Sutter Health settles antitrust case for $575 million

Sutter Health headquarters in Sacramento, California.

Following five-and-a-half years of what the California Superior Court called "contentious litigation," Sutter Health has agreed to settle a class action antitrust case for $575 million.

The payment amount falls within the upper range of recovery rates, according to the preliminary settlement approval.

The money will be distributed among employers and union trusts to offset claimed overcharges.

Sutter overcharged an average estimated 15.5%, according to court records. Based on this figure, the plaintiffs were going to seek approximately $980 million in damages at trial. The all-cash monetary recovery represents approximately 60% of the damages sought.

Sutter, a large health system in northern California, has admitted to no wrongdoing. It was prepared to offer testimony at trial to support its contention that it has not violated California's antitrust law, according to court records.

A hearing on the settlement agreement is scheduled for February 25, 2020.

WHY THIS MATTERS

The antitrust case could have nationwide implications for how health systems negotiate with insurers, should other state attorneys general start examining and challenging local practices.

The basis of the lawsuit was that the health system leveraged its market power to raise prices and force health plans to use Sutter providers.

The terms of the settlement spell out what constitutes anti-competitive behavior.

The settlement ensures that Sutter competes on price over the ten-year injunctive relief period.

Under the terms, health plans are able to create narrow networks that do not include all or any Sutter providers and to place Sutter providers in less attractive tiers of tiered networks.

Sutter cannot unreasonably restrict health plans from creating narrow networks or steer, tier, or otherwise incentivize patients to choose non-Sutter providers.

The settlement prevents Sutter from requiring health plans to include unwanted Sutter providers.

It places limits on Sutter's out-of-network rates, which the plaintiffs contended restricted health plans' ability to exclude Sutter hospitals. Under many of Sutter's contracts, the non-par rate was set at 95% of billed charges, a rate alleged to be much higher than health plans typically pay for out-of-network care.

BACKGROUND\THE LARGER TREND

The class-action lawsuit was brought by UFCW & Employers Benefit Trust and was later joined by California Attorney General Xavier Becerra.

UEBT filed the action in 2014, claiming that Sutter had imposed price secrecy, all-or-nothing, and anti-tiering provisions in its contracts with the health plans.

The health system appeared headed to trial as late as October, when it agreed to settle for an undisclosed amount.

In the weeks leading to trial, Sutter said it was integrating its hospital system and negotiating system-wide contracts with insurance companies, but was not violating antitrust laws or putting a damper on competition.

The state disagreed, saying Sutter's contracts were designed to increase prices and restrict competition, and included restrictions on the sharing of its rates, thereby making it difficult for consumers to compare prices.

In November, provider groups said they would challenge a final rule issued by the Centers for Medicare and Medicaid Services requiring hospitals to make public their negotiated rates with payers. The American Hospital Association, Association of American Medical Colleges, Children's Hospital Association and the Federation of American Hospitals said that, instead of the intended price transparency, the rule would cause consumer confusion, accelerate anti-competitive behavior among health insurers and stymie innovation in value-based care delivery.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com