Christina Anderson and her three stepchildren live in the sprawling Sacramento suburb of Roseville, Calif., and suffer the ordinary American chaos every afternoon: Austin has karate, and Faith and Taylor have to do their homework. And Anderson, who got laid off from her telecommunications job earlier this year, has to juggle the bills and the household budget.
鈥淲e鈥檙e eating at home a lot more than we did before, and we鈥檙e not going to the movies as much,鈥� she says. 鈥淓very single time we go to the movies, it鈥檚 50, 60 bucks.鈥�
But for one of the family鈥檚 biggest bills 鈥� health insurance premiums 鈥� Anderson is unwilling to switch to a cheaper plan that doesn鈥檛 have access to her doctors and her local Sutter hospital. 鈥淚鈥檝e been a Sutter patient for years,鈥� she says. 鈥淚鈥檓 a loyal person. And I鈥檓 happy with Sutter.鈥�
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What Anderson might not know, however, is how Sutter鈥檚 battle for market share in her corner of suburbia is affecting her bottom line. Hospital prices in the Sacramento region are among the highest in California, driven in large part by the negotiating clout of the hospital chain Sutter Health.
Dominating The Market
Over the last decade and a half, Sutter has gradually accumulated hospitals and amassed a roster of doctors who contract exclusively with the company. Sutter is now one of the largest hospital chains in California with 22 acute care hospitals.
鈥淚n this Roseville market, which is a big suburban area, the hospital is Sutter,鈥� says John Murray, a veteran insurance broker. 鈥淚t鈥檚 a lock right now. Because Sutter dominates the market, major insurance companies, like Blue Cross and Aetna, can鈥檛 sell policies that exclude Sutter hospitals and doctors. That dependence means the hospital chain can dictate high prices.鈥�
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聽In fact, according to government data, Sutter鈥檚 charges for a day of care are 37 percent more than the state average. Sutter鈥檚 CEO Patrick Fry says its costs are fair and that it pours a portion of its profits back into state-of-the-art facilities.
鈥淧eople choose Sutter because they believe that the care that they are going to receive is going to be extremely good,鈥� Fry says.
Even still, the average stay at the Sutter hospital in Roseville costs some $30,000 鈥� about $12,000 more than its closest competitor who offers similar quality of care. It鈥檚 impossible to say how much Sutter鈥檚 pricing influences the cost of health insurance in Roseville. The company鈥檚 price list is confidential. But what鈥檚 happening in Roseville offers a glimpse into how one large hospital chain can effectively dictate insurance premiums.
Murray pulls out a list of insurance options for a sample employer 鈥� plans he could sell to a prospective client. The plans have similar co-pays, deductibles, benefits and premiums. But there are two plans that are dramatically less expensive. They鈥檙e the only ones which contract with non-Sutter hospitals.
The difference in dollars can be staggering. In Murray鈥檚 example, an employer with about 20 workers would pay $29,000 a month for coverage that includes Sutter hospitals. The other plans are $10,000 cheaper. And yet, Murray says, the price break doesn鈥檛 sway his clients, even in this example where the customer could save $120,000 a year. 鈥淥ur customers really perceive the need to have Sutter in the network, Murray says.
Patient Loyalty, Despite Prices
One of those clients is Kenyon Lederer, who runs a small investment advisory firm in Roseville. When Lederer鈥檚 insurance premiums went up 19 percent last year, he asked his insurance broker, John Murray, to find some alternatives. There was one stipulation though: any new plan had to include Sutter hospital and its doctors. The only lower priced options Murray found didn鈥檛 meet that requirement, and Lederer decided to stay with the higher priced plan because 鈥渨e like to go to the doctors we have and we get good quality care there.鈥�
It鈥檚 a common explanation employers in Roseville give, and something insurance brokers and health plans hear all the time. No one wants to switch plans if it means changing doctors or hospitals, even if it could save them a lot of money without sacrificing quality of care.
For their part, Sutter executives say they鈥檝e earned their patients鈥� loyalty. Indeed, the Sutter hospital in Roseville has a new neonatal intensive care unit and an impressive rehabilitation center. None of that comes cheap, says Pat Brady, CEO of Sutter Roseville Medical Center.
Sutter And Insurance Companies
Brady says complaints that Sutter鈥檚 prices are too high for services like MRIs are unfair because a standalone imaging center in a strip mall doesn鈥檛 have the same costs as a full-scale hospital. Still, Brady says, the hospital is trying to bring down its prices.
鈥淲e鈥檙e about ready to open a very significant outpatient imaging facility,鈥� he says. 鈥淲e have every intention to have the pricing be very competitive with any outside entity.鈥�
But Brady doesn鈥檛 understand why insurance companies charge so much for including his hospital, and other Sutter hospitals, in their networks. Especially, he says, because he typically asks Sutter鈥檚 corporate negotiators for a single-digit increase 鈥� not the double digit hikes that health insurers are demanding. 鈥淲e鈥檙e very conscious of this because we recognize if that cost the insurer is passing on is significantly higher and even more so the say Sutter is the reason for that, we need to respond.鈥�
While Brady may be asking his corporate parent for a slight increase, it鈥檚 unknown just how much Sutter negotiators are demanding from insurers. Such negotiations are confidential.
Still, Brady鈥檚 hospital is practically printing money. Its operating margin is an envious 17.1 percent. And the hospital鈥檚 corporate business strategy seems unshakeable: weave hospitals, physician groups and surgery centers into one regional juggernaut that employers and insurers can鈥檛 live without.
It鈥檚 a strategy that makes health care reformers anxious. The growing market power of providers, they say, will make cutting down on the nation鈥檚 out-of-control health care bill that much harder.聽