Sutter Health, a large hospital system in Northern California, charged 30% more than comparable hospitals after implementing anticompetitive contracting practices in the early 2000s, new research from the University of Southern California alleges.
Before that time, Sutter's prices were similar to those of other hospitals, according to the study, published in the Journal of Hospital Management and Health Policy. Prices surged, however, when the system began adopting a contracting practice known as "all or nothing" in which a large health system that owns most hospitals in a region can compel insurers to contract with all of its hospitals or none at all. This contracting tactic prevents insurers from being able to negotiate with individual hospitals for lower prices.
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"What we show is that these contracting practices do in fact release the health systems from competitive pressures," said Glenn Melnick, a professor in USC's Sol Price School of Public Policy and the study's lead author. "In doing so, they are able to raise their prices above market levels. That is typical monopoly behavior — you get control of the market and do what you can to protect your power in the market."
The findings are especially relevant for Northern California residents, who have been found to pay 20% to 30% more for medical services than Southern California residents, even after adjusting for the Bay Area's higher cost of living and wages. This is in part because health systems are more consolidated in the northern part of the state, where giants such as Sutter, Kaiser Permanente, UC Health and Dignity Health dominate the market.
Sutter Health, which has denied anticompetitive conduct, said the analysis is flawed and that Melnick is biased because he was a consultant in antitrust lawsuits against the system. "The study repackages the same tired allegations a jury unanimously rejected two years ago," it said in a statement. "Sutter looks forward to retrying this case and prevailing a second time."
Although the study focuses on one particular contracting practice by one provider and its effects on price in specific periods of time, consolidation in the health care sector and its consequences for consumers is a part of a broader and ongoing problem, policy experts say.
"What a paper like this demonstrates is a compelling problem that needs to be addressed in our health care system here in California — consolidation and an imbalance in market forces is not serving consumers well," said Kristof Stremikis, director of market analysis and insight at the nonprofit California Health Care Foundation. "If anyone needed more evidence that consolidation is driving up prices, here's one more piece."
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
