services, health services are expanding their surgical facilities and expanding their transplant facilities because of those are highly reimbursed beds. them -- they are in demand. the more high revenue beds you have, the more of the market you have and the less likely smaller competitors are to compete. >> when i spoke with the management of what they expected their rates to look like, i was told they do not expect us to see the types of numbers you just laid out. i don't know if this is best directed to you or other city staff but could you talk about what you expect to see as far as rates moving forward? what sorts of numbers can we expect? >> that is probably the largest

area of uncertainty right now. california is in very good hands with our exchange being led by the former executive director of the business group on health. but the broad expansion and unmet needs of the people pouring in you have not gotten the knee surgery and back pain taken care of it is going to increase utilization. the good news is the economy will improve. bad news is when the economy goes up, health-care utilization goes up. people are afraid of getting there any fixed or whatever they need done. they are afraid of having surgery because they might use -- they might lose their jobs. i don't have a crystal ball. i just did a quick search

anticipating a question of what health care inflation will look like. that article suggested that. >> i know we have been talking about our ability as a city and the ability to control cost for our health care expenditures. can you talk about what that might mean for private sector costs and employers year as they deal with health care? i think what we do from the city helps to impact what happens in other sectors. >> our strategy for containing costs, to have to a vibrant and competitiveaco's -- knowing who is charging what for what and being able to compare why a knee replacement costs $35,000 in one place and $55,000 across town and focus on wellness, those are

our three cost-containment strategies. i was asked to present the accountable care organizations in december because everybody is watching this competitive experiment hoping it will be successful in containing costs. we came in better than most businesses and i think we did because we have been talking competition now for two years. we were lucky to figure out a way to turn blue shield around. if we don't contain this competition or continue to maintain competition, all the other employers are going to pay higher costs. we get good rates partly because we are so big. we have a huge pool.

the importance of competition is underscored and you will see more and more employers will have a kaiser-only model because they cannot afford a blue shield model. we believe especially with the excellent medical care we have that all of the hospitals, all of our employees should be able to pick any hospital and be able to afford it. >> it seems like the type of medical inflation that would impact this city, if you magnify that, we are talking about hundreds of millions of dollars if we do not get it right. >> i believe that is true. supervisor cohen: i have a question about competition.

do you know of any analysis the city has done or a third party that relates to what the impact will be to other businesses and their health care costs? even if there has been in the analysis done on how this deal will have an impact on smaller business owners. is there any data? >> to my knowledge, no analysis has been done. you could say what are the implications of having a one hospital system have a majority of the market share. i know that the catalyst for payment reform is doing a lot of

work nationally. this is not only happening here. is happening across the country and that is why it is the employer's stepping up as well as the insurer's saying we have to do something. >> have you heard from other employers? >> just in off the record conversations. supervisor kim: i will spare the questions because i just have a couple of questions. have a 3:00 meeting so i cannot stay. the route past couple of months, as i think we on the board have really been digesting this development agreement, what has become really clear to me in only the last couple of weeks is how important this piece of the development agreement is and i have focused on some of the traditional aspects, whether

it's affordable housing or how large employer and to be that plan on growing helps to mitigate some of the housing market impact is going to create and publish ensuring a level of charity care we have seen from our other institutions, as i think about this long term, as a policymaker, i think this very issue of what health care costs the city and how what overall impacts employers in the city is an incredibly important issue. st. luke's is an important part of the delivery of health care and i hope as we continue to move through, that we really have a robust discussion on what the long-term impact of this

mean and i am alarmed that a proposal of narrowing a network that doesn't include a really important health-care institution and what it means long-term when we see this competitive experiment has been working and saving taxpayer dollars and for the city, what it means for every one. this is a priority issue for our country, what health care means and how much it costs for people to take care of themselves and be healthy and safe. i think there are larger questions with our ability to trust who we negotiate with because a lot of that is involved in supporting a deal like this and i hope this conversation doesn't and it here today because this is going to have a huge impact not just on tax care dollars but we just

went through a budget process where we debated over how we can spend dollars on services for people who are homeless or seniors and immigrants cannot to know that we may not be able to make those types of decisions because health-care entities are figuring out how to create a larger market share or charge more to keep people healthy is problematic. i just want to put that out there. this is increasingly becoming an issue i plan on focusing on and i appreciate the city for their presentation on this issue. supervisor mar: thank you for breaking down a very complex system. he said sutter help charges a 30% more than other health-care change but where is the source of that? >> is was na "los angeles *"

article from last year. i believed it was a steady at the university of southern california, but i could be wrong. i would be happy to look -- and probably have the article in this folder. supervisor mar: thank you very much. last couple of speakers to help us understand this, the first is alan schafer from the center of policy analysis. i'm going to ask her to limit her remarks to no more than five minutes if possible. >> i am the co-director of the equal health network, a project of the center for policy -- center for policy analysis. i appreciate the chance to explain consolidation and competition in the next five minutes, so i will do my best. i want to say a couple of

things. the proposed expansion would drive up the cost of health care and divert services away from the health-care needs of san franciscans. i want to say the consolidation will certainly concentrate bargaining power in the hands of mega hospitals. but it's also important to recognize the value of having capacity south of market and making sure at this time of transition that we don't make big decisions that will limit our future options. i am speaking at the invitation of the california nurses association, and i am making my way remarks in concert -- a more balanced division of beds

would not only address many of the serious environmental concerns raised by the project, it would result in the long-term viability serving the south of market community. i want to step back on the issue of consolidation and competition. i presented in my written remarks a lot of evidence about how consolidation does increase the cost of health care and there is a reference to the steady in the los angeles times reporting that last year. i think the important thing to recognizes we are venturing into a new era with health-care reform. economists have told us for many years that the health care system is not an economic good or service like any other and we have seesawed over time between

competitive at temps and consolidated attempts to control costs and provide services. it happens right now that we are on a swing with increasing funding for health care but it is important to maintain competition. increasing competition between doctors and hospitals and entities, all of which basically have an interest in maximizing their own income, is never going to successfully control costs. we have seen evidence of this consistently over time. for now, the main threat to health care costs and affordable health care is a from consolidation. a report by one business group pointed out hospitals are largely nonprofit firms, but

when bestowed with market power, use that to drive prices and revenues higher. they spend their monopoly rents on business augmentation strategies and enhancements of dubious value. hospital consolidation in the 1990's resulted in raising prices at least 5% when the hospitals were closely located, increases were 40% or more. when the firms raise prices, it's easier for competitors to follow suit. in one community, prices went up 23% for emerged hospital and 23% for its competitor relative to control. we know well that summer hospital's business plan is explicitly to consolidate and

create a monopoly in particular geographic areas. their own business plan says it is critical for them to secure 25% to 30% of the market share. this is a vital if they're going to be indispensable to major health-care plans. consolidation has resulted in higher hospital prices in northern california in particular. in california, there is an average increase of 10.6% between 1999 and 2005, double the national rate. the article we mentioned compared hospital costs between northern and southern california and found we pay $7,349 per patient on average compared with los angeles county where it was $4,389 and san bernadine know where it was $4,393.

according to the article, much of the reason for higher cost allies was sutter which has groups throughout the northern california region. we can see the strategy at play in several other areas. they have proposed the same kind of game plan that they are proposing now to consolidate with a provider in a low-income area and they have done this with a public entity created to operate a hospital for the benefit of citizens living in and around castro valley. the hospital district purchased

a hospital in 2004 using public funds owned by the district and those who question the arrangement were sure it was negotiated for the express purpose of ensuring funding for the continued operation of the hospital, however they negotiated a provision by which they had the option to cease its operating commend its net revenues fell below a certain level, which was determined after accounting for operating losses to be calculated by setter itself. this hospital, like st. luke's, services and less affluent population and the related hospital in castro valley. sutter has now made its intention known to close in months, rather than years, leaving residents scrambling to find options for keeping the facility open and operating as an acute-care hospital.

it is likely that cathedral hill will continue to attract successful physician practices to include a health insurance plan they can contract with. the same scenario that it will then seek to close a competitive hospital in this case, looking at st. luke's as a competitor that not only provide services but might pull down its rates, we can see a similar game plan in the east bay with the merger between summit hospital in oakland and in berkeley. a more balanced division of beds would guarantee that we keep the capacity we currently have and maintain the kind of competition between health

providers that will give some guarantee as we enter into this time is set up by the affordable care act that we will maintain both the competition we need temporarily to help moderate prices and capacity in neighborhoods to provide services to our population. san francisco and california have been on the cutting age -- cutting edge to find ways to reduce costs and expand access and quality. the city's access -- the city's actions in this important matter should continue to move us forward. supervisor mar: thank you. any questions? supervisor cohen: just a couple of questions. he noted that consolidated hospitals drive up prices and it is a safe assumption we can't have a hospital in every single corner. what do we need to do? >> in the long term, we have to

recognize we have to give power to the public sector and figure out how to set and control rates separate from setting providers competing with each other so we have duplicative purchases of mri machines and duplicative services. we need to use the tools that are available to figure out how to provide and determine what services we need, provide and pay for those. i think it is a much longer-term project. we need to look at putting information and power to set rates and determined where facilities should be located in hands of us in the community and the public sector. we have paid very able department of public health.

this is an intermediate step along the road. i think we need to recognize, and i have seen other information? acts. i think the combination of system reforms we are starting to put in place may, in fact, may be bringing down costs. is important to keep our options open. there are neighborhoods in san francisco where there is literally no access to prenatal care. there is not a provider in the neighborhood. we need to continue looking at those issues as we think about the expansion and the consolidation and support of maga hospital systems. -- mega hospital systems. >> your answer sounds like hundreds of more hours.

>> we have been asked this for hundreds of years. >> the health-care system is in a transitional point. the key to make our health care system as transparent as possible and not lock on to an unsustainable configuration that we cannot afford, that will preclude future progress. speaking about the lack of infant health care, prenatal health care in some neighborhoods. i would assume my neighborhood would be at the top of the list. >> absolutely. supervisor cohen: it would be an important discussion given the examples or suggestions on ways we can make that happen. >> how we can make that happen. we have the health care services

system master plan task force, which has revealed a tremendous wealth of information at the city -- that the city and county can act on. we certainly can demand, and a short-term -- in the short term, greater transparency and information. if we are paying providers hospitals, doctors, for health care, we should know what their unit rates are. i think it would be perfectly reasonable to request a much higher degree of transparency, to understand what goes into the dollar -- $1.81 cost of a couple of aspirin. there are answers to that. there are answers to that that reflect the fact that nobody knows. in san francisco, hospitals, insurers charge a price which most folks don't know about.

kaiser facilities charge a little bit less than that. we really have no good idea of what is contributing to these charges. in the short run, knowing more, and i think in the long run, really understanding and demanding that we as consumers take control of the health care system. we can -- i know this is a long answer. i think we can look to, and there are examples of rate settings and other states. in maryland, for example. we can start to explore here. maybe it is something we can do on the county level. supervisor cohen: are you suggesting beginning a conversation to have some kind of a uniform payment for hospitals?

>> it seems like something that could work. supervisor mar: if the ucla study is true and sutter charges 37% higher than other chains, with consolidation allow them to go even higher? >> i would think that it certainly would. supervisor mar: any other questions for dr. schaefer? thank you so much. the next speaker is tom moore, jr. >> thank you very much. i was invited year -- i was invited here by mr. campos

office. we are an unusual organization and that we are committed to developing and improving the strategies used by purchasers of health benefits, rather than efforts to directly transform delivery systems or bring down prices. the reason we focused on purchasers is over many years, in my case, decades of work in this field, i've become convinced that the only thing that is less orderly, more dishonest, more deceiving then functions of a broken delivery system is the way we purchase care. we have a market of enormous strength and economic power, which is full of money, almost without challenge or question into the billions of dollars without knowing the cost of what we are paying for, the quality

of what we are paying for. or whether there were cheaper or better alternatives. we are absolutely ignorant of where we stand in the market. that is what we believe has to come to an end. i will spare you the rest of my ranch, although i have copies of its -- rant, although i have copies of it here. i promise to be brief. the difficulty we face as purchasers, especially the unions, which i represent primarily. we worked as a 501-3c. what we have encountered, and ability to develop a consensus of what states -- of what steps to take on. the last few years, however, have been periods of enormous change in the information and

quality of information that is available about the quality of care. beginning with the institute of medicine report, 2009, which is estimating 40% of the cost of for medical care is for services that are either dangerous or do no good. that is 40%. we have set out to test whether or not that is a valid number. we have done studies for oregon health authority, the organization for local governments in montana. calpers, the local 1245, and what we have found is that 40% is about right. that is to say, within a large population, the range of error or inappropriate care is going to probably account for about 40% of cost.

that presents a special opportunity as well as a problem for all of us. it means that regardless of knowing that, without knowing exactly where these cost occur, where this waste exist, it is impossible to focus the health plans or the providers on remedies. our history boils down to this strategy. we have recommended that we begin the development of a voluntary, multiple-pear data set capable of recording in great detail the actual financial transactions, the claims and other transactions that are the structure of