Better Solutions for Healthcare

CHCF: The Sky’s the Limit: Health Care Prices and Market Consolidation in California

By Richard M. Scheffler, Daniel R. Arnold, and Brent D. Fulton

October 3, 2019

California pays significantly more for common health care services than the rest of the country, and the gap has been widening. Various inpatient and outpatient services (see box) cost more in California than in other states, and they cost more in Northern California than in Southern California. Even after accounting for wage differences, a large gap remains. Researchers examined wage-adjusted 2016 data and found the following:

  • California was the 16th most expensive state on average across the selected common services.
  • California was the 8th most expensive state for uncomplicated childbirth at 9,751.
  • CT scans of the head cost 36% more in California than in the rest of the country.

Premiums under the Affordable Care Act (ACA) were also higher in California than in the rest of the nation.

A critical factor in the fast growth of prices in California compared with the rest of the country is market concentration — including hospital consolidation and physician integration — which has been proliferating in the state along with price acceleration. The percentage of physicians in practices owned by a hospital/health system has increased dramatically. For specialists, the increase has been even faster.

Because high market concentration pushes health care prices upward, it is of serious concern for California policymakers and regulators. Policies that can be considered to address high health care prices and ACA premiums are discussed in this report.

Childbirth and the Price Gap

Childbirth prices offer a good example of the magnitude of the problem for California. Normal childbirth — vaginal delivery without complications — is the most common type of hospital admission; since the services vary little from place to place and require limited technology, it is relatively straightforward to compare across states and within areas of California. The graph on the left in the figure below shows the price difference between California and the rest of the country, and the graph on the right shows the same information after adjustment for wages. Health care prices were wage adjusted to account for the fact that most other basic expenses, such as rent and food, are also higher in California. Wage-adjusted prices provide a good measure of affordability. After wage adjustment, a large gap still remains.

Many states have lower prices for uncomplicated childbirth. In 2016, the average price across California was over $11,000, whereas the adjacent states of Nevada and Arizona had average prices below $8,000. See map below.

Prices vary widely within California, even after controlling for higher wages in certain regions of the state. The map below shows how vaginal childbirth prices differed throughout the state’s 19 rating areas in 2016. Northern California wage-adjusted prices were on average 24% higher than in Southern California. As an example of the substantial variation within the state, the 2016 average wage-adjusted vaginal delivery price in Rating Area 9 (which has Monterey as its largest county) was $22,751 compared with $11,387 in Rating Area 19 (San Diego). This is a difference of $11,364, or 100%.

More important than the levels of these prices is how fast they are growing. Wage-adjusted average vaginal delivery prices grew by over 20% from 2012 through 2016 in a number of rating areas, including:

  • San Francisco (29% increase, $6,389 to $8,268)
  • Los Angeles (32%, $8,167 to $10,780)
  • Orange County (40%, $8,692 to $12,144)
  • San Diego (28%, $8,911 to $11,387)

Outpatient Visits and Procedures

Prices for outpatient procedures, office visits, and imaging studies were also consistently higher in California compared with the rest of the country, although the difference was not as dramatic as the inpatient price gap. The graphs in the figure below show the price difference for a head scan (head CT without contrast) without wage adjustment and with wage adjustment….