Sutter Health's aggressive pricing strategy is having harmful effects on consumers across Northern California. Through mergers and acquisitions, Sutter has become the largest health system in Northern California. The company uses its monopoly-like control to demand high prices from consumers in order to boost its profits. Sutter's exorbitant prices have prompted sharp reactions from individual consumers and institutional health care purchasers like CalPERS, which report that Sutter's high prices are contributing to steep increases in health premiums. Health insurance premiums in California have grown by nearly 40% in just the past three years, according to a survey of California employers performed by the Kaiser Family Foundation.
Although Sutter is already the largest health care system in the region, the company seeks to aggressively expand its dominance by merging and acquiring additional facilities and physician groups. Unless addressed, Sutter's market dominance will allow the company to continue charging excessive prices to California consumers.
Are Sutter Health's prices high?
According to Blue Shield, prices at Sutter hospitals are 80% higher than the statewide average, and 60% higher than the Northern California average. In the Sacramento area, charges at Sutter's hospitals were as much as 68% higher than at comparable non-Sutter hospitals during 2002.
For example, in 2002 Sutter's average charge for simple cesarean sections-the third most common type of medical procedure in the state-was 68% higher than the average for non-Sutter hospitals in the Sacramento region.
In the Central Valley, Sutter's charges for treating simple pneumonia were 106% higher than comparable non-Sutter hospitals in the area during 2002.
Why are Sutter's prices so high?
Through mergers and acquisitions, Sutter has become the largest health system in Northern California. Sutter uses its monopoly-like control over many hospitals and physician groups to demand high prices from consumers in order to boost the company's profits.
Patient Days
"Patient Days" is a common term used in the hospital industry to measure the volume of patients a hospital admits and cares for over a certain period of time. "Patient days" are defined as the total number of days that all admitted patients spent in the hospital during a given period. It includes the day a patient is admitted, but not the day the patient is discharged.
Sutter uses an aggressive bargaining strategy that leverages its overwhelming market power in particular geographic regions to win high priced contracts for all of its facilities. HMOs and insurance companies are forced to negotiate with Sutter in regions where Sutter controls the hospital market. Sutter's control is so dominant in some markets that insurance companies virtually have no other option. For example, Sutter controls the only non-Kaiser hospitals in Marin County. When HMOs and insurance companies seek to contract with Sutter's Marin County hospitals, Sutter forces them to contract with all of Sutter's hospitals and physician groups throughout Northern California.
Sutter's "all-or-nothing" bargaining strategy has become even more potent as Sutter tightens its grip on other regions. In the heavily populated East Bay, Sutter already controlled more than half of the "patient days" and two thirds of the nearly one million outpatient visits provided in hospitals stretching from Richmond to Hayward in 2002. In May of 2004, Sutter announced its takeover of 122-bed San Leandro Hospital. With the takeover, Sutter's control will jump to 59% of "patient days" and 69% of outpatient visits.
The Federal Trade Commission (FTC) has subpoenaed documents from Sutter as part of an investigation of Sutter's takeover of Summit Medical Center in Oakland and the possible anti-competitive effects of Sutter's dominance in the East Bay. The FTC is the federal agency responsible for protecting consumers from business monopolies.