Our Take: Jury finds in Sutter Health’s favor in class-action antitrust lawsuit
The federal trial in which plaintiffs accused Northern California’s Sutter Health of engaging in anticompetitive practices ended Friday when, after less than 10 hours of deliberating, the jury returned a verdict favoring the health system.
The trial began a month ago, although the lawsuit, Sidibe v. Sutter Health, was originally filed in 2012.
Plaintiffs in the case claimed that Sacramento-based Sutter Health, a nonprofit health system with 24 hospitals, 36 surgery centers, and more than 200 clinics, took advantage of its dominant presence in certain markets to engage in “all-or-nothing” contracting practices with insurers, meaning if payers wanted to include any Sutter Health facilities in their network, they had to include all of them.
As a result, the lawsuit claimed, health plan members were discouraged from using other, less-expensive providers in markets where Sutter Health has multiple competitors, and health plans paid more for the health care services Sutter Health provided. The health plans — Aetna, Anthem Blue Cross, Blue Shield of California, Health Net, and United Healthcare — in turn raised members’ premiums to cover the increased costs.
Attorneys for the plaintiffs in the class-action case presented their arguments on behalf of more than 3 million individuals and employers who purchased policies from the insurers since 2011. They claimed the insurance premium overcharges between 2011 and 2017 totaled $411 million and sought three times that amount, or approximately $1.2 billion, in damages.
Attorneys for Sutter Health argued that the health system’s arrangements with the insurers were based on a “volume discount” and that Sutter Health did not engage in anticompetitive practices. They pointed out that Sutter Health competes with another large health system — Oakland, Calif.-based Kaiser Permanente — in several Northern California markets and said Sutter Health’s agreements with the insurers were meant to lower the total cost of care.
(Several economists poked holes in the argument about Kaiser Permanente saving as a competitor, since Kaiser Permanente is a closed system that does not contract with plans like Anthem Blue Cross and Blue Shield of California, Maria Dinzeo wrote in an article published by Courthouse News Service.)
“After hearing many hours of testimony from witnesses, insurance plan representatives, provider organizations, and experts, the jury found that Sutter Health did not engage in anticompetitive conduct and did not cause consumers to pay higher prices or premiums as plaintiffs alleged,” James Conforti, Sutter Health’s interim president and CEO, said in a statement posted on the health system’s website.
Conforti added that the jury’s decision “validates that health care providers, including doctors and hospitals, have a right to evaluate whether to participate in health plan networks and ensure that they don’t interfere with the ability to provide coordinated patient care.”
Our Take: In 2018, when California’s attorney general filed an antitrust suit against Sutter Health, we said to keep an eye out for how the case played out because it could affect how regulators view hospital and health system mergers (i.e., greater market consolidation can encourage anticompetitive practices).
The AG’s case was eventually combined with a lawsuit filed against Sutter by a labor union in 2014, which gained class-action status in 2017 when roughly 1,500 self-funded health plans joined as plaintiffs.
In addition to alleging that Sutter exerted its power as a dominant provider in numerous Northern California markets to stifle competition, the plaintiffs also claimed that the health system overcharged patients and health plans for services provided — to the tune of $756 million.
It looked as if Sutter was going to fight the lawsuit, right up to the day that opening arguments were set to start in October 2019. But then the health system agreed to settle.
In the settlement, which received final court approval last August, Sutter agreed to pay the plaintiffs $575 million but admitted no wrongdoing.
The settlement barred Sutter from engaging in all-or-nothing contracting practices and limited what the health system can charge patients for out-of-network services. It also stipulated that Sutter must give health plans access to pricing and quality information, which the plans can share with their members, and that the health system’s business operations are to be monitored for 10 years.
So why did Sutter settle the earlier case and not the one that just went to trial? Maybe because the stakes were higher in the first case — Sutter could have ended up paying almost $3 billion if it had gone to trial and lost, The Associated Press reported back then.
Or maybe Sutter settled the first case because the industry was paying such close attention, since it would have set a considerable precedent. By settling, Sutter did what Atrium Health and CHI Franciscan had already done in similar antitrust litigation. The settlement was mentioned in a couple of news cycles, but overall the impact was minimal.
Maybe Sutter thought its odds of prevailing were better in the more recent case, which didn’t have the weight of the state AG’s office behind it.
It doesn’t really matter why, though. Sutter went to court this time and won.
So, the precedent that some were hoping for — that the jury would find in favor of “the class” and that such a verdict would eventually restore more competition to markets across the country, potentially resulting in lower prices and better access to services — hasn’t been set.
Instead, even though Sutter Health is barred from entering into all-or-nothing contracts with payers because of the settlement in the earlier case, the outcome of this case could signal to other providers who enjoy market dominance that such negotiating practices are acceptable. Or at least the consequences are.
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