Comstock's magazine 0919 - September 2019 | Page 40

n MERGERS
I
n the 2019 American economy, the big are getting bigger.
That study found that hospital prices at Sutter and Digni-
Mergers are everywhere — the number of mergers and ty were 25 percent higher than at other hospitals around Cal-
acquisitions exceeded 15,000 in 2017, a record for a single ifornia. The researchers used data from Blue Shield of Cali-
year, with 2018 a close second.
fornia, so Kaiser was not included because it operates both a
That makes the consolidation in California’s health health system and an insurer.
care sector no anomaly. A September 2018 study in the jour-
Evidence suggests that mergers are creating giant health
nal Health Affairs by UC Berkeley and Rand Corporation re- care systems that can wield their market power to drive up
searchers calculated that in 41 California counties, hospital prices. An ongoing lawsuit by California’s attorney gener-
market concentrations were almost three times higher than al against Sutter alleges exactly that, charges Sutter rejects.
the level the federal government already considers “highly For businesses buying health care for their employees, such
concentrated.” The latest key marriage was in January be- consolidation means it’s tougher than ever to control health
tween Catholic Health Initiatives, which has national offices costs. That’s why benefits experts say it’s critical for compa-
in six states, and Dignity Health, based in San Francisco. To- nies to regularly evaluate alternatives that can help them
gether, the two systems comprise a 150,000-employee com- gain a price advantage.
pany serving 21 states with 30 hospitals in California that’s
now known as CommonSpirit Health. (Across the 21 states, A COLLAPSING FOOD CHAIN
CommonSpirit has 142 hospitals and more than 700 care In California health care, it’s not just the big fish — the hos-
sites, according to several reports.)
pitals — eating each other in mergers. The big fish also are
For consumers, economies of scale don’t necessarily swallowing big schools of minnows. The UC Berkeley re-
mean lower prices. About a year ago, Tom Avery needed an searchers found that the share of physician practices owned
MRI of his shoulder for a torn rotator cuff. As president and by hospitals increased from about 25 percent in 2010 to
founder of employee-benefits
more than 40 percent in 2016.
consulting firm Innovative
Among specialist doctor prac-
Broker Services in Folsom, it
tices, the increase was bigger,
was a chance to research dif-
up from 20 percent in 2010 to
ferences in list prices among
54 percent in 2016.
providers, so he called five.
The researchers’ data
The gaps weren’t small. The
showed all that market power
Sutter Health imaging cen-
pushed up the prices of phy-
ter to which his doctor had
sician outpatient services by
referred him came in high-
5-9 percent and Affordable
est at $3,200. An indepen-
Care Act insurance premiums
dent MRI facility down the
by 12 percent. That’s how eco-
Chad Follmer, senior vice president,
street — where he ended up
nomic theory would predict
going — charged $700, he
having just a few big suppliers
Woodruff Sawyer
says. Sutter’s list price for
in a market — oligopoly pow-
that MRI has since increased
er — works. “If the providers
to $3,720, according to data on its website. (A Sutter spokes- have greater control of the process, the discounts — from
person declined to respond to a question about the price what I can tell — tend to be less, and it just drives insurance
difference.)
costs right up,” says Steve Vilas, chief financial officer and
Sutter runs the second-largest health system in the state, partner at benefits-consulting firm Burnham’s Roseville of-
with Kaiser Permanente and the pre-merger Dignity com- fice.
ing in either first or third, depending on how the count was
Locally, a few counties are off the charts in health care
done. Rankings in 2017 by medical industry data provider provider concentration. The UC Berkeley researchers rat-
IQVIA, which rates system size by number of facilities owned ed each county’s concentration of market power on a scale
and managed, found Kaiser as the largest California-based from 1 to 6 and used their data to identify seven “hot spots”
integrated health system, with Sutter second and Dignity where a few providers have vacuumed up almost all com-
third. A 2016 study used another measure, the number of petitors. Their data showed market concentration didn’t
system-owned hospitals in the state, ranking Dignity first increase in Sacramento County from 2010 to 2016, with the
and Sutter second.
county rating a moderately high 4 out of 6 both years. But it
“When like-sized systems come
together in health care, they don’t
get rid of anybody. And it’s because
that merger isn’t for efficiency. It’s
for negotiating power.”
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comstocksmag.com | September 2019