California AG to challenge Sutter Health’s pricing practices as antitrust trial begins Monday

Sutter Health and the California Department of Justice will begin what’s expected to be a months-long antitrust trial on Monday in San Francisco as state attorneys attempt to prove that Sutter is using its market dominance to drive up health care prices in Northern California.

“We’re in this lawsuit ... to make sure no provider, including Sutter Health systems, offers care in a way that doesn’t provide the lowest and best price and the highest quality,” California Attorney General Xavier Becerra said during a media briefing last week. The “bottom line is we’re alleging that Sutter Health systems is offering care at a higher price and perhaps even undermining quality by the way it goes about doing its business.”

In statements issued after Becerra’s Wednesday briefing, leaders of Sutter Health called the allegations misguided and said they would vigorously defend the health care giant’s coordinated, patient-friendly health-care system.

“Sutter is not violating antitrust laws by integrating its hospital system and negotiating systemwide contracts with insurance companies,” the statement read, in part. “There is no evidence that Sutter has hurt competition, as demonstrated by the fact that new hospitals continue to open and existing facilities continue to expand in markets that Sutter Health serves, including in the San Francisco Bay Area and the greater Sacramento region.”

Insurance and health care players nationwide will likely watch how the legal battle unfolds, but the trial could very well end in a settlement. That’s what happened two years into the U.S. Department of Justice’s case against North Carolina’s Atrium Health. In that case, the federal lawyers made similar allegations against Atrium as those being made against Sutter, saying that provisions in the company’s contracts with insurers prevented consumers from getting the chance to do comparison-shopping.

“At the end of the day, it’s not the insurers and it’s not the employers who pay because the insurers and the employers are going to charge someone else,” Becerra said. “Whether it’s the premiums you pay on your policy or the cost you pay in copays or the overall costs that are in the system ... or how much you have to forego in wages as you negotiate for compensation with your employer, at the end of the day, the person who’s paying for these costs is the consumer.”

As one example of Sutter’s anti-competitive practices, the AG alleged in its complaint in San Francisco Superior Court that the health-care giant prevented insurers from paying incentives to doctors to steer patients toward providers offering services that were less expensive but equal to or better in quality.

Insurers commonly use this practice with tiered provider networks where consumers pay higher out-of-pocket prices for selecting higher-priced or less-efficient providers. Sutter was capable of getting insurers to give up steering patients by denying access to its multimarket, health-care system with 24 state-licensed hospitals, more than 4,000 acute-care beds, 35 outpatient centers and relationships with upward of 17,000 physicians.

These kinds of tactics, Becerra said, are why a person who has a heart attack in Northern California will pay more to be treated at a facility that has lower quality scores than an individual in Southern California would if seen for the same maladies at a highly rated hospital.

Kathleen Foote, the antitrust chief at California’s Justice Department, has been monitoring health-care providers since 2001, and she said her team actually started out looking at a half-dozen players. What struck her team, though, was how much more competition there was in the Southern California market and how prices for care there were so much lower than in hospitals in Northern California, she said.

“It took a fair amount of digging and talking to people and developing some sophistication of our own. I’m not really speaking so much of myself as the deputy AG’s who have been working this case for years now,” Foote said. They “have developed a really high degree of sophistication and understanding of how the contracting process works, what the pressure points are and how it is that the high costs and the lack of pricing competition ... have come about.”

The state’s lawsuit cited complaints under the Cartwright Act, California’s primary antitrust law, and it was consolidated with a 2014 civil suit originally filed on behalf of a health plan run by the grocer’s union, the UFCW & Employers Benefit Trust. The suit, which seeks billions of dollars in damages, was certified as a class action representing roughly 1,500 employer-funded health plans in the state of California. Many employer-funded plans use insurers as administrators.

Becerra announced the state’s lawsuit in March 2018. He said that it took years of investigative work to bring the case to court and that he would not have undertaken it with taxpayer dollars if he didn’t think his team could win.

“It’s millions of pages of documents,” he said. “It’s scores of people that have been interviewed, and it’s an area of law that is a bear to manage.”

Becerra said that jury selection in the trial will likely begin this month and that opening statements are unlikely to be heard until October at the earliest. The jury will first weigh evidence to determine whether Sutter is liable, Foote said, and if the answer to that is yes, then the court will consider the questions of damages and orders to compel the company to cease specified actions.

Sutter’s leaders said the case “irresponsibly targets” its integrated network and instead supports the nation’s largest health insurance companies in practices that maximize profits and push patients into health plans that limit choices and submit surprise bills.

“What really is at stake in this lawsuit is the ability of Sutter Health and other care providers, including Kaiser Permanente, to further the goals of the Affordable Care Act by providing access to patient-centered, high quality and efficient care,” Sutter leaders said in a statement. “Our integrated model enables our system to invest in and spread new life-saving technologies across our network, including in poor and rural communities that may struggle to recruit physicians and keep care facilities open.”

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Cathie Anderson covers health care for The Bee. Growing up, her blue-collar parents paid out of pocket for care. She joined The Bee in 2002, with roles including business columnist and features editor. She previously worked at papers including the Dallas Morning News, Detroit News and Austin American-Statesman.