Report: Sutter Health probed

09/15/2012 12:00 AM

09/14/2012 11:33 PM

It's a fact of life in California health care – the clout wielded by the state's big hospital chains.

Now California's attorney general has launched an antitrust investigation into some of the state's top hospital chains and their affiliated physicians' groups, to see if consolidation means inordinately higher prices.

Sacramento's Sutter Health and San Francisco's Dignity Health are among those getting subpoenas from Attorney General Kamala Harris, the Wall Street Journal reported Friday.

Quoting anonymous sources, the Journal said the probe began several months ago. Lynda Gledhill, Harris' press secretary, wouldn't confirm or deny the story.

But one of the hospital chains targeted, Scripps Health of San Diego, confirmed it has received a subpoena "related to antitrust issues. We understand other health systems throughout the state have been contacted, as well."

Health care economist Joanne Spetz said it isn't surprising regulators would be looking at hospital chains in Sacramento, San Francisco and San Diego, which she called "the most consolidated markets in the state."

"Sutter and Dignity really have the Sacramento and San Francisco areas pretty well locked up, particularly Sacramento," said Spetz, a professor at the University of California, San Francisco. "More consolidated hospital markets have higher fees," she added.

Sutter declined to confirm if it had received a subpoena. A Dignity spokesman couldn't be reached for comment.

Patrick Johnston, president of the California Association of Health Plans, an insurers group, said Northern California hospitals are usually costlier than Southern California's.

Consolidation isn't the only factor, but "generally there is more competition in Southern California," he said.

The Journal reported that Harris' investigators are looking into ties between hospital chains and doctors' practices. Hospitals in California aren't allowed to employ doctors but have numerous affiliations with physicians groups.

An influential study published in 2010 in Health Affairs, a national policy journal, argued that the growing links between California hospitals and doctors groups were driving up prices.

"When negotiating together, hospitals and physicians enhance their already significant bargaining clout," the article said.

But hospital chains have little choice but to expand their physicians networks, said Ryan McAteer, a health care attorney in Los Angeles. The federal Affordable Care Act, the Obama administration's overhaul of the health care system, contains provisions that reduce hospitals' profit margins, he said. Bringing more physicians groups under their umbrellas can add to hospitals' revenue.

In addition, he said, the federal law has other provisions that strongly encourage hospitals and doctors to work more closely in a bid to streamline care.

"All of that is better for patient care, and is the future," said Jan Emerson-Shea, spokeswoman for the California Hospital Association.

Some experts remain unconvinced. Having doctors and hospitals working in concert won't necessarily bring prices down, said Dr. Robert Berenson, co-author of the Health Affairs article and a researcher with the Urban Institute in Washington. "It could backfire," he said. "You could have a more efficient system but they aren't passing on the savings."

California underwent a wave of hospital mergers in the 1990s, with little protest from state officials, Spetz said. The exception came in 1999, when then- Attorney General Bill Lockyer sued to block Sutter's takeover of Alta Bates Medical Center in Oakland. He lost.

Spetz said consolidation is gaining renewed scrutiny after the Federal Trade Commission ruled in 2007 that a hospital merger in Evanston, Ill., generated big price increases.

The FTC didn't seek to undo the Illinois merger but ordered the two hospitals to negotiate fees separately with insurance companies as a means of "reinjecting competition."


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