RAND estimates that 20%–25% of all health care spending in California is excess spending. This would equate to roughly $81 – $101 billion annually according to the most recent estimates of state expenditures. Upwards of about 70% of all excess spending results from (1) administrative complexity, (2) pricing and market inefficiencies, and (3) failure in care delivery and inadequate prevention.
Administrative complexity: One example of administrative complexity was captured by a study that measured the time that physicians across the country spent interacting with health insurance companies.
Pricing and market inefficiencies: These inefficiencies can include inflated prices due to market consolidation among hospitals and doctors. Research shows that health care prices increase as consolidation increases. The HHI (Herfindahl-Hirshman Index) in the example below is a measurement of consolidation. An HHI of 1,500 is considered a “competitive marketplace”; 2,500 or above is considered “highly consolidated.”
Elevated prices due to consolidation is concerning, since California, on average, already has highly consolidated markets for hospitals and specialists. (Remember, an HHI of 2,500 or above is considered “highly consolidated.”) Consolidation is increasing among the state’s primary care physicians.
Failures in care delivery and inadequate prevention: This can include a lack of investment in primary care. A 2022 study found that, on average, provider organizations in California dedicated only 7.6% of their total spending on primary care. Researchers estimated that a one-percentage-point increase in primary care spending would have resulted in 58,000 more Californians getting recommended care, and 34,000 fewer emergency department visits among the study population.
