Study Says Calif. Hospital Costs Surging

Hospital costs in California have risen at almost double the national rate in recent years, driven largely by the state’s acute nursing shortage, new technology and hospital consolidations, according to a study released Wednesday.

The report, from the BlueCross BlueShield Assn., found that hospital inpatient costs in California rose by 11.3% annually from 1998 to 2001, the second-highest rate in the nation, behind New Jersey. California led the nation in the percentage of patients with the most expensive discharges, the report said.

“California historically has been known for lower costs and less use of medical and hospital facilities through its managed-care system,” said Maureen Sullivan, senior vice president for strategic services for the BlueCross BlueShield Assn. “Now, costs are growing at rates that are among the highest or the highest in the nation.”

The report comes as the hospital industry is facing greater scrutiny as regulators step up their review of past hospital mergers for their effect on pricing.

More recently, government officials have focused on special Medicare reimbursements in the wake of disclosures by Tenet Healthcare Corp. The company acknowledged that it received an unusually large share of these supplemental payments for complicated cases, in part because it aggressively raised hospital charges in certain markets. Tenet, with 40 hospitals in California, is the biggest hospital operator in the state.

The BlueCross BlueShield Assn. study, which was conducted by outside experts in academia and at consultant firms, did not examine costs at specific hospital companies. But the report said consolidations, which have given hospital companies greater leverage in negotiations with insurers, were as significant a factor in rising inpatient costs as technology.

Jim Lott, executive vice president of the Healthcare Assn. of Southern California, a hospital trade group, said the BlueCross BlueShield report does not state the full story. Although hospital costs are indeed rising, payments to hospitals in California from insurers still lag behind those in most other states, he said.

“They’re not inaccurate in what they’re reporting, they’re just not putting it in the correct framework,” Lott said. He said fat earnings at managed-care companies such as WellPoint Health Networks Inc., the parent of Blue Cross of California, are a big driver in health-care costs.

The BlueCross BlueShield report supported other reports that showed hospital expenses recently have replaced prescription drugs as the major contributor to rising health-care costs.

William Pierskalla, a UCLA professor and former dean of its Anderson School of business, said other factors contributed to the shift, such as mounting pressure on drug companies to rein in prices. He also said managed care has abandoned its watchdog approach and serves merely as a pass-through feature on the health-care landscape, acquiescing to demands for higher hospital pay and passing those costs on to consumers and employers.

Recently, however, insurance companies, prodded by employers, have taken a more aggressive stance on hospital pricing.

Some of the state’s leading insurers, including Health Net Inc., PacifiCare Health Systems Inc. and Blue Shield of California, have introduced health plans that charge members higher co-payments or deductibles for using costlier hospitals. It is not clear yet whether these plans have pressured hospitals to lower prices, and hospital officials have complained that these tiered hospital plans fail to take into account differences in quality.

On Wednesday, Health Net announced that its Web site now would allow its members to compare California hospitals on a variety of factors such as mortality rates, medical complications and billing rates. The site is part of a plan in which Health Net will use a three-tier co-payment system for hospitals, much the way that health plans charge different co-payments for prescription drugs.

Times staff writer Don Lee contributed to this report.