study, published in the September 2018 issue of Health Affairs, examined healthcare consolidation in California between 2010 and 2016 and analyzed nearly 71 million California medical claims between 2011 and 2016 for every county across the state.

Here are four takeaways from the study:

1. Between 2010 and 2016, the percentage of physicians in medical practices owned by hospitals increased from 25 percent to 40 percent. Researchers attributed the increase in vertical integration from 2013-16 to a 12 percent increase in ACA insurance premiums, a 9 percent increase in outpatient physician visits for four specialties and a 5 percent price increase in primary care office visits.

2. One of the reasons a physician practice may consolidate with a larger hospital is to integrate with the larger hospital's brand, allowing the practice to potentially tack on additional fees or charge higher prices for services.

"There's a potential branding effect. People are willing to pay more, insurance companies like to have that in their plan, they charge more for it," which is not illegal, Richard M. Scheffler, PhD, emeritus and professor at the graduate school of the University of California, Berkeley School of Public Health, told the San Francisco Chronicle.

3. Such consolidation practices also benefit larger hospitals or health systems, as owning a larger share of physician practices may provide them with an upper hand when negotiating with health insurers to set prices.

"[It] happens a little bit at a time, [hospitals] buy 10 practices here and 20 practices here, it kind of falls under the radar. You don't see it, but the cumulative effect ... what it means is higher premiums and higher prices," Dr. Scheffler said.

4. The study authors concluded: "California's healthcare markets are at a pivotal point. Rapid integration and consolidation may have significant benefits. Care coordination and quality improvement are possible, but so are significant increases in the cost of care. ... Our work highlights areas that should be of concern to regulators, policymakers, payers and consumers."

To access the Health Affairs study, click here.

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