Hospital chains able to command higher prices in California

Close up picture of keys on a calculator

A new study of major non-profit hospital chains in California finds that the larger they become, the higher hospital costs rise.

The average cost of a hospital stay at facilities owned by Sutter Health and Dignity Health was about $4,000 higher than the statewide average in 2013, according to the study, which was authored by University of Southern California healthcare economist Glenn Melnick, Ph.D., and published in the Journal of Health Care Organization, Provision and Financing.

The research examined price growth among the state's hospitals between 2004 and 2013, using claims data from insurer Blue Shield of California. The prices among all the hospitals were similar. During the years under examination, prices grew among hospitals by 76 percent per admission during the time period. But among the major non-profit chains Dignity Health and Sutter Health, prices grew by 113 percent per admission, leading to the $4,000 cost differential ($19,606 at Dignity-owned and Sutter-owned hospitals versus $15,642 at the other hospitals).

The study concluded that the two chains were able to command higher prices due to their size and relative market clout. But Dignity and Sutter disputed the idea that they can dictate rates, saying they face ample competition, California HealthLine reports.

Still Melnick told the publication that “California experienced its wave of consolidation much earlier than the rest of the country and our findings may provide some insight into what may happen across the U.S. from hospital consolidation.” 

Another recently published study in the journal Health Affairs concluded that consolidation activities among hospitals create a fluctuation in prices.

Moreover, a recent market analysis by PwC has concluded that while large hospitals can achieve economies of scale on their own, those efficiencies are not enjoyed by hospital systems operating multiple facilities.

- read the study
- check out the California HealthLine article

Related Articles:
Hospital M&A big driver in price variation
PwC: Large hospital systems fail to achieve economies of scale