Childbirth is the leading indication for hospital admission in California, with roughly 500,000 deliveries in the state each year. This is particularly challenging for health plans serving Northern California, the most expensive region in the country to give birth. New research suggests that increased health system consolidation may be a factor contributing to high prices, and sheds light on considerable regional differences in costs of delivery across the US. Furthermore, rising rates of Caesarian Section (C-section) deliveries statewide may be driving costs despite evidence of increased risks to mother and baby.

Sacramento, San Francisco: High Market Concentration Yields High Costs

According to a recent article, Sacramento and San Francisco are the two most expensive cities in the country for both routine vaginal delivery and C-section births.

Nationally, health plans pay hospitals an average of $11,525 and $8,775 for C-section and routine vaginal deliveries, respectively. In Sacramento, hospitals receive about twice the national average for both C-section ($27,067) and routine vaginal deliveries ($15,420) from payers.

The article is part of a larger Castlight study that analyzes the cost of common medical procedures across U.S. cities. While cost-of-living differences contribute to regional price variations, the study posits that market forces that control the negotiating power of health plans largely determine procedure costs.

Health reform efforts such as the Affordable Care Act have pressured health systems to consolidate in order to provide more coordinated care, reduce costs, and serve a larger population. However, the Castlight findings suggest that highly concentrated hospital markets may also increase prices by limiting competition and the negotiating power of health plans to set prices.

Regions with highly concentrated markets, where hospitals and physician groups consolidate into large health systems, provide greater leverage to hospitals. The Northern California market is particularly concentrated—in Sacramento, four health systems control 96% of the market. The Castlight study suggests that health plans serving less competitive regions like Northern California may accept higher prices to secure provider networks rather than risk losing consumer market share.

The study warns that, though increased competition could reduce delivery costs in Northern California, new health systems are unlikely to enter the market. Health system consolidation, however, is only one factor that may be contributing to increased delivery costs.

Low-Risk Cesarean Section Deliveries up 50% in the Last Decade

New research also finds that C-Section overuse is driving California healthcare spending.

Although C-sections can be medically necessary, the procedure poses a serious risk for complications. Newborns delivered via C-section have higher rates of infections and respiratory complications, as well as longer Neonatal Intensive Care Unit (NICU) stays and lower breastfeeding rates. In addition to an increased risk of infections, hemorrhage, transfusions, and blood clots, mothers that have a C-section are 90% more likely to have a future C-section—increasing the risk for hysterectomy, uterine rupture, and other major complications.

Despite the risks, California hospitals are increasingly performing C-sections. According to a June report released by the California Health Care Foundation (CHCF), C-sections are more efficient and provide a bigger payout, costing on average 50% more than routine vaginal births. Coupled with the demands from often under-informed patients and a legally averse hospital culture, C-sections rates are increasing sharply. In 2014, one in three births in California were delivered via C-section, up from one in five deliveries in 1997.

Still, like costs, C-section rates vary considerably across hospitals. According to the CHCF report, rates for California hospitals range from 12% at Sutter Davis Hospital in Davis, to as high as 70% at Los Angeles Community Hospital.

CHCF is working to reduce the statewide C-section rate for low-risk deliveries to the Healthy People 2020 target (23.9%) in five years. In collaboration with California healthcare partners, CHCF has initiated projects across the state employing five strategies to reduce rates: data transparency, quality improvement, changes to payment requirements, patient engagement, and informing decision makers. These efforts show promise—a pilot study in three Southern California hospitals has already reduced C-section rates by 20% in just six months.

According to CHCF, the state could save an estimated $80 to $441.5 million annually by reducing medically unnecessary C-sections, which cost on average $5,000 more than routine vaginal deliveries.