Health & Medicine

Sutter Health asks court to scrap price-fixing suit by California attorney general

California Attorney General Xavier Becerra.
California Attorney General Xavier Becerra. AP file

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In a case with broad implications for health-care pricing and transparency, Sutter Health has asked the San Francisco Superior Court to refuse to hear the California attorney general’s antitrust lawsuit because it would impose expensive, unwieldy regulations that would upend Sutter's business.

In March, Attorney General Xavier Becerra announced that after a six-year investigation of Sutter’s pricing, his office was filing suit to force the health care giant to stop using its market power to control prices and exclude competition. In response, Sutter said its hospitals charges less than other Northern California hospitals.

In documents filed Monday asking the court to decline to hear the case, Sutter argues the suit would force the court to interject itself into complex economic and regulatory matters already overseen by the executive and legislative branches.

Sutter tells the court that the AG's suit seeks to get the court to impose expensive, unwieldy regulations that threaten to strip apart an entire health care industry, upend Sutter’s business model and hobble Sutter’s efforts to innovovate.

Asked for a response on the Sutter filings, the AG's office sent this statement to The Sacramento Bee: "The California Department of Justice is prepared to litigate our antitrust action against Sutter and look forward to making our case in court."

In the March news conference, Becerra said his office had found that Sutter prevented insurance companies from giving customers a choice of lower-cost health plans, set out-of-network prices too high and hindered access to provider costs and rates that would help customers make choices. "The consequences of these practices for Northern California families are and have been real," he said.

The AG's complaint alleged that Sutter was evading unrestrained price competition by inserting mechanisms such as “all-or-nothing terms,” “anti-incentive terms,” and “price secrecy terms” into its contracts.

When using the all-or-nothing terms, the AG's complaint said, Sutter insisted that all contract negotiations for any of its providers be conducted system-wide with the same termination date for all its providers. In its so-called price secrecy terms, the complaint alleges, Sutter also forbids insurers contracting with its network from disclosing the prices that Sutter has negotiated for the health care services and products.

The anti-incentive terms come into play, the AG said in the suit, because Sutter forbids or severely penalizes health plans using incentives to encourage enrollees to select a provider network with a low-priced, high-quality hospital rather than a network with a higher-priced Sutter hospital that has a lower quality rating.

In its legal response, Sutter alleged the lawsuit would favor insurance carriers and increase their negotiating power.

Sutter spelled out examples of how the AG's requests would make doing business especially onerous: The company would have to participate in protracted arbitrations to determine future contract terms. It would have to negotiate contracts with insurance companies at staggered times using separate teams that may not communicate with one another, thus hindering efficiency.

The attorney general's suit had sought payment for alleged overcharges incurred from any anti-competitive acts, something that plaintiffs in a class-action lawsuit against Sutter had been seeking since 2014. The case was filed on behalf of a grocery workers health plan, the UFCW and Employers Trust.

But Sutter asserts that California law does not say the AG can go after profits.

Sutter also asks the court to strike the attorney general's request that it be ordered to arbitrate out-of-network charges with insurers, saying the request contradicts a 1975 law requiring companies and provider networks to agree via contract to a reimbursement rate for out-of-network emergency care. In this way and others, the filing states, the AG's antitrust lawsuit violates Sutter's constitutional rights to contract and due process.

Becerra said his suit was necessary because Sutter's actions were leading to out-of-control health care costs in Northern California. He pointed to research from the University of California, Berkeley, showing how market consolidation 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."

Sutter, however, said that public data from the Office of Statewide Health Planning and Development showed that, on average, total charges for an inpatient state in a Sutter hospital are lower than what other Northern California hospitals charge.

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