Health Care Costs 30% More in Northern California Than in Rest of the State

March 27, 2018

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Source: San Francisco Chronicle

People living in areas where there is greater consolidation among hospitals, physician groups and insurance companies pay more for health care, according to a study released Monday.

The study analyzed consolidation in the hospital, insurance and physician markets in California between 2010 and 2016. It found that prices for medical procedures are 20 to 30 percent higher in Northern California than in Southern California — even after adjusting for the Bay Area’s higher cost of living and wages.

Northern California’s health care markets are “considerably more concentrated” than Southern California’s, according to the report, which was compiled by UC Berkeley’s Petris Center on Health Care Markets and Consumer Welfare.

On average, prices for inpatient care are 70 percent higher in Northern California, the report found. Outpatient prices are 17 to 55 percent higher, and premiums for health insurance plans purchased through the individual market are 35 percent higher.

After adjusting for cost-of-living differences, these price differences are less dramatic, but still pronounced: Inpatient care is 32 percent more expensive, outpatient care is up to 28 percent more expensive, and premiums are 10 percent more.

“Consumers are paying more for health care as a result of market consolidation,” said the report, authored by health economist Richard Scheffler. “It is now time for regulators and legislators to take action.”

The costs of many medical treatments and procedures are higher in Northern California than in Southern California, after adjusting for cost-of-living differences. For instance, it costs 37 percent more in Northern California for inpatient care for a premature baby — roughly $400,000 compared with $292,000. And outpatient care for lung cancer costs 28 percent more in Northern California — $29,400 compared with $22,900.

However, there are a few exceptions. It costs 13 percent less in Northern California to treat cardiomyopathy, a heart muscle disease — $1,267 compared with $1,460.

California Attorney General Xavier Becerra said his office intends to review the report.

“If consolidated markets are part of the issue we have to contend with in terms of pricing, we should be examining this closer,” Becerra said.

Becerra’s office declined to elaborate on what actions he could take, but law enforcement agencies have authority to investigate companies they suspect of carrying out anticompetitive practices to the detriment of consumers.

Northern California has long been dominated by a few large health systems like Kaiser, Sutter and Dignity. Sutter’s 1999 acquisition of Summit Medical Center, one of the largest hospital mergers in recent years, drew scrutiny from then-Attorney General Bill Lockyer, who attempted unsuccessfully to block the merger over antitrust concerns. More recently, Stanford Health Care in 2015 acquired Pleasanton’s ValleyCare Health.

In regions dominated by large medical groups, insurance companies have less leverage to negotiate rates, often leading to higher prices for consumers. One 2016 study found that between 2004 and 2013 in California, prices grew 113 percent at hospitals that were part of the largest health systems — compared with 70 percent across all hospitals in the state.

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