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Costs Rise Swiftly at Large CA Hospital Chains

By Doug Desjardins  
   June 20, 2016

Study suggests that Dignity Health and Sutter Health use their position as "must-have hospitals" to negotiate better deals with insurers that include all-inclusive contracts. The health systems reject the claim.

This story originally appeared in California Healthfax.

A study from the University of Southern California in Los Angeles estimates the cost for care at California hospitals increased 76% over the last decade and that costs at large health systems increased by a larger margin.

The study, published June 9 in INQUIRY: The Journal of Health Care Organization, Provision, and Financing, used claims data from Blue Shield of California to calculate payments (actual prices versus billed charges) to hospitals, focusing on hospitals in the largest multi-hospital systems.

It found that Blue Shield's average payment for patient admission increased 113% at Sutter Health and Dignity Health facilities from 2004 to 2013 while payments per admission at all other hospitals increased 70%.

Overall, prices at California hospitals increased 76% per hospital admission during the study period. The study noted that "prices grew faster for hospitals in the two largest systems compared with all other hospitals."

Study author Glenn A. Melnick, PhD, Blue Cross of California professor of healthcare finance and director of the Center for Health Policy and Management at USC, said the trends in the study are not isolated to California.

"I think [other health systems] have seen the success of these models in California—in being able to raise prices—and adopted them," said Melnick. Both Sutter Health and Dignity Health disputed the findings.

The study suggests that Dignity Health and Sutter Health, which operate 32 and 25 acute care hospitals in the state respectively, use their position as "must-have hospitals" to negotiate better deals with insurers that include all-inclusive contracts.

"The [health] system gains leverage to negotiate contracts with health plans on an 'all-or-none' basis, requiring the plan to include all system member hospitals in the plans' preferred networks, regard- less of their prices (or quality) relative to other potential substitutes in the market," the study stated.

"This could resally appeared inult in higher prices to health plans and higher health insurance premiums to consumers."

It also found that "prices at hospitals that are members of the largest, multi-hospital systems grew substantially more" during the study period.

"Prices were similar in both groups at the start of the period (approximately $9,200 per admission)," the study stated. "By the end of the period, prices at hospitals in the largest systems exceeded prices at other California hospitals by almost $4,000 per patient admission."

Dignity Health said the study did not consider other factors that drive costs.

"The prices charged for commercially insured patients are affected by a number of factors, including the range of services offered, labor costs (generally higher in Northern California), unfunded mandates such as seismic upgrades, and the costs of covering the rapidly growing share of the Medi-Cal insured population," said Dignity Health in a statement.

Sutter Health questioned the study's methods and findings and why the study did not include other large health systems in addition to Sutter Health and Dignity Health.

"If the study was intended to look at large systems, why did the authors not look at Scripps [Health], Sharp [HealthCare], Tenet [Health], and Adventist Health as well as other growing regional systems?" said Sutter Health's vice president of communications Bill Gleeson.

He added that the study "used old data" and that "our price increases in recent years have been extremely low and, in some cases, essentially flat."

Gleeson also disputed the suggestion that Sutter Health has an "all-or-none" clause in its contracts with health plans, stating that "such provisions simply do not exist at Sutter Health." Melnick said that while Blue Shield of California was the only insurer to supply data for the study, its data is a good reflection of the industry as a whole.

"Blue Shield is a large commercial payer and is likely representative of the overall market," said Melnick.

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