As Hospital Prices Soar, a Single Stitch Tops $500
Consumers may appreciate or demand, features that contribute to bigger hospital bills. But studies have found no correlation between prices and patient outcomes. A California state rating of hospital services by the California Health Care Foundation gave California Pacific Medical Center average scores in most categories, though its surgical-care measures were rated "superior."
Its crosstown neighbor, University of California San Francisco, a nationally ranked academic institution, charges far less per day than California Pacific, when the greater severity of illnesses of its patients is factored in, Professor Melnick said. In fact, a recent study in the publication Annals of Surgery, a monthly review of surgical science, found that hospitals with the highest complication rates tended to have higher prices.
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From such variations, economists conclude that "costs" are highly discretionary, noting that hospitals in other developed countries often provide high-quality care, with better outcomes in comparatively no-frills environments. Said Dr. Robinson, the Berkeley health economist: "If you pay hospitals more, they spend it. If you pay them less, they adjust. The only way to pay less for health care is to pay less for health care."
Hospital officials like to say that their list prices do not reflect what most patients actually pay, because private and government insurers negotiate discounts. Simone Singh, a professor of health management and policy at the University of Michigan, estimated that insurers generally paid 40 to 50 percent of charges. But with powerful chains like Sutter, prices are high and the discounts often are not so generous. Patients are left paying more.
A price 'sequoia'
For her three stitches at California Pacific Medical Center, Deepika Singh ended up paying $768.56 a lot of money for a 26-year-old retail supply chain manager of the $1,813 rate her insurer negotiated for the approximately $2,200 bill. Ms. Duffy owed $1,366 after her insurer's discount on 2-year-old Orla's $1,700 bill, since the family had not met its annual deductible. "How much is that per minute?" she asked.
Across California, Sutter hospitals have proved expert at the business of medicine. "Our members are very exercised about Sutter it has increased prices disproportionately," said David Lansky, chief executive officer of the Pacific Business Group on Health, which represents 60 of California's biggest private employers in its health care negotiations. "Sutter has been successful at leveraging their huge size in dictating not just price but contract terms."
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Its major competitor is Kaiser, a health maintenance organization that runs a closed network of hospitals and doctors. California Pacific Medical Center delivers more than half the babies in San Francisco and is the city's largest employer after Wells Fargo. Sutter contracts also include "gag clauses" that prevent employers from knowing what rates have been negotiated by their insurers on their behalf, Mr. Lansky said.
Chuck Idelson, a spokesman for the Institute for Health and Socio-Economic Policy, the research arm of the California Nurses Association, said Sutter prices were 40 to 70 percent above its rivals' for similar services. When Sutter bought Summit Hospital in Oakland in 1999, rates there went up 29 percent to 72 percent, researchers found. Because of pricing issues, proposed insurance plans under the Affordable Care Act did not initially include Sutter hospitals.
Terry Miller, 62, a businessman in the Bay Area, got a bill for $117,000 for a two-night stay at California Pacific Medical Center to place a stent to open one of his heart's clogged arteries a charge that did not include fees for the cardiologist and radiologist. According to the Medicare database, California Pacific Medical Center charged $43,679 for hospitalization to treat a simple pneumonia and $96,642 to treat a stroke; the Medicare payments for those illnesses were $8,046 and $9,583.
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The high prices have had a ripple effect across Northern California, allowing smaller hospitals to charge more as well. "Sutter is the tallest Sequoia and everyone goes up just underneath them a bit," said Professor Melnick. He noted that hospital prices in California had more than doubled in the past decade, after adjustment for inflation.
And payouts in the Pacific region for simple emergency room treatments stitches, a sprained ankle and an upper respiratory infection were by far the highest in the country, about 50 percent higher than in the Northeast, according to an analysis performed for The Times. by the health care consulting firm Truven Health Analytics.
The merger factor
In theory, health care consolidation can lead to economies of scale, but not if it produces complex supersize systems. Excess administrative costs accounted for about $190 billion of the $2.5 trillion medical bill of the United States in 2009, the Institute of Medicine estimated this year — money that could be used for other purposes.
"There is a big flurry of consolidation and the effects depend on what the objective of the health care system is," said Orry Jacobs of the health care consulting firm BDC Advisors. "If the intent is to improve care and bend cost curves, then networks can do so. If the objective is to corner the market and demand higher rates, then that will happen." Indeed, research shows that today's hospital mergers tend to drive up prices.
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And employers have limited ability to fight back. Sutter operates the only hospital in some California cities. Beginning on Jan. 1, the University of California, Berkeley, will exclude Sutter's two nearby hospitals from its plan because it could not reach a price agreement. The university's employees will have to cross the bay or drive inland for in-network hospital treatment, or pay more.
As is often the case in American medicine, patients will decide if they are willing to pay the high price of care. Back home in New York City, Orla Duffy's head wound has healed nicely without further treatment. Deepika Singh had her stitches taken out at an urgent care clinic, costing $25 with her copay, during a business trip to Washington.
Daniel Diaz, who had been treated at Lenox Hill, Mr. Roberts and Amy Bernstein had no choice but to visit an emergency room this year for stitches. But they all refused to see a doctor for the follow-up.
"The amount was outrageous for the time it took to put them in," said Ms. Bernstein, 54, a real estate lawyer from Long Island, who cut herself cleaning knives while fixing a kitchen damaged by Hurricane Sandy. "I was so disgusted, I took them out myself."
—By Elisabeth Rosenthal of The New York Times. Jo Craven McGinty contributed reporting from New York