Sutter, Dignity used market power to win higher rates, study suggests

California's two biggest hospital chains, San Francisco-based Dignity Health and Sacramento-based Sutter Health, used their market power to demand higher prices, according to a new study.

The study, published in the Journal of Health Care Organization, Provision and Financing, showed that from 2004 to 2013, the amount paid by Blue Shield of California to nearly 60 hospitals owned by Dignity and Sutter jumped 113 percent, compared to a 70 percent increase at 175 other California hospitals.

Prices were similar at all hospitals studied in 2004. However, by 2013 the payment per patient admission was $19,606, on average, at Dignity and Sutter hospitals and $15,642 at other California hospitals.

Researchers said the substantial price difference is not driven by factors such as case mix, payer mix and changes in local wage costs and local market competition. Rather, Dignity and Sutter used "all-or-none" contracting to get higher rates from insurers.

"California experienced its wave of consolidation much earlier than the rest of the country and our findings may provide some insight into what may happen across the U.S. from hospital consolidation," said the study's lead author, Glenn Melnick, a health care economist at the University of Southern California.

Sutter spokesman Bill Gleeson told Kaiser Health News that the system's recent price increases to insurers have been low and its charges are in line with competitors. He also questioned the study's validity because of its reliance on data from Blue Shield, which has clashed with Sutter over prices and contracts. Sutter does not use all-or-none contract provisions, according to Mr. Gleeson.

Dignity told Kaiser Health News that a number of factors, such as high labor costs and the need to pay for state-mandated seismic upgrades, affect its prices for commercially insured patients.

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