Health Care Costs
With health insurance premiums continuing to rise, economists, the news media and others are sharing wide-ranging points of view about factors contributing to the overall cost of care.
At Sutter Health, we strive to provide patients with the safest, highest quality and most accessible care—while doing our part to make sure our services are affordable. In other words, we commit to providing great value—as opposed to being the least expensive provider of any particular service.
Of course we also know high-value organizations must offer services at a fair price. Several years ago we recognized that Sutter Health needed to step up to do our part in making quality health care more affordable. We’ve made significant strides by holding our annual overall average price increases for health plans to single digits in the past several years. However, we still have more work to do to reach our affordability goals for patients.
Read on to see how we’re transforming and redesigning care management processes and approaches with an eye toward holding the line on costs while improving care.
- Quality Leadership
- Our Commitments
- Focusing on Affordability
- Questions & Answers About the Cost of Care
- Related Information
We deliver comprehensive and personalized care through our integrated delivery network over a broad continuum—including surgery centers, physicians, outpatient care, general and specialty hospital care, and home health and hospice services. As a result of our integrated approach, we’ve raised the bar even higher on health care quality.
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Not surprisingly, building a high-quality, integrated regional health care network like ours requires a considerable ongoing investment. From 2011, Sutter Health invested over $8 billion on advanced patient care technology and on facility construction and improvements necessary to meet the needs of our communities and California’s seismic safety requirements.
To ensure our communities have an adequate supply of doctors close to home, we’ve recruited hundreds of physicians and established conveniently located care centers in scores of cities and towns all over Northern California. We created the Sutter Medical Network, in which physicians share a common commitment to provide consistently exceptional and affordable health care—when, where and how patients want to receive it.
Any comparison of hospital pricing in California must take into consideration the size of the provider’s seismic obligation. Sutter Health has more critical (SPC 1) seismic building obligations than any other California health care organization. Sutter Health built or replaced hospital facilities in Crescent City, Roseville, Davis, Sacramento, Jackson, Modesto, Santa Cruz and Novato. Large hospital construction projects are underway in Castro Valley, Oakland, Santa Rosa and Sacramento. Another hospital replacement project was completed in Burlingame in May 2011. After securing local government approvals, Sutter Health expects to invest another $1.8 billion on hospital projects in San Francisco.
During 2012, Sutter Health provided record levels of care and services for the poor and underserved and other benefits for the broader community. Its 2012 commitment to community benefit was a record $795 million, compared to $756 million in 2011. This amount includes unreimbursed costs of providing care to Medi-Cal patients as well as investments in medical research, health education and community-based public benefit programs such as school-based clinics and prenatal care for low-income patients. Sutter Health hospitals cared for 22 percent of all Medi-Cal patients discharged in 2010 from the counties served by its network (per OSHPD; 2012 Medi-Cal data not yet available).
Sutter Health’s commitment to providing charity care has continued to grow, reaching an average of more than $3 million each week in 2012. Sutter Health’s traditional charity care contribution increased from $140 million in 2011 to $153 million in 2012.
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Focusing on Affordability
While quality and access will always be top priorities for Sutter Health, we also continue to implement more efficient ways to deliver our services, conserve our limited resources and spend wisely. Sutter Health’s integrated approach has increased the quality of care provided by our physicians and hospitals and will continue to help make our services more affordable.
Although some people measure the cost of care solely in terms of a single specific service, we believe it’s important to consider a patient’s total cost of care. When doctors and hospitals work together in the same organization, it helps them spend less per patient on the total cost of care by developing best care practices and reducing unnecessary duplication of services, while providing seamless access and treatment for patients.
All across Sutter Health, we’re transforming and redesigning care management processes and approaches to help hold the line on cost and improve patient care. For example, our hospitals established seven-day-a-week (versus traditional Monday-Friday) care management and supportive clinical services to make sure patients don’t have to wait over a weekend for their care. If providing weekend physical therapy will help a patient heal better and faster, and return home sooner (thus avoiding a costly and unnecessary overnight stay), it’s our responsibility to provide that care.
To prevent unnecessary, risky and costly hospital readmissions, we’re improving post-hospital discharge care to help ensure patients take their medications and have follow-up doctor appointments scheduled before leaving the hospital.
We developed our own sophisticated analytical software that analyzes physicians’ individual approaches to treating certain medical problems in order to develop doctor-designed best practices that improve outcomes and help keep services affordable.
Sutter Health has held annual overall average price increases for commercial health plans down to single digits in the past several years. Of course we have no control over whether these more moderate rate increases are reflected in what health plans charge consumers. Recently some health plans announced premium increases in excess of 20 percent.
It’s important to keep in mind that health insurance premiums in California stand at or below the national median; Californians pay less than half what consumers in some other states pay.
We’ve made progress on our affordability goals, and we continue to seek better and more efficient ways to deliver our services, conserve our limited resources and invest wisely in our people, technology and facilities with the goal of continuing to be recognized among the highest quality providers of health care.
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Questions & Answers About the Cost of Care
Some health insurance executives claim and some news media have recently reported that large provider systems like Sutter Health make health care more expensive by demanding higher-than-average reimbursement from insurers. What is Sutter Health’s perspective
Sutter Health believes its reimbursements from insurers are fair, and reflect our commitments and obligations to the communities we serve. Large insurance companies contract with us for services of their own free will. And there’s plenty of competition in Northern California—from Kaiser, Catholic Healthcare West, Adventist Health, John Muir and the UC hospitals, and from many independent hospitals and physicians.
Sutter Health has held annual overall average price increases for commercial health plans to single digits in the past several years. Of course we have no control over whether health plans reflect our single-digit rate increases in what they charge consumers.
The health plans we work with are large sophisticated organizations that are very capable of representing the best interests of their clients as it relates to contracting. In the end, they have to balance all of those business decisions with all of their other stakeholders (e.g. Wall Street). Some health plans continue to announce premium increases in excess of 20 percent—and large profits.
In 1990, there were 23 major health plans operating statewide in California. Today, there are six major statewide health plans (Anthem Blue Cross, Blue Shield, CIGNA, HealthNet, UnitedHealthcare and Aetna), and a few other, smaller private insurers that serve particular regions of the state. Separately, Kaiser Permanente operates its own health plan, hospitals and physician groups.
Negotiated prices with insurance companies help fund Sutter Health’s commitments to ensuring our communities have adequate access to physicians, as well as fund our commitments to quality, safety, convenience and free care for the poor.
Why are health care costs increasing at such a high rate?
The government pays less than the cost of care, so any inflation in health care costs must be borne by those who actually pay a market price. Since government-sponsored patients consume about 50 percent of the care in a typical health system, the cost shifted to everyone else is double what it would otherwise be. For example, if inflation is 4 percent, a health system’s prices have to go up 8 percent to cover the increased costs of caring for government-sponsored patients when the government keeps its payments to doctors and hospitals arbitrarily low. Improvements in technology, drugs, and seismically-safe facilities all tend to drive the cost up faster than in other industries.
Health care providers, especially those like Sutter Health that invest in their communities, have significant financial commitments. For example, we are replacing paper records with electronic systems and replacing hospitals whose per-bed construction costs have more than doubled, from $1 million about a decade ago to over $2.5 million today. The other big cost driver is the success modern medicine has had in saving lives. Health problems that were once untreatable can now be treated, so we’re seeing more and more people living with chronic conditions. We’re glad to play part in saving and extending patients’ lives, and we all need to be mindful that the costs of chronic care continue to be part of the nation’s overall health care bill.
How will health insurance reform impact your costs and affordability goals?
Under federal health care reform, the government will provide health coverage to 32 million uninsured Americans, and it will cover the cost in large part by paying health care providers less. Medicare, which has for years underpaid doctors and hospitals, will reduce its reimbursement to Sutter Health by nearly $2 billion over the next decade.
Despite legal maneuverings and Congressional debate about the future of health care reform, we fully expect these deep government reimbursement cuts will continue along with demands that doctors and hospitals deliver more for less.
California already ranks last in the nation in reimbursement to doctors and hospitals for care provided to MediCal beneficiaries. California also faces a massive debt and reductions in MediCal payments are also a real possibility.
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Sutter Health 2009, Year in Review
Employees dedicated to helping make health care more affordable
Emergency room staffer Ryan Davis, dubbed "The Pen Guy" by his colleagues, had a simple idea that led to thousands of dollars in cost savings.
Louis Luis, a Supply Chain Director for Sutter Health's Central Valley Region, worked to streamline the purchase of artificial joints and cardiac rhythm devices leading to millions of dollars in savings.
Diane Brown used a creative approach to business card design that is expected to reduce purchasing expenses by more than $160,000.
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