Some health insurance executives claim, and some news media have recently reported, that large provider systems like Sutter Health make health care more expensive by demanding higher-than-average reimbursement from insurers.  To clarify Sutter Health’s position and shed more light on Sutter’s priorities, we’re posting this recent Q&A with Sutter Health’s leadership.

What is Sutter Health’s perspective on claims that hospitals’ demands for higher reimbursement from insurers drive up the cost of health care?

Sutter Health believes its reimbursements from insurers are fair, and reflect the high-quality and readily available health care that our doctors and hospitals provide to patients. Insurers contract with us for services of their own free will. There’s plenty of competition in Northern California — from Kaiser, Catholic Healthcare West, Adventist Health, John Muir and the UC hospitals, and from many independent hospitals and physicians. Sutter Health has held annual overall average price increases for commercial health plans to single digits in the past several years. Of course we have no control over whether health plans reflect our single-digit rate increases in what they charge consumers. Recently some health plans announced premium increases in excess of 20 percent, more than double the increase in reimbursement to our providers.

The reimbursement we receive from health insurance companies help fund Sutter Health’s commitments to ensuring our communities have adequate access to physicians, as well as fund our commitments to quality, safety, convenience and free care for the poor. While we continue to focus on meeting our community commitments over the long term, the for-profit health insurance companies focus on short-term profitability goals for their stockholders. For them, that means spending less for patient care, which represents the largest part of their budgets. The U.S. Congress found that the large for-profit insurers paid on average only 74 cents per dollar of premium from individual policies to doctors, hospitals and other providers, keeping the other 26 cents for their costs of administration and profits.

Certain health insurance plans maintain web-based pricing tools for members. Some of these tools post prices that the plans pay doctors and hospitals. Why hasn’t Sutter Health participated in these tools?

We want to provide consumers with fair and reliable information that is easily understood. Although several insurance companies have begun providing what they believe to be comparable data on prices between providers, Attorneys General of multiple states have disagreed with the approaches taken. Until they work the bugs out, we prefer not to add our data to the postings. We strongly believe a patient is best served by talking with a professional who can walk them through their personal health care needs, treatment options/choices and the estimated treatment costs of those options. Staff members at our hospitals and clinics regularly work with patients to answer questions about their estimated costs, and we plan to make estimates of our costs for common procedures available on our web site as soon as we can reliably do so.

Why are health care costs increasing at such a high rate?

The government pays less than the cost of care, so any inflation in health care costs must be borne by those who actually pay a market price. Since government-sponsored patients consume about 50 percent of the care in a typical health system, the cost-shifted to everyone else is double what it would otherwise be. For example, if inflation is 4 percent, a health system’s prices have to go up 8 percent to cover the increased costs of caring for government-sponsored patients when the government keeps its payments to doctors and hospitals arbitrarily low. Improvements in technology, drugs, and seismically-safe facilities all tend to drive the cost up faster than in other industries.

Health care providers, especially those like Sutter Health that invest in their communities (rather than giving that money to shareholders), have significant financial commitments. For example, we are replacing paper records with electronic systems and replacing hospitals at a time when per-bed construction costs have more than doubled, from $1 million about a decade ago to more than $2.5 million today. The other big cost driver is the success modern medicine has had in saving lives. Health problems that were once untreatable can now be treated, so we’re seeing more and more people living with chronic conditions. We’re absolutely committed to saving and extending patients’ lives, and we all need to be mindful that the costs of chronic care continue to be part of the nation’s overall health care bill.

How will health insurance reform impact your costs and affordability goals?

Our affordability imperative becomes even more important given cuts in reimbursement under health care reform. For Sutter-affiliated physicians and hospitals, Medicare cuts will likely total an estimated $124 million each year for the next 10 years – adding up to more than $1 billion in reduced Medicare reimbursement.

The United American Nurses Union/California Nurses Association has questioned Sutter Health’s commitment to “communities of working class people” and diverse populations. What’s Sutter’s response?

Counties including Del Norte (the north state’s poorest county), Lake, Merced, Sutter, Yolo and Yuba have some of the highest poverty levels in Northern California – and Sutter Health facilities serve each of them. In many small and rural communities such as Los Banos, Tracy, Novato, Jackson, Davis, Crescent City and Lakeport, Sutter Health is the sole provider of emergency medical services. Also, Sutter Health hospitals together serve more MediCal patients in our Northern California service area than any other health care provider. Sutter Health is building or has a continuing presence in diverse urban areas as well, such as downtown Oakland, San Francisco’s Mission District, midtown Sacramento and Stockton. Ironically and unfortunately, the nurses union formally opposed Sutter Health’s plans to construct new, seismically safe hospital facilities in urban Oakland, downtown San Francisco,Santa Rosa and right here in Castro Valley.