Two Halves of California Have Wide Gap in Health Costs

When it comes to health care costs, it’s clear: Where you live matters. And in California, the gap is especially sharp between the north and south.

Take, for instance, common procedures like a cesarean section or a total knee replacement. The total average price tag for a typical C-section in the four-county Sacramento area is $28,828; in east Los Angeles County, it’s $17,567, according to a health care comparison tool unveiled last week by state officials and Consumer Reports magazine.

And that knee replacement? It’s about $42,488 in the Sacramento Valley but drops to $27,276 in east Los Angeles County.

“Northern California shoppers are in for some unhappiness and some surprise,” said Dr. R. Adams Dudley, director of the UC San Francisco Center for Healthcare Value and a professor of medicine and health policy. “They live in an expensive part of the state, health-care-wise.”

While the geographic divide has been noted for several years, there’s been more transparency about health care costs in recent months, here and nationwide.

▪ Earlier this year, for example, in a Blue Cross Blue Shield survey of 86 of the country’s biggest metropolitan markets, the median U.S. cost of an angioplasty was pegged at $27,144 but varied widely – from as little as $15,494 in Birmingham, Ala., to as much as $61,231 in Sacramento.

▪ In July, when new 2016 rates for Covered California health care plans were announced, Northern California consumers faced additional sticker shock: Those who stay with their existing plan can expect their average premiums to jump 7 percent, compared with only 1.8 percent in Southern California. (Those rates cover individuals who purchase health care under the Affordable Care Act, not those with employer-sponsored health benefits. Switching to lower-priced plans can cut premium increases.)

▪ Last Monday, declaring California consumers had been “in the dark for a long time,” state Insurance Commissioner Dave Jones and Consumer Reports released the latest attempt to draw attention to price disparities: a new consumer health care comparison tool ( that vividly illustrates the swings in health care costs.

It comes as consumers are increasingly paying more for health care. Although overall U.S. health care spending has been flat in recent years, some out-of-pocket prices have jumped.

Nationally, employees’ health plan deductibles are going up seven times faster than paychecks, according to an annual survey of about 2,000 public and private employers issued last week. Since 2010, more employees now have deductibles, and the average amount has leaped 67 percent, a Kaiser Family Foundation/Health Research & Education Trust study said. That means many consumers are shelling out far more in out-of-pocket costs, on everything from blood tests to baby deliveries to heart surgery.

What accounts for the price difference between north and south? It’s simple, some experts say: lack of competition. Northern California tends to be dominated by larger hospital chains such as Sutter Health and Dignity Health, while Southern California has smaller hospital alliances and more independent doctor groups.

“Northern California is dominated by a few large hospital chains, which confers considerable negotiating power on them,” said professor Gerald Kominski, director of the UCLA Center for Health Policy Research. “The insurers can’t use the take-it-or-leave-it strategy that works a little more effectively in Southern California.”

He added: “The insurers are not totally at their mercy, but the hospital chains have a better bargaining chip.”

An insurer that wants to walk away from a major chain, for instance, would have far too narrow a network of hospitals and physicians that likely wouldn’t attract as many consumers.

Aetna Inc., for example, said it was charging Northern California customers about 30 percent more in premiums in 2011 than those in Southern California, primarily due to higher hospital reimbursements that averaged $5,169 per patient per day in the north, compared with $3,578 in the south. As of last year, Aetna’s Northern California per-patient, per-day average was 25 percent more.

“This is not because of the federal ACA, but has been part of the California market for decades,” Kominski said. “What’s happened is the ACA gives a degree of transparency in the market that’s never existed before.”

But blaming hospitals for high-priced health care is unfair, said Jan Emerson-Shea, vice president of external affairs for the California Hospital Association, based in Sacramento. Hospitals face economic pressures of all sorts, from spending billions on mandatory seismic retrofits to unionized labor contracts to costly medical technology, she said. And those costs have to be absorbed into their billing rates, she added.

“Overhead is a huge piece of it, as well as types of services,” Emerson-Shea said. “If one hospital has a trauma unit and a burn unit, it’ll have a higher cost structure than one that doesn’t have that high level of specialty services.”

To help consumers get a clearer picture of their health care costs, the state’s comparison tool, developed with input from experts at the University of California’s San Francisco and Davis campuses, shows a range of pricing on 100 common medical procedures, along with quality ratings on hospitals and doctor groups.

Not all the north-south price differences tilt in Southern California’s favor. In some cases, the comparison tool shows Sacramento-area patients can pay absolutely nothing, even for surgery as complicated as a total hip replacement.

Zero for a hip replacement in the Sacramento Valley? Absolutely, said Lindsey Hart, a spokeswoman for Jones, the state insurance commissioner.

In some cases, she noted, patients may have generous insurance plans that completely cover certain medical procedures. Or patients may have already hit their maximum out-of-pocket limit for the year and their insurer now covers 100 percent of their medical bills.

Hart has seen super-low costs firsthand. In August, her grandmother had a total hip replacement at Kaiser Roseville and only a $100 copay. “She was lucky enough to have generous coverage for that particular procedure,” Hart said. Last March, Hart’s father-in-law went to a Kaiser Roseville emergency room with heart issues and wound up having an emergency quadruple bypass at Mercy General Hospital’s cardiac center. He paid nothing, she said, “not even a copay.”

Those low medical charges can be especially true in the state’s capital, with a high preponderance of government employees.

“In Sacramento, much more than other parts of the state, there are a lot of government, UC and Kaiser employees with generous benefits and low copays/deductibles, so the average patient payment may be low,” UCSF’s Dudley said.

However, when the total amounts paid – by insurers and consumers to hospitals and medical providers – for any given medical procedure is tallied, the total payment may be quite high. “This matters because if you are a Sacramento-area consumer without excellent benefits, you can get stuck with a lot (of cost),” Dudley said.

For consumers who don’t have any gauge of how much a procedure might cost them, Hart said, “the bills they receive afterward can be detrimental financially.”

That’s why it’s crucial that Californians have access to a range of prices in their region, said Dudley, a major participant in creating the state’s new health care comparison tool. For instance, he said, a pregnant woman might find that the hospital nearest her home could charge $3,000 for a delivery, whereas one across town might charge only $2,000. The same applies to lab tests. The blood testing lab closest to work may charge far more for the same test than one that’s a few miles away, even in the same city.

That’s why it can pay to shop around, especially for elective surgeries or routine procedures such as a lab test.

“When people talk about shopping around for services, it’s a nice hypothetical,” said the California Hospital Association’s Emerson-Shea. “But in most cases, that’s not how most people get their health care. It depends on your insurance. If my health plan and doctor are at Sutter, that’s where I go.”

And certainly, price alone shouldn’t be the only factor in picking a doctor or medical center. Quality ratings for physicians and hospitals play into the equation, as does insurance coverage. The state’s new comparison tool, for instance, shows individual ratings for hospitals and doctor groups in categories such as infection rates, readmissions and patient satisfaction.

The state’s new cost-comparison tool only goes so far, however. All the current information is based on 2013 claims paid to hospitals and medical providers by patients and insurers – and it’s shown in ranges or averages.

To see exactly what a consumer might pay for an angioplasty, for instance, the California Department of Insurance/Consumer Reports site links to insurance company websites, where consumers can log in using their insurance membership number. Medical providers and insurers do not make public their actual pricing, so consumers can’t compare, for instance, what they might pay if covered by Aetna versus Anthem, or at a Sutter versus a Kaiser facility.

“True price transparency will be achieved when consumers know exactly what doctors and hospitals are paid for specific services,” said UCLA’s Kominski, “not figured out through a series of calculations after the service is performed.”

But all the added attention on who pays more – and where – will lead to more scrutiny by consumers, especially in Northern California, Kominski said. “People are going to ask: ‘We are paying more for health care, but are we getting more?’ That would be a healthy outcome of this new information that’s become available.”

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