Health & Medicine

California AG and Sutter Health announce settlement of antitrust complaints, averting trial

The California Department of Justice announced Wednesday that it had reached a settlement agreement with Sutter Health over alleged anti-competitive practices in Northern California, abruptly ending a much-anticipated legal trial unfolding in San Francisco.

A spokesperson for the California DOJ said: “We cannot comment further until the final agreement is approved by the court.”

In a meeting with reporters ahead of the trial, Attorney General Xavier Becerra said his goal was to end to a number of Sacramento-based Sutter practices, including a contract provision that 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.

A Sutter spokesperson said Wednesday that the company expects the deal to be approved in a few months. The company has maintained that the allegations were misguided and had hired a large legal team for its defense.

In a statement prior to the trial, the health care giant said: “Sutter is not violating antitrust laws by integrating its hospital system and negotiating systemwide contracts with insurance companies. ... 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.”

Becerra said he would seek remedies that included greater transparency and monitoring. Asked if he anticipated a settlement, Becerra said: “We just want a market that works, that is competitive, and competition, if it’s real, ultimately delivers lower cost and higher quality. That’s what this is about. Whatever it takes to get that, that’s the solution.”

Becerra stressed that antitrust behavior costs consumers money and that his legal team wanted a good outcome for the people of Northern California.

Consumer advocate Anthony Wright, leader of Health Access California, welcomed the news that remedies or relief might be coming soon for consumers in the north state.

“This is a lawsuit that has been watched by hospital chains nationally, and I think it will make health care providers think twice about some of these anti-competitive practices,” Wright said. “Obviously, a lot depends on the details of the settlement, which we won’t know for many months, I believe, but even just the fact that the lawsuit was brought by Attorney General Becerra, by the union and business plaintiffs, that sends a really important signal not just to Sutter but nationwide to the health care industry.”

The company still faces a federal whistleblower lawsuit alleging fraud in its Medicare billing practices.

Insurers commonly use the practice of steering members when dealing with tiered provider networks where consumers pay higher out-of-pocket prices for selecting higher-priced or less-efficient providers.

The AG’s lawsuit alleged that 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.

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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.