Study links growing consolidation of hospitals in California to higher prices for insurance and care.

Growing consolidation among hospitals and doctors’ practices in California is linked to higher health insurance premiums and higher prices for specialty and primary care, according to a study by UC Berkeley researchers published Tuesday.

In California, between 2010 and 2016, the percentage of doctors in medical practices owned by hospitals grew from 25 to 40 percent. The shift is associated with a 12 percent increase in Affordable Care Act insurance premiums, a 9 percent price increase for outpatient doctors’ visits in four specialties — cardiology, oncology, orthopedics and radiology — and a 5 percent price increase for primary care office visits, the study in the health policy journal Health Affairs found.

The prices represent what health care providers are charging; the costs are split between consumers and their insurance plans.

There are several reasons a doctors’ practice owned by a hospital or hospital chain can charge higher prices. A hospital can tack on what’s called a facility fee, which pays for overhead costs like building maintenance. And a doctors’ practice acquired by a larger, well-known health system like Stanford or UCSF could seek to charge higher prices because of

its parent’s name.

“There’s a potential branding effect,” said the study’s lead author, UC Berkeley health economist Richard Scheffler. “People are willing to pay more, insurance companies like to have that in their plan, they charge more for it.”

Those practices are not illegal, Scheffler said.

Perhaps most critically, a large health system that owns a significant share of local physicians’ practices has an upper hand when negotiating with health insurers to set prices. Vertical integration in particular — when large health systems make periodic acquisitions of smaller groups of doctors’ practices — “happens a little bit at a time, they 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,” Scheffler said.

“Say they bought up 80 percent of physicians out of orthopedic practices,” he said. “You can see how they have market power now, they can charge more for it now because people can’t go any other place. That has potential regulatory implications in how they use that market power.”

The study examined Affordable Care Act premiums, which are just a small part of California’s overall insurance market, because there are more publicly available data about those insurance plans, which are sold through the state exchange Covered California. Employer-sponsored health insurance plans do not have to share as much data, Scheffler said.

The study’s findings are based on an analysis of nearly 71 million California medical claims between 2011 and 2016 for every county in the state.

The study does not mention any health system by name, but Northern California is home to several large systems including Sutter Health, Dignity Health, Kaiser and Stanford Medical. Previous research indicates consumers in the northern part of the state pay higher health care prices — an average of 20 to 30 percent more, even after adjusting for the Bay Area’s higher cost of living — as a result of greater consolidation among hospital and physician groups here.

Sutter recently drew scrutiny from California Attorney General Xavier Becerra, who in March sued the Sacramentobased hospital chain for allegedly using its market power to unlawfully raise prices.

“California’s health care markets are at a pivotal point,” the study says. “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, policy makers, payers and consumers.”

There are several reasons a doctors’ practice owned by a hospital or hospital chain can charge higher prices.