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Sutter Health unfairly inflates medical costs in Northern California, AG alleges

California Attorney General Xavier Becerra
California Attorney General Xavier Becerra AP

California Attorney General Xavier Becerra announced Friday that, after a six-year investigation, he has filed an antitrust lawsuit against Sacramento-based Sutter Health in San Francisco Superior Court, alleging that the health-care company has used its market power to control prices and exclude competition.

"We found that Sutter restricted insurance companies from giving consumers more low-cost health plan options that they could choose from," Becerra said in a Friday news conference, "and we found that Sutter set excessively high out-of-network prices and impeded transparency by restricting publication of provider cost information and rates that consumers could then use to make good choices. The consequences of these practices for Northern California families are and have been real."

In one case, the AG's lawsuit alleges, Sutter leveraged its market dominance to secure contracts with insurers that prevented them from paying incentives to doctors to steer patients toward providers whose services were less expensive but equal to or better in quality.

Insurers commonly use this practice, the complaint says, but Sutter was capable of negotiating such terms because it is a multimarket health-care system with 24 state-licensed hospitals, 4,311 acute-care beds, 35 outpatient centers and relationships with more than 17,000 physicians.

Karen Garner, a Sutter Health spokesperson, said: “We are aware that a complaint was filed, but we have not seen it at this time, so we cannot comment on specific claims....It’s important to note that publicly available data...show that on average, total charges for an inpatient stay in a Sutter hospital are lower than what other Northern CA hospitals charge."

Sutter is already facing a class-action antitrust lawsuit in San Francisco Superior Court filed by attorney Richard Grossman of Pillsbury Coleman on behalf of a grocery workers health plan, the UFCW and Employers Trust. Grossman said the attorney general is seeking to consolidate the UFCW case, originally filed in April 2014, with the state case.

Grossman said that his client has been seeking to stop Sutter's anticompetitive practices and, secondarily, trying to recover the overcharges the lawsuit alleges the health provider has imposed upon California's employers since the early 2000s.

"At the time we received class certification (August 2017), the damage estimate was in the neighborhood just north of $500 million," Grossman said. "By now, we have more data, and the damages are likely to exceed $700 million. However,...in an antitrust case, the damages are automatically trebled to...deliver a message that the sanctity of our free market system is so important to society that those who seek to interfere with free competition will have to pay three time the damages actually imposed."

The UFCW lawsuit is now certified to represent the roughly 1,500 employer-funded health plans in the state of California. Last year, Sutter officials were sanctioned by a San Francisco judge for shredding documents in that case.

Becerra said Friday that, after six years of methodical and painstaking documentation, the AG's Office was prepared to hold Sutter accountable and bring down artificially inflated health care costs. Just this Monday, Becerra said, researchers at the University of California, Berkeley released a report that showed how the consolidated market in Northern California has driven up prices for consumers.

"The cost of the average in-patient hospital procedure in Northern California is $223,000-plus, compared to the average cost for average in-patient hospital costs in Southern California of $131,000-plus," Becerra said. "That's more than a $90,000 difference, depending on where you live, for essentially the same bundle of hospital procedures. Think of what that money means for a Northern California family that's trying to make a mortgage payment, a rent payment, afford child care, pay for a child's tuition, save for retirement."

Garner said Sutter Health has held average overall rate increases for health plans to the low single digits since 2012, despite seeing actual expenses for labor, facilities and technology increase more than 37 percent during the same time period.

"We don’t know why some health plans have increased their rates to consumers as much as 20 percent annually," she said. "There are 15 major hospital systems and 142 hospitals in Northern California, including Kaiser Permanente, Dignity, Adventist, Tenet, UC and more. And health plans can elect to include or exclude parts of the Sutter Health system from their networks, and health plans have been doing so for many years."

Joining Becerra in a press conference to announce the lawsuit was his antitrust chief, Kathleen Foote. She said the office had received complaints from a number of employers over the course of its investigation. Grossman, the attorney in the employers' case, said he'd heard from employers incensed by revelations from his lawsuit. He said the civil case is expected to go to trial in June of 2019, and he looks forward to standing shoulder-to-shoulder in case with the AG's team if the lawsuits are consolidated.

"If we do nothing, it will continue to happen. We have to try to make the case here," Becerra said. "We have to make it clear that there is no reason why you or I should have to pay $90,000 more so that our son or daughter can visit a hospital in Northern California versus Southern California."

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