concerned about unintended consequences, but there is lots of us out here who can tell you if you do this, this is likely, or the probability is xyz. and this possibility also exists. every decision is a trade-off. the best way to make decisions under extreme uncertainty is to have the best staff and outside counsel that you can find. supervisor campos: thank you. i know we have a number of speakers, so why don't we move on to the second speaker who is here to talk about the issue, or at least begin discussion of the issue of hospital market consolidation in san francisco between northern california -- in northern california between 1990 and 2010. thank you for being here today. >> [inaudible] supervisor campos: [laughter]

yes. >> [inaudible] oh, thank you. hello again. in the co-director of the center for policy analysis. i have a doctorate and master's degree in public health. i believe the reason -- the reason i'm here today as i have worked on health care reform at the national level in the u.s. senate and the 1990's and more recently on this effort. also here in san francisco in the 1980's between the master's and ph.d. in the senate, i helped organize a group in san francisco called the community

health coalition, which advocated for the department of public health's budget. i share with some of the people in this room is a memory of some of the hospitals and capacity that i'm going to talk to you about. i'm really just going to remind us what hospital capacity use to look like and what it looks like now, largely to make the point that as we started discussing, the issues of cost and quality are not going to be resolved simply by how much we have in our particular plate. ok. who is going to decide about what our capacity should be and what kinds of services we are going to provide? we are talking about a pretty

small number of hospitals in the city right now. this is just to remind us that in 1960, which was kind of the last round that we had, when health planning was somewhat more in vogue, there were 26 hospitals in san francisco. at the time, we were concerned that we were over bedded, that health care was costing too much because there was too much competition rather than too much concentration. the regional medical planning agency in concert with the medical society started discussions about consolidating hospital beds, starting with maternity and pediatrics. there were demands for the director of the medical society to resign at that point. no action was taken. 1986 to 1989 was really the pendulum swinging in the other direction towards market forces, and consolidation among

hospitals in california, so by 1999, it was pretty much all over. san francisco was second from the bottom line there showing hospital consolidation over that time. by 1990, there were 12 hospitals remaining. this is a list of the hospitals that close. some of you may remember some of these institutions being of around in the city, but basically, they folded. between 1995 and 1996, the chair of an affiliated hospitals had dropped precipitously. not only did we have fewer hospitals in the city, but they were affiliating into grooves,

associating themselves into groups. the share of unaffiliated hospitals dropped. most of this decline could be contributed to the merger between sutter held in the california health system in 1986 and acquisitions by california healthcare west, which i will attempt to show you. what we saw by 1998 is that the three largest corporations controlled 43% of the region's hospital beds, compared with 18% four years earlier. this is what our picture looks like at the moment. catholic healthcare west by st. francis and st. mary's, california pacific medical centers, the old presbyterian

hospital's, kaiser hospital. i know this is really breathtakingly exciting. i'm sorry it is so slow. ucsf picked up mount zion. and, of course, san francisco general hospital and chinese hospital. showing up here in a minute. what does it cost? you will have other people talk to you about this. you already cited this i think pretty well known fact that both the most consolidated and most expensive of the counties in our state. again, just to emphasize the point, hospitals are paid $7,349 per patient per day on average compared with los angeles

county, not necessarily an inexpensive place to live or work, where the figure is $4,389 per day on average. supervisor chiu: i'm sorry, before you move on on that, that is a pretty stunning figure. could you talk about the various explanations for that? >> tried to explain that? a lot of other people will be talking about that. supervisor chiu: great. thank you. i would say certainly, the question of consolidation and public control over health care costs is an important issue. i want to talk some about the other costs. not just the dollar costs of this configuration of services, but the cost in terms of quality and where services are. this basically shows, although

not as clearly as you might like, hospitals in san francisco, that they are located in the north and western part of the city, and low-income, which another map would have shown you, but i think you know this very well, being from the districts that you are, that low-income in the city is concentrated not in the north and west, but in the south and east. the 2000 census data will be the same as the 2010 census data on that issue. in terms of which hospitals and which systems are bearing the cost of care and the cost of care for low-income people, medical and compensated care, there are millions of ways to masai's this data, and you could look over the entire decade -- there are millions of ways to massage this data. as we move with the system the city has adopted in the next

couple of years, i hope the data will be much more available in different formats. but it is representative of what the hospitals look like, is picking up the issue of what percentage of discharges are medical patients in each of these hospitals. it has been pretty consistent over the years. san francisco general, st. luke's, ucsf picked up the lion's share of the burden. chinese, which is distinct in many ways, and cpmc and kaiser are at the bottom of the list. supervisor campos: just a quick question -- how does that happen? is that a decision that the individual hospital made? how does that come to be? those percentages. how is it that, you know, a hospital is that 37%, and another one is that 10% or 2%, for that matter. >> that is also a good question, which we could go into more

detail about. it would be nice to have specific figures for the city and county, but generally speaking, people either come to a hospital because their doctor sends them their and their doctor or practitioner has an affiliation, or because they show up in an ambulance. we will look at ambulance the version as well. suddenly, hospitals and their related providers can be making decisions, and at many points along the way about how accessible they allow their services to be, or the terms under which they negotiate with low-income patients. they can attract them or not. so the market is not the only

driver of what is going on with health care. the city and county, as you know, the directly both for health care services for our employees and for uninsured residents through healthy san francisco. we cover the cost of public health. there are environmental impacts to the health care services master plan. it will provide leverage to collect and analyze data and make -- help us make informed and healthy choices about how we use those levers. there should have been a few other things. supervisor campos: welcome to the world of the city's technology. >> i'm going to grab my printed slides and tell you what i have

to say. could you mind waiting for me for just a minute? thank you. supervisor campos: no problem. >> we will do it this way. this is just another example, to speak to the question that you asked. this, and again, we could write books and volumes, and you could have sat here who are very knowledgeable about this who could tell you more. this is just in the impact of the distribution of services that we have. it is looking at the percentage of time that ambulances are on that version. the big bar in the middle shows the amount of time the san francisco general hospital is not able to a said ambulances for patients who need care. what this is showing is that the city and county public hospital, which has to take medical patients and has to take indigent patients and folks who cannot pay, does not have the capacity to take care of these

patients. it means that folks who should be connected up to a network of primary care and acute care, who are really in the most need of well-integrated care, are at the most risk of that type -- in times of emergency and not ending up with the need to go because of the configuration of services we have. let me make one other point which you will see in the slides but i will not bother putting up here. on the issue of consolidation versus competition and whether we improve the quality of care by having more services in one place, which, again, i think, is an important and interesting question to look into -- again, there's a lot of good national research on this question, and i have spent time looking at neonatal intensive care units. there are well known conditions for which we really do want to funnel people to a couple of specialty care centers, and it makes a lot of sense to do that.

which centers and how they are configured and whether they have issues of staffing or what the variables are, again, folks are looking at those. those include services like neonatal intensive care units and probably burn units, emergency care. there are several others that the agency for health care research and quality is looking at. however, again, there is the issue of how folks get to these specialty hospitals and how they get care that is not specialize. there is a vast need to look at where we put our community health centers, primary care, and services like obstetrician labor and delivery. as the population ages, we also need to look at skilled nursing facilities. i would just conclude by saying i think the board is making

great strides in calling this hearing today and in creating mechanisms for which we can really understand specifically what is going on in our city, how people are triaged to particular services and what will win for us the best setup outcomes in terms of using the decision making powers we have to make sure that there is an adequate distribution and proper distribution of health care services in the city, and that we are able to afford the public health care services that we need and that the population needs. supervisor campos: doctor, i certainly learned a lot. i do not know that any of us have that history. one point you made was that san francisco is the most consolidated. can you talk about how we compared to other jurisdictions in california? >> i think it is fair to say that we have the greatest concentration of hospitals

within a system compared to other counties -- compared to other parts of the state. sacramento may be more consolidated and san francisco. supervisor campos: thank you very much. now that we have gotten some context about, sort of, what has happened in san francisco in the last couple of decades, the next set of speakers, and if i may, i would simply ask that they come up to the table, and they will be speaking about a similar issue. it would be dr. hopkins, who is the senior adviser at the pacific business group on health, an affiliate with the center for primary care and outcomes research, and the center for health policy at stanford university medical school, as well as james said of all, a registered nurse with st. luke's hospital, and the senior vice president for health policy

of the california hospital association, and dr. glenn melnick. maybe if you could come up to the table, and then, the need to speak, you can come up, but thank you very much. >> thank you. good morning. i am the senior adviser at the pacific business group on health, and i'm here to talk about the effects of market consolidation on hospital costs and quality in the city and region and around us. first, a quick word about who we are. we are located in san francisco. we have been around for 20-plus years. we are a coalition of large employers that is trying to improve the quality of health care and women help care cost increases.

we are in the same quandary that you are, and i certainly do not then be your task. our members spend $12 billion a year providing health coverage for about 3 million individuals. they are purchasers of health care just like you are. mr. chairman, use of me on this slide, but here it is in pictorial form. we have all paid close attention to the article that came out in open " l.a. times" last month, so there is. 70% differential between was paid on average in los angeles county versus san francisco. >> can i ask you a question in that are those travels to apples comparisons? those are stark numbers. >> this reporter spent a lot of time doing his research, and i spoke with him, so i know that. it took him months.

he got data from the state, data from insurers. he pored through it, and i think he did a thorough job. i did not get into the nuts and bolts of the formulas he used and so forth, but i think he knew what he was doing, so i would take them is pretty real. >> the question is people, let's just say in northern california, an average being admitted or going to hospitals for more expensive procedures. >> that is all underlying this, and so is pricing. it may be that people in northern california actually use more services. i think the stock -- the dartmouth studies that were referred to earlier actually disprove that. in northern california, technically, we used fewer services. the uprising, i get as a comparison absolutely, but if that happens to be that people in san francisco are admitted and go to hospitals for more expensive procedures generic lid that would be more expensive here compared to in southern california, then the comparison is a little bit dated.

>> i hear you. i will keep that in account. i did not think you could explain the 70% differential that way, just as i did not think you could explain it by cost of living and wages, which we know were higher in the north, but not that much higher. here is the other quotation that the chair use, saying that the price differential translates into premiums that they charge. supervisor campos: so they are admitting that. >> right. in aggregates, remember, they cannot tell us what they are paying to the providers. that is a problem for all of us. this next slide is about so- called class shift. this is a phenomenon that has been going on for a number of years. it results from what in the

hospital vernacular is viewed as an underpayment by the federal government and the state, and i think it's pretty clear that the state does not cover the full cost of hospital care. there are parts of the country where medicare rates do cover the full cost. they do not here, so they make it up on us. this is showing that there is about 11% of the total annual cost for a family of four covered by commercial health plan, due to this problem of clashes. we did a study a few years ago using the state data, showing that on average, the marked up for commercial payers over actual hospital costs would have cost them to do what they do, was about 40%. making it up, from what they did not get from public funding.

so one has to wonder -- is there some relationship between the cost of health care and the quality of health care? this is a national study. you can look at it at a more local basis. i did not bring those numbers with me. i think one of the other speakers might be addressing that. the bottom line is that there may be in this case a slight differential of quality for one condition that was studied. these were two conditions. congenital heart failure is a chronic condition that many elderly people have to deal with, but it is scarcely noticeable. when they looked across the country at all the hospitals in the study, it just was not easy to detect a significant quality difference related to costs. this is what several others have referred to this morning, but this is your snapshot of loans

the best hospital beds in san francisco today. got these from the state. if you take san francisco general and kaiser out of the equation, because those are special, and their relationship to certain subsets of the population is sort of 1 to 1, and then you look at the hospitals serving everybody else, those have about 2700 beds. one system now owns 44% of those beds. catholic healthcare west has 20%, and uc, 26%. that is it. you ask if this consolidation phenomenon is you need to san francisco, i would give the same answer the previous speaker did. it exists in san francisco and exists in sacramento, but you do not see it in the los angeles and greater southern california

area. supervisor campos: can i ask just a clarifying what about that? those numbers -- is that taking into account the proposed project that they had, where they are increasing the number of beds? >> i did not believe so. those were licensed beds as of december 31, 2010. supervisor campos: so that does not include what is being proposed? >> correct. mr. chairman, i think you already cited these points from the "l.a. times." insurers say the the dominant physician of this particular health care system gives it the upper hand in contract negotiations over prices, so it is a negotiation, but the insurers just are not able to do much about the pricing. part of the reason for that is because their customers, all of us, say we need to have access

to sutter facilities for our employees and our members. supervisor campos: can you expand on that a little bit? what exactly does that mean? >> as an employer, you could -- and actually calpers has done this -- you could tell york insurer that you want them to choose only a subset of the available providers in the city, so if there is high cost and good quality elsewhere, -- there is high cost in one area and good quality elsewhere, you might construct what is referred to as an arrow network, which would exclude some of the higher cost providers. supervisor campos: the first bullet that you had up there, it says insurance company say its dominant position give it the

upper hand in contract negotiations. how does that work in terms of the relationship between the hospital, the insurance company, and the price? >> ok, so, you have two phenomena. one is controlling 44% of the beds in the city still that you cannot live without it. second, you cannot negotiate separately with the three or four hospitals underneath that umbrella. it is all or none, as dictated by then. -- by them. i think that explains most of it, right? supervisor campos: i see. >> this is just a note that a very noted economist did a study released last year. nationwide and he sort of prove the point, at least as

economists do, that the variation in a hospital and physician payment rates across the country is related to market power. ok, i have read last slides to give you some suggestions of what you could do -- i have three last slides. one of our employers has taken this tack -- it is called reference pricing. this is a procedure which is obviously very common. it is generally safe. there are plenty of safeguards to make sure that, you know, it is done properly and the quality is reasonable. i'm sorry you cannot read the numbers. they simply laid out -- this is for san francisco bay area. all of the providers to their employees of this service. colonoscopy, routine screening

for cancer. those numbers range from about $900 to over $8,000 for the same procedure across the spectrum here. that green line herethat green e places, it cuts off at some number which they declare as the reference price. what does that mean? if you are an employee of this company, they will pay it up to what ever it is -- $1,500 -- for a colonoscopy. you decide where you want to go. here is the data. we can assure if you go to the centers to the left, you will be fully covered. to the right, you will be out of pocket. that is one approach that could be used. supervisor campos: is there a difference in the quality of

care? >> great question. i wish we knew. for something like colonoscopy, in the centers that provide that service, there are lots of safety checks done by the state. they have to report to various entities, so it would be much better if we knew the data. i have to tell you, caterpillar, in illinois, obtained the data from their endoscopy centers for this procedure on quality, and they can show the quality with the price. that is what you want to do. so the next idea is piloting a new payment models. you have per preference to be accountable care organization, you will hear more about this from our calf speaker from calpers. this is where you take a disparate parts of the system and put them together