PM Competitive Strategy: Health Care Monopolies

By pjain      Published Dec. 25, 2019, 7:28 p.m. in blog Business-Management   

Worst Practices to Grab and Retain Monopoly

Grab the Highest Profit "Cost does not matter" Big Tech Employers

Ironic Sutter is seen as the high end. It seems Sutter has outsmarted Kaiser by capturing the most profitable high end tech crowd in Northern Calif.

As an example Kaiser has for decades positioned itself as the vertical integrated lowest cost provider to capture the "family, baby and well-child market". While it costs just a few thousand dollars at Kaiser for last few decades to push out a baby End-to-End and as it optimized hospital stays. However, big tech employers are saying so what .. just ignore.

Hospital Concentration by Predatory Aggression

Sutter Health has gobbled up doctors’ practices across the Bay Area, gaining market muscle that has pushed costs upward. “Sutter embarked on an intentional, and successful, strategy of securing market power in certain local markets.” - CA AG Office

“There are a number of markets in the U.S. that are dominated by one very large, powerful health system .. [After CA AG suit against Sutter] It could be that we’re going to see a new level of activity by state antitrust enforcers looking at competition in their own backyards.” - Martin Gaynor, a health care economist at Carnegie Mellon University

  1. Hospital prices at Sutter and Dignity Health, the two biggest hospital chains in California, were 25% higher than at other hospitals around the state. The giant health systems used their market power to drive up prices — making the average patient admission at both chains nearly $4,000 more expensive. USC study'16

  2. After examining the consolidation of the hospital, physician and health insurance markets in California from 2010 to 2016, UCB authors said 44 of California’s 58 counties had “highly concentrated” hospital markets.

  3. Obstetricians employed by Sutter Health, for example, are reimbursed about three times more for the same service than independent doctors. It’s a key reason why Northern California is the most expensive place in the country to have a baby. - A KHN review of OB-GYN charges on several insurers’ online cost estimators.

  4. SRC California Sues Hospital Giant Sutter Health Over High Costs | KTLA

Raise Salaries of Doctors to VERY HIGH Levels

The state’s lawsuit said Sutter used its windfall from excessive prices to acquire more hospitals and medical groups. It also enabled Sutter to “bestow extremely high salaries for its officers and upper management,”

If you look at the qualifications of doctors the ones with high "brand name" teaching like Stanford, Harvard tend to be at Sutter facilities. This is starkly different from often the Kaiser "new" doctors who accept new patients - but are mostly from third world countries. Sadly Kaiser insurance rates, high deductibles, etc. don't reflect the HUGE difference in salaries that these qualifications reflect.

Very highly paid management

Patrick Fry, Sutter’s chief executive from 2005 to 2016, had $13.4 million in total compensation during his last year there, according to Sutter’s 990 tax filing for 2016, the most recent year available. Overall, 18 executives at Sutter had $1 million or more in total compensation during 2016, the federal tax filing shows. - SRC

Close down Independent Reviews of Doctors on Yelp

While you can find reviews of most doctors and practices eg on Yelp, the Sutter pages will be present but blank - serving to direct to website and phone number. Essentially Yelp has been shut up and only serves as a marketing pointer.

Making Small Employers uncompetitive - Making harder to Hire!

Another reason big tech doesn't care is they have very young, mostly unmarried employees. So their health costs are already super low. However, this becomes a HUGE benefit for their hiring strategies.

So the class action suit was on behalf of a class of more than 1,500 employer-funded health plans. - Richard Grossman, lead plaintiffs’ lawyer representing the class

It is no wonder the 2019 CA AG Becerra’s lawsuit mirrors a similar civil case filed in 2014 by a grocery workers’ health plan. The issues haven't really changed in 5 years. Grocers need their workers to have health care - same platinum pricing models were screwing them then also.

Implicit Cooperation in Raising Prices by Entire Industry

State lawyers also pointed out that Sutter’s conduct triggered an “umbrella effect” by encouraging other providers to raise their own prices.

Rising Costs hurt Individual Payers massively

Consumer advocates and state lawmakers applauded CA's aggressive action because of the toll high prices take on millions of Californians. Many residents struggle to pay rising insurance premiums and out-of-pocket expenses for emergency room visits or routine hospital tests.

  • Consumers bear the burden of these monopolistic activities .. To ensure health care is affordable and accessible to all, we have to get a handle on predatory pricing - State Sen. Ed Hernandez (D-West Covina), chairman of the Senate health committee

Rollups leave Insurers No Choice

Insurance Companies DON'T CARE - Cost plus behavior

Sutter is right that insurance companies are partially to blame for pushing up costs.

Contracting Policies

CA AG Becerra says Sutter's Contracting Policies have allowed the company to “thoroughly immunize itself from price competition.”

Sutter’s actions “improperly block any and all practical efforts to foster or encourage price competition between Sutter and any rival Healthcare Providers or Hospital Systems,” - CA AG.

Gag clauses on prices

Standard of Pricing - compared with Platinum plated Plans

Sutter countered saying “healthy competition and choice exists across Northern California” for consumers seeking medical care. It also said its charges for an inpatient stay are lower than what other nearby hospitals charge.

Punitively high out-of-network charges

All our Network or Nothing

Its “all-or-nothing” contract terms that require all of its facilities to be included in insurance networks.

Sutter has an “all or nothing” approach to negotiating with insurance companies, requiring them to include all the company’s hospitals in their provider networks even if it doesn’t make financial sense to do so.

You cannot divert or encourage patients to cheaper providers

One way insurance companies keep costs down is to steer patients to cheaper health care providers through a variety of incentives. Becerra says Sutter Health bans insurance companies from using these incentives, making it harder for patients to use their lower-priced competitors.

Patient Referral Kickbacks

  • Nov'19 Sutter and a Sacramento Surgical practice had to pay $46m in US DoJ fines to resolve allegations that doctors received kickbacks to refer patients to Sutter.

Baked in ER visit Surprises

People often are unable to pick which hospital they go to in a medical emergency, which can lead to surprise bills when they learn a hospital or doctor was not in their network.

Cost bloat - outgrow and Concentrate - Examples

Stanford $5b new facilities to be paid off - Platinum plated health care

Kaiser a "Cheap Integrated Secretive HMO" - yet costs as high as Others

Sutter Health a highly profitable "non-profit"

One of California’s largest hospital systems Sutter Health, operates 24 hospitals with 5,500 doctors across Northern California Sutter’s nonprofit health system also has 35 surgery centers, 32 urgent-care clinics and more than 5,000 physicians in its network.

While Sutter Health is a Sacramento-based nonprofit, its assets rose to $15.6 billion in 2016 from $6.4 billion in 2005. It reported net income of $893 million last year on $12.4 billion in revenue.

Sutter has reached a confidential agreement Oct 2019 for final court decision Q1'2020 in a massive class-action lawsuit later joined by California’s attorney general, Xavier Becerra.

The state said its investigation started in 2012 under Kamala Harris, California’s previous attorney general and now a U.S. senator. Six years ago, her office sent subpoenas to several health systems and insurers seeking information about market concentration and its effect on medical prices.

Becerra’s office sought injunctive relief to halt Sutter’s alleged anti-competitive behavior, not monetary damages. But the private litigation brought by a class of about 1,400 self-funded employers sought damages that could exceed $1 billion.

Allegations were that it abused its market power, pursued numerous anticompetitive practices and has been overcharging patients for medical bills. Independent research showed that health care costs in Northern California are higher than elsewhere in the state and said Sutter was largely to blame for the higher costs.

If the state prevails against Sutter it could put “a chill on anticompetitive practices that are being adopted across the U.S. and that could help slow down hospital price increases. That would be good news for consumers.”


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