'Convoluted' hospital pricing under scrutiny

The model of a seismically safe California Pacific Medical Center is seen at St. Luke's Hospital in March. The model of a seismically safe California Pacific Medical Center is seen at St. Luke's Hospital in March. Photo: Lea Suzuki, The Chronicle Photo: Lea Suzuki, The Chronicle Image 1 of / 3 Caption Close 'Convoluted' hospital pricing under scrutiny 1 / 3 Back to Gallery

Making the front page of the New York Times can be a cause for congratulation. Not so, unfortunately, for California Pacific Medical Center.

In a lead story which ran over three pages Tuesday, the center emerges as a prime example of what the Times calls "convoluted hospital pricing." In other words, charging $2,229 for stitching up a patient's knee at its Pacific Heights campus in San Francisco, $32,901 for a heart X-ray and $20 for a codeine pill, according to CPMC records.

The story of U.S. hospitals' seemingly inexplicable pricing - the biggest contributor to rising health care costs, according to the Journal of the American Medical Association - is not new, and CPMC, along with parent company Sutter Health, are not the only medical institutions cited in the story. But CPMC's "eye popping" figures, some quite possibly cherry-picked, get by far the biggest play, and Sutter Health the lion's share of critical observations, like this one from a professor of health economics at USC:

"Sutter is a leader - a pioneer - in figuring out how to amass market power to raise prices and decrease competition." Or this, from the CEO of a San Francisco consulting group that helps major companies in California negotiate health care coverage prices for their employees: "Our members are very exercised about Sutter - it has increased prices disproportionately."

Sutter Health, headquartered in Sacramento, doesn't see it that way.

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Referring to "perspective and facts not referenced in the Times piece," spokesman Bill Gleeson pointed to the amount of free health care Sutter provides to uninsured patients, the number of Medi-Cal patients it serves - the most among Northern California providers - the cost of salaries and benefits, and a $10 billion investment to "build and retrofit health care facilities, and to purchase advanced patient care technologies."

Alta Bates hospital in Berkeley and two Sutter sites in San Francisco, Cathedral Hill, where ground was broken in October, and St. Luke's Hospital in the Mission District, are among the Bay Area beneficiaries.

At the same time, Gleeson added, Sutter is "about halfway" to its goal of cutting costs by 10 percent - approximately $850 million - "after redesigning processes in patient care that hold the line on cost while improving quality. We agree that our nation's current billing and pricing practices need fixing, and we've been working with our trade association to develop a solution," he said.

Gleeson was also speaking on behalf of CPMC, which referred me to Gleeson when I contacted it separately.

Quoted in the New York Times, CPMC CEO Warren Browner said, "You need a Ph.D. in health economics" to understand medical pricing. "Hospital care is extremely expensive to produce and to have available for everyone in the community. We have to recoup what it costs to keep open, what it costs to take care of the un- and underinsured and to rebuild."

Browner also referred to what has been called in the industry, the "Saudi sheikh problem." "You don't really want to change your charges if you have a Saudi sheikh come in with a suitcase full of cash who's going to pay full charges," he said.

So far, the hospital business has been very good to Sutter. The nonprofit 26-hospital system reported net income of $735 million on $9.56 billion of operating revenue in 2012, up 15.9 percent and 5.3 percent, respectively, over 2011. Critics have pointed out that Sutter spends a lower percentage of its revenue or profit on underserved communities and "charity cases." And this is not the first time Sutter's billing practices have been questioned.

In 2004, the California Public Employees' Retirement System, the nation's largest public pension system, cut its ties with the chain, citing costs far in excess of other hospitals in the state. Last year, the state attorney general's office served subpoenas on Sutter and other California chains, including San Francisco's Dignity Health, as part of an investigation into the link between higher prices and hospital consolidation. Last month, Sutter coughed up $46 million to settle a suit over alleged false and misleading anesthesia charges, and agreed to change its billing procedures.

"This settlement represents a groundbreaking step in opening up hospital billing to public scrutiny," said Dave Jones, commissioner of the state Department of Insurance, who joined the suit.

"This is not news to me, nor should it be to others in California," said Micah Weinberg, a health policy and senior policy adviser at the Bay Area Council, referring to the New York Times story. "Sutter knows it has a more expensive cost structure, and has taken significant steps to be more efficient, administratively, and especially in handling end-of-life care (which accounts for $125 billion in Medicare expenses alone). It should be given credit for that.

"But we have to keep focusing on the disparities. We have to keep the heat on."