Sutter hides health costs

By Chris Rauber
San Francisco Business Times
March 7, 2008

Legislation seeks to remove gag clauses

Blasted in 2004 for operating some of the region's highest-cost hospitals, the Sutter Health system jumped into action: Not to cut prices, but to put gag clauses in its contracts with Northern California health plans that precluded them from releasing cost information without Sutter's permission.

As a result, the California Public Employees' Retirement System says it and Blue Shield of California have been unable to replicate a 2004 cost study that resulted in the expulsion of 24 hospitals, including 13 operated by Sutter, from the Blue Shield HMO used by CalPERS members (two were reinstated in 2006), CalPERS says. Excluding those higher-cost facilities from its Blue Shield HMO network has resulted in an estimated $122 million in savings over the last three years, according to CalPERS' officials, including $49.6 million last year.

Sutter's action has inspired pending state legislation that would prevent such gag clauses. It has also raised concerns that health-care price information is getting less rather than more transparent, even as health-care consumers and employers are increasingly encouraged to compare quality and cost among hospitals, physicians and other providers. Similar gag clauses are now common in other California hospital systems' contracts as well, said one informed industry source. "It's not just Sutter."

Sutter, meanwhile, contends that its contracts have always included confidentiality terms. "That's been the industry standard for years," said Sutter spokeswoman Karen Garner, adding that such clauses restrict both parties from disclosing confidential information, such as patient-specific data, contract rates and other competitive information.

She said Sutter provides the Office of Statewide Health Planning and Development or OSHPD with substantial data, "and it's publicly reported."

CalPERS says it used the OSHPD data, which is not specific to particular health plans or health-care services, to compile a cost and quality report earlier this year. But it has not been able to reproduce its 2004 study because of confidentiality clauses CalPERS attributes specifically to Sutter Health.

Concern about limitations

Some of the state's best-known quality experts are concerned about the implications of such limitations on the dissemination of hospital cost and quality data.

"From a patient and purchaser perspective, understanding relative costs is the necessary first step to rewarding hospitals that deliver high-quality care more cost effectively," said Peter Lee, former CEO and current executive director of national health policy at the Pacific Business Group on Health, which represents many of the West Coast's largest employers and biggest purchasers of health care, including CalPERS. Lee described a PBGH and CalPERS-sponsored report on hospital cost and quantity released in January as "an imperfect analysis of hospitals' costs based on public data. We'd far rather be more accurate, using the actual data that hospitals submit to health plans across the state."

Sacramento-based Sutter Health operates 26 hospitals in Northern California, including large Bay Area facilities like San Francisco's California Pacific Medical Center, Alta Bates Summit Medical Center in Berkeley and Oakland, the Peninsula's Mills-Peninsula Health Services, Greenbrae's Marin General Hospital and Castro Valley's Eden Medical Center.

Sutter insists it's been a leader on transparency, despite the debate over the Blue Shield/CalPERS data. Examples, Garner said, include online publication of clinical quality metrics, Sutter's annual audited financial statements and IRS documents, "which are all available on our own web site, and have been for years." The organization has also been among the first to post patient-satisfaction and quality information on various state-sponsored web sites, she said.