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California Legislature

To stem rising prices, a California lawmaker is taking on how hospital chains craft their contracts

 (Getty Images)
(Getty Images)

Amid concern that sprawling hospital chains are leading to higher prices, a California state senator is trying to clamp down on how hospital networks craft their contracts to win market dominance.

Sen. Bill Monning (D-Carmel) is offering a measure that would prohibit hospitals from certain contracting practices he sees as anti-competitive, such as requiring health plans to contract with all affiliates of the hospital or mandating that health plans agree to binding arbitration for antitrust claims.

"We've lost a level of transparency that's affected affordability and access and fairness," Monning said in an interview.

Multi-hospital chains are becoming prominent throughout the country, with proponents saying such mergers make care more efficient and better coordinated. 

But a recent USC study found that while hospital prices in California have grown overall, the costs are higher in the state's largest chains.

"Once you control a market, you can artificially increase costs," said Monning, adding those higher prices can spill over to neighboring hospitals, too.

Competitors think "if they can charge this much for a hip replacement, we're going to as well," Monning said.

Another study by the Bay Area Council Economic Institute found premiums in Northern California were 30% higher than those in Southern California, in part because of the dominance of a few healthcare systems in the north.

Micah Weinberg, the institute's president, said hospital consolidation was a logical issue to look at, particularly because healthcare coverage expansion under the Affordable Care Act is now under less threat from Congress following the failure of the House Republicans' replacement bill.

"We have to double down on the real work, which is getting people access to quality healthcare and affordable costs," said Weinberg. "One of the biggest barriers to that is the lack of competition among healthcare providers."

Weinberg said much of the question is a matter of federal antitrust enforcement.

"It’s really difficult to do things at the state level that are effective here," he said.

Still, consolidation has increasingly come under scrutiny in California. The state attorney general's office under Kamala Harris, now serving as U.S. senator, investigated consolidation of hospital and physician groups, and the effect on consumer prices.

Last year, the healthcare trust for the United Food and Commercial Workers union, sued Sutter Health, alleging antitrust violations.

The Pacific Business Group on Health, an organization that represents major companies such as Wells Fargo and Chevron, also raised alarms on Sutter's requirement that firms use arbitration to resolve disputes--or face higher rates for Sutter's healthcare services. The business group is a supporter of Monning's bill, as well as the California Labor Federation.

The California Hospital Assn. has not taken a position on the bill.

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FOR THE RECORD

March 29, 2017, 1:52 p.m.: A previous version of this article reported that the Pacific Group on Health sued Sutter Health. The United Food and Commercial Workers healthcare trust filed the suit.

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