As hospital costs soar, even stitches cut deep

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SAN FRANCISCO -- With blood oozing from deep lacerations, the two patients arrived at California Pacific Medical Center's tidy emergency room. Deepika Singh, 26, had gashed her knee at a backyard barbecue. Orla Roche, a rambunctious toddler on vacation with her family, had tumbled from a couch, splitting open her forehead on a table.

On a quiet Saturday in May, nurses in blue scrubs quickly ushered the two patients into treatment rooms. The wounds were cleaned, numbed and mended in less than an hour. "It was great -- they had good DVDs, the staff couldn't have been nicer," said Emer Duffy, Orla's mother.

Then the bills arrived. Ms. Singh's three stitches cost $2,229.11. Orla's forehead was sealed with a dab of skin glue for $1,696. "When I first saw the charge, I said, 'What could possibly have cost that much?' " Ms. Singh recalled. "They billed for everything, every pill."

In a medical system notorious for opaque finances and inflated bills, nothing is more convoluted than hospital pricing, economists say. Hospital charges represent about a third of the $2.7 trillion annual U.S. health care bill, the biggest single segment, according to government statistics, and are the largest driver of medical inflation, a new study in The Journal of the American Medical Association found.

The main reason for high hospital costs in the United States, economists say, is fiscal, not medical: Hospitals are the most powerful players in a health care system that has little or no price regulation in the private market.

Rising costs of drugs, medical equipment and other services, and fees from layers of middlemen, play a significant role in escalating hospital bills, of course. But just as important is that mergers and consolidation have resulted in a couple of hospital chains dominating many parts of the country, allowing them to command high prices from insurers and employers.

Sutter Health, California Pacific Medical Center's parent company, operates more than two dozen community hospitals in Northern California, almost all in middle-class or high-income neighborhoods. Its clout has helped California Pacific Medical Center, the state's largest private nonprofit hospital, also earn the highest net income in California. Prices for many of the procedures at the San Francisco hospital are among the top 20 percent in the country, according to a New York Times analysis of federal government data.

"Sutter is a leader -- a pioneer -- in figuring out how to amass market power to raise prices and decrease competition," said Glenn Melnick, a professor of health economics at the University of Southern California. "[Hospitals] set prices to maximize revenue, and they raise prices as much as they can."

The "chargemaster," the price list created by each hospital, typically has more than 10,000 entries, and almost nothing is free. Those lists are usually secret, but California requires them to be filed with health regulators and disclosed.

California Pacific Medical Center's 400-page chargemaster for this year contains some eye-popping figures: from $32,901 for an X-ray study of the heart's arteries to $25,646.88 for gall bladder removal (doctor's fees not included) to $5,510 for a simple vaginal delivery (not including $731 for each hour of labor). Even basic supplies or services carry huge markups: $20 for a codeine pill (50 cents at Rite-Aid or Walgreens), $543 for a breast-pump kit ($25 online), $4,495 for a CT scan of the abdomen (about $400 at an outpatient facility nearby). Plenty of other hospitals set similar prices.

Warren Browner, chief executive of California Pacific Medical Center, said there were good reasons hospitals charged what they did: They must have highly trained professionals available 24 hours a day, seven days a week. They must constantly upgrade to the latest equipment and building standards to meet patients' expectations and state mandates. They charge paying or well-insured patients more to compensate for others they treat at a loss.

Some health economists say that even though most hospitals are nonprofit, they nonetheless are often flush with revenue and guilty of unnecessary spending.

"Hospitals are self-fueling, ever-expanding machines," said James Robinson, an economist and professor of health policy at the University of California, Berkeley. "There is an infinite amount of stuff to buy."

Once perennial money pits, emergency rooms have become big moneymakers for most hospitals in the last decade, experts say, as they raised their fees and "managed" their patient mix. California Pacific Medical Center has nearly doubled its emergency room fees since 2005, its chargemaster price lists show.



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