Sutter Health: Bad medicine

On Friday, California Attorney General Xavier Becerra filed an antitrust lawsuit against Sacramento-based Sutter Health alleging that the nonprofit hospital system has engaged in “anticompetitive practices that result in higher health care costs for Northern Californians.” The action aims to restore competition in the California health care market.

In a remarkable 49-page brief, Becerra argues that Sutter has used its market power to eliminate competition, increase rates and use the proceeds to finance acquisitions of health care providers. Then, after achieving market dominance, Sutter adopts procedures that limit competition. The end result? Significantly higher health care costs in Northern California.

The Sacramento Bee quoted Becerra saying, “The cost of the average in-patient hospital procedure in Northern California is $223,000-plus, compared to the average cost … in Southern California of $131,000-plus.” According to Becerra, a typical patient has to fork out an extra $90,000 for essentially the same services in areas where Sutter Health has market control.

Sutter Health claims that its charity care warrants its nonprofit status. Obviously if you charge an extra $90,000 for a hospital visit, there should be some money left over for charity work. But Sutter’s critics, and there are many, have claimed that Sutter’s charity donations do not even match its nonprofit tax savings. In fact, the California Nurses Association reported that Sutter Health in 2010 provided $191 million in charity care but received $479 million in tax savings.

In her brilliant book, An American Sickness: How Healthcare Became Big Business and How You Can Take It Back, former New York Times reporter Dr. Elisabeth Rosenthal writes that Sutter Health was willing to spend $1.1 billion more in charity care after San Francisco passed a Charity Care Ordinance, which revealed how much charity care hospitals spend in exchange for the benefits they receive from their tax-exempt status.

In explaining how, “In a few decades, the medical system has been overrun by organizations seeking to exploit for profit the trust that vulnerable and sick Americans place in health care,” Dr. Rosenthal points to Sutter Health as the national poster child for an out-of-control nonprofit hospital system. According to Rosenthal, other hospitals are copying the practices of Sutter Health.

The attorney general’s lawsuit will have to play out in court. There may be fines. Sutter Health may have to change its practices. Many lawyers will make a lot of money.

But there are bigger issues. What does it mean that one of the largest organizations in our community cannot be trusted? What should we do to protect ourselves from price gouging? Should hospitals be required to reveal their prices so that people can make informed health care decisions? Should Sutter Health be allowed to continue as a nonprofit?

And can we expect real change from the current leadership? What was the possible justification for paying former CEO Patrick Fry $7.5 million to oversee the tactics that dramatically increased health care costs? This was clearly not to “Enhance the well-being of people in the communities we serve through a not-for-profit commitment to compassion and excellence in health care services”—from the Sutter mission statement.

We need a Sutter Health board of directors and leadership who believe in their mission statement. The current leadership has not shown this to be the case.