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Healthcare consolidation in California leading to higher prices, finds new Health Affairs research

The percentage of physician practices now owned by hospitals increased from 26 percent in 2010 to 38 percent in 2016.

Jeff Lagasse, Associate Editor

St Helena Family Health Center owned by Adventist Health Clear Lake. Credit: Google Street ViewSt Helena Family Health Center owned by Adventist Health Clear Lake. Credit: Google Street View

Healthcare in California is consolidating, and it's having a negative effect on prices. Hospitals have acquired close to 40 percent of the state's physician practices, and that means patients are left with higher bills, according to a new study published in Health Affairs.

Primary care and specialist visits were especially susceptible to higher prices, with researchers estimating a 12 percent increase in premiums in the state's health exchange from 2013 to 2016.

The authors analyzed so-called "hot spots" of vertical integration, in which hospitals snached up physician practices, and horizontal concentration, typically represented by hospital mergers, 

What made the dynamic interesting is that while California is mostly rural, it's also home to some of the country's most dense cities and urban areas. Because of this, the state already had a high level of integration and managed care.

Hospital acquisition of physician practices started out small, attracting little attention, but the numbers have slowly and surely been adding up. The percentage of such practices now owned by hospitals increased from 26 percent in 2010 to 38 percent in 2016, and the number of specialists in such practices went from 20 to 54 percent in that time.

At the same time, inpatient admissions have been on the decline, which means hospitals are  feeling pressure to acquire practices as a way to capture revenue when patients get outpatient care from a primary care physician or specialist. The traditional business model has changed.

And that change is occurring at a national level, though not quite to the degree that California has experienced. Nationally, the percentage of physicians who worked in hospital-owned organizations increased from 30 to 48 percent, the study found.

The authors said there are measures that can be taken to mitigate the effects, citing three bills recently introduced in the California legislature that address consolidation and its role in escalating prices.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com