Hospital Charges – A Highly "Charged" Issue

Rising health care insurance premiums, health plan and employer pressures for price predictability, and the charging practices of one national for-profit hospital corporation have recently shined a spotlight on the complex subject of hospital charges. Earlier this month, a labor union that is conducting a negative campaign against our Sutter Health network raised misleading allegations about the charging practices of our hospitals. Following are answers to some of the questions you might have.

How are hospital charges set within Sutter Health?
Hospital charges are set locally by each affiliate. Usually, those decisions are made once annually. Charges are based on many factors including each affiliate's commitments to the communities they serve, their costs, their mix and types of services, their business needs and the local competitive environment.

The Service Employees International Union claims Sutter Health hospitals overcharge for their services.
This allegation is not true. In January 2003, Sutter Health commissioned HealthWorks of Morgan Hill, Calif. to conduct an analysis of 2002 hospital charges among hospitals all over Northern California. The HealthWorks analysis clearly shows that overall charges at Sutter's affiliated hospitals are fair and reasonable compared to other health care providers (with the exception of the Tenet Corporation whose prices exceed those of all other providers, including Sutter). Charts are available upon request.

What is an "outlier" payment?
Outlier payments provide hospitals an extra amount of money to compensate for exceptionally costly, complicated cases. It's a complex formula that can be influenced by a hospital's charges.

What is the outlier controversy about?
It has been widely alleged that one particular corporation (not Sutter Health) took advantage of the outlier formula and raised hospital prices in order to receive higher payments from Medicare. Sutter Health and its not-for-profit hospitals have never had a strategy to raise prices to take advantage of government outlier payments. In fact, comparative data demonstrates that Sutter hospitals' charges are far below those of the corporation under investigation and are consistent with the overall charges of all other competitors.

The SEIU labor union has made statements about Medicare audits at certain hospitals.
In December 2002, the Centers for Medicare and Medicaid Services (CMS) announced plans to review hospitals whose outlier payments met certain thresholds. An analysis of Sutter hospitals' outlier data at that time suggested that four or five of our affiliated hospitals were within the parameters for a review. We disclosed this possibility in communications to bond buyers early this year. CMS has since revised its review parameters and it appears that one hospital in our network falls within the parameters for a review. However, none of our hospitals has been notified that any such review will occur.

For more information, contact the Sutter Health Communications and Marketing Department at 916-286-6770.