California has heavily concentrated hospital, physician, and health insurance markets, but their current structure and functioning is not well understood. We assessed consolidation trends and performed an analysis of "hot spots"-markets that potentially warrant concern and scrutiny by regulators in terms of both horizontal concentration (such as hospital-hospital mergers) and vertical integration (hospitals' acquisition of physician practices). In 2016, seven counties were high on all six measures used in our hot-spot analysis (four horizontal concentration and two vertical integration measures), and five counties were high on five. The percentage of physicians in practices owned by a hospital increased from about 25 percent in 2010 to more than 40 percent in 2016. The estimated impact of the increase in vertical integration from 2013 to 2016 in highly concentrated hospital markets was found to be associated with a 12 percent increase in Marketplace premiums. For physician outpatient services, the increase in vertical integration was also associated with a 9 percent increase in specialist prices and a 5 percent increase in primary care prices. Legislative proposals, actions by the state's attorney general, and other regulatory changes are suggested.
Keywords: Cost of Health Care; Health Economics; Hospitals; Insurance Market < Insurance; Physicians.