HBO’s Elizabeth Holmes Theranos documentary exposes American health care

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“The health care system has become horribly perverted,” says Alex Gibney, director of The Inventor: Out for Blood in Silicon Valley.

Nobody likes having a needle stuck in their arm. And nobody likes having money sucked out of their wallet, either. So when smart young entrepreneur Elizabeth Holmes emerged from Silicon Valley claiming to have a cure for a broken health care system, politicians and journalists and investors couldn’t wait to shower her with praise and money.

But the story of Holmes’ company comes with a sting. Her black outfits helped create an image of a new Steve Jobs-esque voice in Silicon Valley, but after faking demos and lying about patient treatment Holmes and her partners are now awaiting trial on charges of fraud.

The Theranos fraud exposes fundamental problems with Silicon Valley, the health care industry and the myth of the genius inventor from Thomas Edison to Steve Jobs. New documentary The Inventor: Out for Blood in Silicon Valley, now available to stream on HBO, reveals the whole bloody mess.

I asked the film’s Oscar-winning director, Alex Gibney, if we fetishize the idea of a genius inventor. “We do,” he told me by phone from San Francisco, “and it’s bullshit.” Having tackled corruption and deceit in films about Enron, the Church of Scientology and the White House, Gibney describes Holmes as “a variation on a theme” of the type of people he’s seen before. “Elizabeth was afflicted with the notion that the end justifies the means,” Gibney says. “She thought she was entitled to make mistakes because her intention was pure and worthy and socially vital. But the mind plays tricks with you when you start down that path, as you rationalize your behavior in ways that can become quite dangerous and delusional.”

Big-name investors from both inside and outside Silicon Valley fell for Holmes’ delusion, including Rupert Murdoch, who invested $125 million into Theranos. But the question remains whether the profit-driven private sector is even suited to solving health care problems. “Reports show the health care system in the US has become horribly perverted,” says Gibney, “through this patchwork system of insurance and private enterprise and then also government legislative initiatives. Medicare is not allowed to negotiate directly with drug companies, how crazy is that?”

Everyone can agree that fixing problems in health care is a noble cause, but relying on Silicon Valley and the private sector also lined up with other political agendas for the politicians who backed her. “This notion of the entrepreneur lets government off the hook,” Gibney says.

The director does credit Holmes with highlighting problems in the laboratory testing industry. “They’re incredibly opaque with their pricing,” he points out. Patients don’t pay directly for blood tests, so depending on the circumstances, the illness or even the state, lab companies can charge outrageous prices to insurance companies to complete the test.

The health care system “is designed to enrich companies rather than to serve the health of patients,” says Gibney. “It’s full of all sorts of bad incentives.”

While things clearly need to be improved, the Silicon Valley style of disruptive innovations may not be what we as patients need. Taking control of your own health is a “a very cool-sounding libertarian notion,” but Gibney cautions that “we’re not doctors.” He’s concerned about the idea of treating patients as customers, seducing us with promises of competitive prices and greater choice. “That’s good for sneakers,” he says, “but I’m not sure a consumer/producer relationship is necessarily good for health care. You want a patient/doctor relationship, and blood testing is part of it.”

Silicon Valley has adapted the credo of “move fast and break things,” which means iterating and making mistakes until you find the right path. But you can’t make mistakes when people’s lives are at stake. And real people were put at risk when Theranos pushed ahead with a contract with Walgreens to carry out blood tests for ordinary people.

“That was a line Elizabeth crossed,” says Gibney. “If she had just wasted a lot of investors’ money on a machine that didn’t work, there wouldn’t really be a story here. It was when she put people at risk, that was the problem.”

Gibney is concerned that Holmes will be portrayed as a one-off, “one rotten apple in an otherwise pristine barrel.” But he thinks the Theranos fraud shows cracks across Silicon Valley, the health care industry and capitalism as a whole. “I tried to indicate there are bigger problems in Silicon Valley in terms of lying, in terms of becoming disruptors in ways that may make people a lot of money but may not always be a good thing.”

Within Theranos, a culture of silence and paranoia couldn’t suppress the lies forever. And so Theranos employees blew the whistle on the deceit.

“I think all of us should be aware that there are certain cultural, and also legal, impediments to hearing the bad news,” says Gibney, who highlights the use of nondisclosure agreements to gag employees. These legal contracts are supposed to protect trade secrets, but they can also be used to prevent insiders from calling out corruption. “Look at Harvey Weinstein,” Gibney says. “NDAs are rapaciously used by people to cover up misdeeds.” 

Yet for some reason, we have a strange relationship with those insiders who do come forward. “It’s sort of like they’re showing us up,” says Gibney. He recalls being asked the same two questions over and over after making The Smartest Guys in the Room, his film about the corruption within Enron: “One was about this guy who got away with it, sailed off with $200 million and married a stripper. But the other question was about Sharon Watkins, the whistleblower, and it was always, ‘Who does she think she is? How come she’s so holier-than-thou?’ Of all the lessons to take away from Enron, she’s not really the malefactor, but it seemed to really get under people’s skin.”

Gibney has made a career out of exposing corruption from the business sector to the CIA to the White House. “Part of us is secretly thrilled by people who are conning the game,” he says. “But we always at the end want to see them punished, so it’s kinda like a double pleasure. You wanna see ’em sneak around — and then you wanna see the hammer come down.”

“I’ve been spending a lot of time on problems,” Gibney says as we wrap up the interview. “I’m starting to think about doing films about people who are coming up with solutions.”




CHI Franciscan settles antitrust case: 5 things to know

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An antitrust lawsuit filed by the Washington state attorney general against CHI Franciscan will not go to trial, according to the Kitsap Sun.

Five things to know:

1. The lawsuit, filed in 2017, alleged Tacoma, Wash.-based CHI Franciscan’s affiliation with two physician groups in Kitsap County raised healthcare prices and decreased competition.

2. “Both transactions also enabled CHI Franciscan to capture more patient referrals and shift services to its wholly owned hospital, Harrison Medical Center, the only civilian acute care hospital in Kitsap County,” states an August 2017 press release from the Washington state attorney general’s office. “The transactions have hobbled CHI Franciscan’s competitors while allowing it to reap the benefit of more expensive, hospital-based rates.”

3. A trial in the case was slated to begin March 19 but was called off March 15 after the parties notified the court that the matter was resolved.

4. Specifics about the settlement have not been released. The parties have until April 29 to file documents outlining the settlement and requesting the case be dismissed, according to the Kitsap Sun.

5. A CHI Franciscan spokesperson told the Kitsap Sun that the settlement will ensure the health system’s affiliations with the two physician groups remain in place.

“This is good for patients and doctors on the peninsula, keeps our highly skilled doctors in our community, and ensures everyone has access to great care close to home,” the spokesperson said.

Access the full Kitsap Sun article here.



In health care, it’s still about the prices

Illustration of a price tag as an IV bag.

Health care executives gave no indication to bankers and investors at this year’s J.P. Morgan Healthcare Conference that their pricing practices would change any time soon.

Why it matters: That sentiment comes the same week when three of the original authors of an influential 2003 article — which studied why health care is so expensive in the U.S.— published an update. Their conclusion was the same: “It’s still the prices, stupid.”

The big picture: The U.S. spends far more than other industrialized countries on health care. But Americans, on a per-person basis, don’t go to the doctor or hospital more than people in other wealthy nations. There are also fewer doctors, nurses and hospital beds, per capita, in the U.S.

  • That means the U.S. spends more because hospitals, doctors, pharmaceutical companies, device manufacturers and others charge higher prices, and health insurers aren’t negotiating good enough deals.
  • “Lowering prices in the U.S. will need to start with private insurers and self-insured corporations,” the authors wrote in this week’s update, published in the journal Health Affairs.

Reality check: Health care companies, even not-for-profits like hospitals that don’t have typical investors, have prioritized meeting revenue and profitability goals, and that short-term thinking compromises reform, according to interviews with people who attended the J.P. Morgan event.

  • Many executives continue to tout different ways of getting paid, like “value-based” pricing, but there’s no evidence those models will save money.
  • Drug companies are still focused on raising prices or buying lucrative biotechs, while providers find more ways to maximize what they get paid from insurers. As a result, insurers and employers raise premiums or deductibles for taxpayers and employees, which affects everyone’s paychecks.
  • One example: Dennis Dahlen, the chief financial officer of Mayo Clinic, told attendees how his academic medical center is building its own “five-star” hotel and is expanding proton beam therapy, even though that expensive treatment has limited or no clinical benefit.
  • “This is about money and [investors] getting a return,” said Stephen Buck, founder of cancer tech app Courage Health.

Yes, but: Some in the industry realize they need to act.

  • Marc Harrison, CEO of Intermountain Healthcare, said in an interview his hospital system has lowered the “cash price” of some services, like normal vaginal childbirth, to help people who have high deductibles — although services like childbirth often cost a lot more than the deductible.
  • Intermountain also has negotiated with insurers, with the exception of one unnamed company, to hold patients harmless if they get a surprise out-of-network bill, Harrison said.
  • Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, acknowledged in an interview that “the status quo is not acceptable. We understand the system needs to change.”
  • However, he continued to argue for changes in what people pay out of pocket, instead of changing the patent system or how companies price their products. Ubl described the Trump administration’s proposal to index the prices of some Medicare drugs to lower rates in other countries as “fruit of the poisonous tree of government price-setting.”

What to watch: Democrats are using “Medicare for All” and price-setting as a litmus test for 2020 candidates, and Democrats in Congress are proposing Medicare negotiation for drugs — an idea that Trump supported in the past. Regulatory or legislative changes to pricing are not completely out of the question if the industry fails to act.




US hospitals pay up to 6 times more for medical devices, study finds

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U.S. hospitals spend more on prescription drugs than their peers in European countries, and the same is true for medical devices, a new study published in Health Affairs suggests. In some cases, hospitals in the U.S. paid six times more for a medical device than their European counterparts.

The study was conducted by two researchers from the London School of Economics and Political Science who looked at what hospitals in the U.S., U.K., France, Italy and Germany paid for various heart implants, such as stents and pacemakers. They used data from 2006 to 2014 from a large hospital panel survey consisting of 30,000 unique price points.

The researchers found that depending on the type of stent or pacemaker, U.S. hospitals paid anywhere from two to six times more than the country that paid the lowest prices. The country that often paid the lowest price was Germany.

One example provided was drug-eluting stent prices. The price of the device in the U.S. consistently exceeded the price in Germany by $1,000.
Prices between countries differed for various reasons, including the market power of medical device manufacturers and each country’s tech-based regulations.
The findings suggest “that manufacturers exploit varying levels of willingness to pay and bargaining power between buyers to charge different prices across hospitals and increase profits,” the researchers wrote.








Consolidation in California’s Health System Leads to Higher Prices and Premiums

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The Issue

Integration and consolidation among health care providers and health plans has the potential to improve the coordination and quality of patient care. However, when markets become highly concentrated — served by a single or a few large health care organizations — competition is curtailed and health care prices and insurance premiums tend to rise.

In a Commonwealth Fund–supported study in Health Affairs, researchers explored the effect of market consolidation across California between 2010 and 2016 on outpatient visit prices and premiums for individual coverage on the Covered California marketplace. The study focused on two measures of consolidation: the percentage of physicians in practices owned by hospitals and the total market share controlled by hospitals, health plans, and physician practices in a particular area.

What the Study Found

  • The number of physicians in hospital-owned practices increased from 25 percent to 40 percent across select California counties between 2010 and 2016.
  • Hospital employment increased more steeply among specialists than primary care physicians. Among the specialties studied (i.e., cardiology, hematology/oncology, orthopedics, and radiology), employment rose to 54 percent from 20 percent. In comparison, primary care physician employment increased to 38 percent from 26 percent.
  • Premiums for individual coverage rose the most, by 12 percent, in areas with both high consolidation among hospitals and a high percentage of hospital-owned physician practices.
  • Prices of specialty outpatient visits were 9 percent higher in areas with 100 percent hospital-physician employment compared to areas with average levels. Prices of primary care visits were 5 percent higher in areas with high versus average hospital-physician employment.
  • Seven counties were identified as “hot spots,” or markets with concerning levels of health care mergers and consolidation that could be limiting competition.

The Big Picture

The significant price increases in California markets with high hospital-physician employment and hospital consolidation point to the need for careful scrutiny of health care mergers and acquisitions. Additional research is needed to determine if the price increases are tied to improvements in patient care. For instance, if care is more expensive because it is more comprehensive, then overall utilization and spending should decrease. At the same time, regulatory laws and actions may be needed to prevent some health care organizations from attaining unfair market advantages that shut out rivals and raise prices.

The Bottom Line

In California, hospital acquisition of physician practices, particularly in markets with limited hospital competition, is associated with higher prices for outpatient visits and higher insurance premiums on the individual marketplace.



California insurance commissioner urges Department of Justice to block CVS Health, Aetna merger

The merger would increase market concentration in the PBM space and put other insurers at a competitive disadvantage, Dave Jones says.

The proposed $69 billion merger between CVS Health and Aetna hit a snag on Wednesday when the California insurance commissioner urged the Department of Justice to block the deal.

California Insurance Commissioner Dave Jones said the proposed merger would have significant anti-competitive impacts on consumers and health insurance markets and would also pose a concern in the Medicare Part D market.

Nationally, Aetna has a 9 percent market share among Part D plans while CVS Health has a 24 percent market share, with even greater overlap in some geographic markets. Economic evidence suggests that increasing the market concentration and reducing competition for Part D plans will likely result in higher premiums, Jones said.

California is the largest insurance market in the U.S., according to Jones. Insurers collect $310 billion annually in premiums from individuals and businesses in the state.

“Mergers which decrease competition are not in the interest of Californians,” Jones said in the August 1 letter to Attorney General Jeff Sessions and Assistant Attorney General Makan Delrahim.

In 2016, Jones also vetoed the proposed Anthem/Cigna and Aetna/ Humana mergers that were both blocked by federal regulators.

Jones did approve of Centene’s plan to acquire Health Net, a deal that also received federal approval.

Those mergers would have combined competitors in the same industry, while CVS has dominant market power as a supplier.

Post merger, CVS would have less incentive to keep down the cost of prescription drugs for insurers competing with Aetna, Jones said. Insurers would have difficulty using CVS’s pharmacy benefit manager, CVS-Caremark.

CVS currently provides PBM services to 94 million plan beneficiaries nationally, of which 22 million are Aetna subscribers.

The merger would increase market concentration in the PBM market, eliminate Aetna as a potential entrant in that market and put other insurers at a competitive disadvantage, he said.

Many of the largest PBM competitors are also owned by health insurers, such as OptumRx, which is part of UnitedHealthcare, and Cigna, which has initiated a merger with Express Scripts.

“The PBM market’s lack of competition and the merger of CVS-Aetna is likely to put other insurers that do not own a PBM at a disadvantage,” Jones said.

The merger would not benefit consumers and it would also harm independent pharmacies, he said.

The California Department of Insurance does not have direct approval authority over the proposed acquisition because the transaction does not involve a California insurance company. It does involve Aetna subsidiary, Aetna Life Insurance Company, which is licensed by the state.

The proposed merger was announced in December. The deal has been going through the regulatory process.



California Aims To Tackle Health Care Prices In Novel Rate-Setting Proposal

California Aims To Tackle Health Care Prices In Novel Rate-Setting Proposal

Backed by labor and consumer groups, a California lawmaker unveiled a proposal Monday calling for the state to set health care prices in the commercial insurance market.

Supporters of the legislation, called the Health Care Price Relief Act, say California has made major strides in expanding health insurance coverage, but recent changes haven’t addressed the cost increases squeezing too many families.

To remedy this, Assembly Bill 3087 calls for an independent, nine-member state commission to set health care reimbursements for hospitals, doctors and other providers in the private-insurance market serving employers and individuals.

The bill faces formidable opposition from physician groups and hospitals.

“No state in America has ever attempted such an unproven policy of inflexible, government-managed price caps across every health care service,” Ted Mazer, president of the California Medical Association, said in a statement.

At a press conference Monday, Assembly member Ash Kalra (D-San Jose) and other sponsors of the bill said the commission would use Medicare reimbursements as a benchmark and then factor in providers’ operating costs, geography and a reasonable amount of profit to establish rates. More details on the legislation are expected during committee hearings.

Across the country, some employers have tried a similar approach by mostly sidestepping insurers and instead paying providers 125 to 150 percent of the Medicare price for any service. Proponents of this idea say it eliminates the worst abuses in billing, reduces administrative costs and promotes price transparency.

The California legislation envisions a system similar to the rate-setting done for public utilities.

The proposal also borrows from Maryland, which has set prices for hospital services since the 1970s.

“We have given free rein to medical monopolies — to insurers, doctors and hospitals — to charge out-of-control prices,” said Sara Flocks, policy coordinator at the California Labor Federation, which is co-sponsoring the bill, at the Monday news conference. “It’s not that we go to the doctor too much. It’s because the price is too much.”

Kalra, the assemblyman who introduced the bill, said consumers deserve relief now because soaring medical costs are eating up workers’ wages and contributing to income inequality.

“The status quo is unacceptable and unsustainable. Californians struggling to keep up demand action rather than politics as usual,” Kalra said at the news conference.

Health care providers immediately slammed the proposal, saying it would reduce patients’ access to care and drive medical providers out of the state.

Mazer countered that the bill would cause “an exodus of practicing physicians, which would exacerbate our physician shortage and make California unattractive to new physician recruits.”

Chad Terhune, a senior correspondent at California Healthline and Kaiser Health News, discussed the latest proposal and its future prospects with A Martinez, host of the “Take Two” show on Southern California Public Radio.


Consolidating California: Concentrated Provider Markets and Rising Prices

A UC Berkeley study suggests that provider and insurer consolidation is increasing, reducing competition in regional markets, and leading to higher healthcare prices across California.

In the midst of a nationwide consolidation trend, California is witnessing a swell of mergers among health providers and insurers, resulting in higher prices for consumers and large-scale employers across the state.

A recent study found most counties in California, especially those in the rural northern portion of the state, have highly concentrated hospital markets, noting provider consolidation rose as average insurer consolidation decreased statewide.

The report, released last month by the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare School of Public Health at the University of California, Berkeley, concluded that Californians pay for healthcare services that are “considerably above what a more competitive market would produce.”

Of the 54 counties surveyed, 44 were highly concentrated hospital markets and six were moderately concentrated. According to the study, seven of these counties warrant “concern and scrutiny” by the Department of Justice and the Federal Trade Commission.

The report found from 2010 to 2016, there was a 15% increase in physicians working for a foundation owned by a hospital or health system rather than physician practices, due in part to health system mergers, as well as a 13% increase for primary care physicians, and a 29% increase for specialist physicians.

Additionally, the study found 42 counties surveyed for commercial health plans were highly concentrated while 16 were moderately concentrated. The study also recommended federal agencies review the concentration levels of the insurer market in seven counties.

Breeding anticompetitive behavior

Bill Kramer, MBA, executive director for national health policy at the Pacific Business Group on Health, told HealthLeaders Media the consolidation trend in California is a “serious problem” that employers have been dealing with for years.

Kramer said large health systems, physician groups, and health plans recognize that consolidation leads to increased market power, which in turn provides the opportunity to raise healthcare service prices above what is allowed in a competitive marketplace.

Two weeks ago, California Attorney General Xavier Becerra sued northern California’s Sutter Health, for anticompetitive practices. Sutter, a health system with $12.4 billion in operating revenue in 2017, is charged with foreclosing price competition on its competitors, imposing prices for healthcare services exceeding a competitive market value, and restricting negotiations with insurers to an “all-or-nothing” basis.

Since 2014, Sutter has also been the focus of a class-action lawsuit filed by a grocery worker’s health plan alleging violation of antitrust and unfair competition laws.

“When a provider or any other healthcare entity gains significant market share, it can use that power to negotiate higher prices,” Kramer said. “But they also can put in place mechanisms that strengthen their market power further. That’s what [Becerra] and complainants in this other lawsuit have alleged, that anticompetitive behavior further strengthens their market power and their ability to raise prices. It’s all part of the same picture.”

State and federal blocks on insurers, not providers

Becerra’s lawsuit against Sutter is not the first time state or federal officials have stepped in to address concerns in California’s healthcare industry.

In June 2016, California Insurance Commissioner Dave Jones requested the federal government block the proposed Aetna-Humana merger, citing concerns about an “already heavily concentrated commercial insurance” market. A federal judge agreed with his request and blocked the move in January 2017.

Despite recent and growing recognition among state and federal officials that action must be taken, Kramer says provider consolidation remains an issue without a simple solution. Efforts to enact antitrust statutes against health system mergers in recent years have not always been successful, and are often looked at as the “nuclear option” by industry watchers.

A potential path to offsetting provider consolidation is greenlighting insurer consolidation, though Kramer says there is mixed evidence about whether that would be effective. He said some argue that two large industries competing against each other can result in lower prices, while others claim there is no guarantee that consumers will see lower prices if savings are secured by insurers.

The Berkeley report recommends legislative and regulatory action to address “significant variation” in prices and Affordable Care Act (ACA) premiums across the state, specifically suggesting the implementation of reference pricing by public marketplaces and private employers.

Kramer says the consolidation dilemma is not unique to California, which offers state officials a chance to adopt proactive measures taken by other states to address rising healthcare costs associated with consolidation.

In 2011, Massachusetts Attorney General Martha Coakley authored a report similar to the Berkeley study that analyzed the rise in high prices due to health system mergers. The study ultimately led to the creation of the Health Policy Commission in 2012, with the purpose of monitoring healthcare prices in the state.

NoCal versus SoCal

Another important aspect of the consolidation trend in California is the divide between the rural northern counties and the more populous southern metropolitan area.

Northern California is a sparsely populated region dominated by large health systems, giving insurers less leverage to negotiate prices. A 2017 study from the Bay Area Council Economic Institute (BACEI), the Center for Health Policy at Brookings, and The Nelson A. Rockefeller Institute of Government found that the hospital concentration in northern counties, where only two insurers cover the entire region, is five times higher than the Inland Empire.

Micah Weinberg, PhD, president of BACEI, told HealthLeaders Media the consolidation trend is not tied to one particular factor such as geography.

BACEI’s report cited the consolidation of a few health systems in northern California as a “perennial concern” and driver of rate variation between regions. However, Weinberg said that when low-price, for-profit systems in southern California are removed from the equation, there is a fair amount of parity between prices charged there compared to those charged in northern California.

Related: 3 Reasons Why Health Insurers and PBMs Are Merging

According to Weinberg, another aspect to California’s healthcare market that affects prices has been the implementation of a “very successful experiment” in managed competition through the state exchange. In 2010, California became the first state to create its own insurance marketplace under the ACA.

He argues that Covered California, the state’s insurance marketplace, has standardized healthcare products, instituted financial incentives for providers to embrace limited networks, and fostered competition.

“What that does is it emphasizes the importance of not only payers and providers, but of the structure of the marketplace, in which consumers are making choices across different provider groups linked to particular insurance plans,” Weinberg said.

The BACEI report did cite the ACA as an unintended driver of increased regional consolidation among providers, which has made achieving profitability in northern California a challenge for insurers such as UnitedHealth Group Inc., which exited the statewide ACA marketplace entirely in 2016.



State of California files suit against Sutter Health over antitrust allegations

Sutter Medical Center in Sacramento

The State of California on Friday filed an antitrust suit against Sutter Health, accusing the Sacramento-based health system of practices that have driven up the cost of care in Northern California.

Sutter is accused of preventing insurance companies from negotiating with the health system on anything but an all-or-nothing basis, which requires insurers to contract with the entire health system, and not just parts of it. The lawsuit also alleges the health system has prevented insurance companies from offering low-cost health plan options and set excessively high out-of-network rates, while restricting the publication of provider cost information for patients’ review.

A Los Angeles Times analysis of medical care costs, which is referenced in the lawsuit, found that hospitals in Northern California’s six most populous counties collect about 56 percent more revenue per patient per day from insurance companies and patients compared to hospitals in Southern California’s six largest counties.

At a news conference this morning, Attorney General Xavier Becerra said the investigation has been in the works for about six years, prompted by complaints from patients and employers about high medical care costs in Northern California.

“It’s time to hold health care corporations accountable,” Becerra said at the news conference. “If we do nothing, it will continue to happen.”

The state attorney general’s office said in a statement that the “excess profits” Sutter took in from its allegedly illegal conduct was put toward “waves of acquisitions, extreme levels of executive compensation and financing its own insurance arm.”

“Much of the increased cost of health care in Northern California is attributable to Sutter and its anticompetitive contractual practices which it has imposed as a result of its market power,” the complaint against Sutter states. “Specifically, Sutter embarked on an intentional, and successful, strategy of 
securing market power in certain local markets in Northern California.”

The lawsuit seeks to enjoin Sutter from continuing its allegedly illegal contracting practices, including all-or-nothing contract negotiations and so-called price-secrecy terms. The lawsuit also seeks to “restore competition” by requiring Sutter to stagger its negotiations between its providers of inpatient services, outpatient services and affiliated physician groups that refer patients to non-Sutter hospitals.

The lawsuit also seeks to stop Sutter from transferring money earned by its health care providers to finance its health plan, Sutter Health Plus.

“We are aware that a complaint was filed, but we have not seen it at this time, so we cannot comment on specific claims,” said Karen Garner, a spokeswoman for Sutter, in an emailed statement. “It’s important to note that publicly available data (from the OSHPD) show that on average, total charges for an inpatient stay in a Sutter hospital are lower than what other Northern CA hospitals charge.” The OSHPD is the Office of Statewide Health Planning and Development.


Health Care Spending in the United States and Other High-Income Countries


A study of why the United States spends so much more on health care than in other high-income countries concludes that higher prices — particularly for doctors and pharmaceuticals — and higher administration expenses are predominantly to blame. U.S. policy must focus on reducing these costs in order to close its spending gap with other countries.

The Issue

Pulled Quote
Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.

Health care spending in the United States greatly exceeds that in other wealthy countries, but the U.S. does not achieve better health outcomes. Policymakers commonly attribute this spending disparity to overuse of medical services and underinvestment in social services in the U.S. However, there has been relatively little data analysis performed to confirm that assumption. Writing in JAMA, researchers led by former Commonwealth Fund Harkness Fellow Irene Papanicolas and mentor Ashish Jha, M.D., report findings from their study comparing the U.S. with 10 other high-income countries to better understand why health care spending in the U.S. is so much greater.

Key Findings

  • The U.S. continues to spend more on health care. In 2016, the U.S. spent 17.8 percent of its gross domestic product (GDP) on health care, while the average spending level among all high-income countries was 11.5 percent of GDP.
  • The U.S. has lower rates of insurance coverage. While health coverage in the U.S. has risen to 90 percent since enactment of the Affordable Care Act, every other high-income country has achieved coverage for at least 99 percent of its population.
  • The U.S. has mixed levels of population health. While Americans smoke less than people in other wealthy countries do, they have higher rates of obesity and infant mortality. Life expectancy in the U.S. is 78.8 years, nearly three years less than the average life expectancy in high-income countries.
  • Except for diagnostic tests, the U.S. uses health care services at rates similar to those of other countries. Numbers of hospital visits and surgeries performed in the U.S. are similar to those in other countries. However, the U.S. performs 118 MRI scans per 1,000 people, compared to an average of 82 MRIs per 1,000 people among all high-income countries. The U.S. also performs a higher rate of CT scans: 245 per 1,000 people, compared to 151 per 1,000 people among all high-income countries.
  • The U.S. pays more for . . .
    • Doctors. The average salary for a general practitioner in the U.S. is $218,173, nearly double the average salary across all high-income countries. Specialists and nurses in the U.S. also earn significantly more than elsewhere.
    • Pharmaceuticals. The U.S. spends $1,443 per person on pharmaceuticals, compared to the average of $749.
    • Health care administration. The U.S. spends 8 percent of total national health expenditures on activities related to planning, regulating, and managing health systems and services, compared to an average 3 percent spent among all high-income countries.

The Big Picture

The study demonstrates that overall health system performance in the United States does not compare well with that in other wealthy nations, particularly given high U.S. spending — a finding consistent with the Commonwealth Fund’s most recent health system rankings. The health care spending gap with other countries appears to be driven by the high prices the U.S. pays for health care services — particularly doctors, pharmaceuticals, and administration. Compared to its peers, the U.S. has similar levels of spending for social services (including both public and private spending) and similar health care use, neither of which appear to be major causes of the spending gap. To reduce spending, the authors say that U.S. policymakers should focus on lowering prices and administrative costs, rather than just reducing use of health care services.

About the Study

The researchers analyzed data on health care spending, performance, and utilization made available by the Organisation for Economic Co-operation and Development and the Commonwealth Fund from 11 high-income countries: Australia, Canada, Denmark, France, Germany, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the U.S.

The Bottom Line

The United States spends more on health care than other countries do because it pays more for health care services and administration.