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Hospital stays cost more in Northern California than Southern California

On average, hospitals in Northern California's most populous counties collect 56% more revenue per patient per day than hospitals in Southern California's largest counties, a Times analysis shows.

March 06, 2011|By Duke Helfand, Los Angeles Times
(Alex Nabaum, For The Times )

Northern and Southern California have long argued over which one has the best sports teams, nicer climate and most stunning scenery.

When it comes to healthcare, however, there's little debate: It costs a lot less to be hospitalized in the Southland.

On average, hospitals in Northern California's six most populous counties collect 56% more revenue per patient per day from insurance companies and patients than hospitals in Southern California's six largest counties, according to a Times analysis of state records.

In San Francisco, the most expensive of these northern counties, hospitals get $7,349 per patient per day on average. In Los Angeles County the figure is $4,389, and in San Bernardino County, it's $3,931 — the lowest of the southern six.

Northern California hospitals say their prices are driven up by significantly higher costs for labor, supplies and other necessities. But leading healthcare economists say that most of the disparity stems from a lack of competition in the north, where a wave of consolidation has given a handful of hospital networks unusual power to dictate what private insurers and their customers pay for care.

"Consolidation definitely drives up prices," said Glenn Melnick, a USC health economist who has written extensively on the issue. "This is a really serious problem."

The driving force in the north is Sutter Health, a not-for-profit system of of 24 hospitals and roughly 5,000 doctors that reaches into more than 100 cities and towns across 20 counties.

Insurance companies say that Sutter's size and dominant position in many local markets give it the upper hand in contract negotiations over prices and which of its hospitals are included in the insurers' networks.

Insurers also say they must include Sutter hospitals — which account for 1 in 5 such facilities in the region — because they are in such high demand by patients.

Sacramento-based Sutter says it works hard to keep a lid on prices. Nonetheless, the higher rates charged by it and other Northern California hospitals are passed along by insurance companies to individuals and employers.

Aetna Inc., for example, said it charges customers in Northern California about 30% more in premiums than those in Southern California as a result of higher hospital reimbursements in the north that average $5,169 for each patient per day, compared with $3,578 in the south.

Blue Shield of California, a not-for-profit insurer, reports a similar trend. It says it charges up to 40% more for insurance in the north, where it spends an average of $6,570 per patient each day compared with $4,646 in the south.

"Where the cost of care is more expensive, the cost of premiums is more expensive," said Juan Davila, Blue Shield's top executive who oversees provider contracting.

And prices do make a difference for customers.

Ben Krasnow, a Blue Shield customer from the San Francisco Bay Area, has watched the premium on his individual policy nearly double — to $1,380 annually from $696 — since he bought it two years ago even though he has remained healthy and never visited the hospital.

To lower his costs, the 28-year-old small-business owner from Redwood City recently began searching for a less expensive policy and found one with a Blue Shield competitor, Health Net Inc.

But Krasnow knows that his insurance bills will only rise as he ages. He'd like to see more regulation to keep prices in check.

"I think they are out of control," he said. "The trend is worrying."

In Southern California, competition plays a robust role in keeping hospital and insurance costs down. Half of the region's 167 hospitals are run by independent operators, including prominent institutions such as Hollywood Presbyterian Medical Center and Huntington Memorial Hospital in Pasadena.

Even so, that could change as financially strapped independents face increasing pressure to join hospital systems as a way to stay in business.

Much of the stress on independent hospitals is caused by state and federal governments cutting their reimbursements for treating the poor and the elderly, and by losses from treating uninsured patients.

With limited bargaining muscle, these hospitals say they often have to accept lower payment rates from commercial insurers, reducing an important source of money to offset costs.

"Systems negotiate from a position of much greater strength and leverage because they represent more beds and more lives. We don't have the same clout or negotiating power," said Michael Rembis, a onetime system executive who now runs Hollywood Presbyterian.

"That's a real disadvantage for independent hospitals and their communities."

The shakiest operations often wind up closing or merging with networks such as MemorialCare Health System of Fountain Valley. It operates five hospitals in Los Angeles and Orange counties, including Long Beach Memorial Medical Center. And it's looking to grow.

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