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Our Take: Sutter Health settles California antitrust lawsuit for $575 million

Jan 06, 2020
Sacramento, Calif.-based Sutter Health agreed to a tentative settlement in October, just before opening arguments in the antitrust trial were to be heard in San Francisco Superior Court. Recently, details of the settlement were made public.

Without admitting any wrongdoing, Sutter agreed to pay $575 million to settle claims that the health system structured its contracts with health plans in ways that stifled competition in the Northern California market. Plaintiffs in the case, which included the state’s attorney general, unions, and employers, claimed that Sutter’s tactics essentially kept patients from being able to seek less expensive care from other providers, resulting in steep cost increases within the market.

Additionally, Sutter is barred from signing “all or nothing” contracts with health plans. Such agreements would force the plans to choose between including all of Sutter Health’s hospitals in their provider network, or none of them. Sutter has said that it never required insurers to participate in this type of agreement.

The health system will also have to limit what it can charge patients for out-of-network services and stop bundling services without also making them available at lower prices individually.

Moreover, Sutter will be required to give health plans access to pricing and quality information and let them share that information with plan members so they can compare their options.

“Together with the Attorney General, the parties selected an experienced monitor who will oversee the agreement, which specifies parameters for contracting between Sutter Health and insurance companies going forward. There were no claims that Sutter’s contracting practices with insurance companies affected patient care or quality,” Sutter Health’s general counsel, Flo Di Benedetto, noted in a statement on the health system’s website.

A Superior Court hearing has been scheduled for late February; the court will likely decide then whether to approve the settlement.

Our Take
If you’re wondering why the Sutter Health antitrust lawsuit has garnered so much attention, it’s because this case will establish a precedent.

As we’ve said before, health systems that dominate a market can increase their profits by millions of dollars. And dominating the market appears to be relatively easy when you look at how readily some larger players have been acquiring smaller hospitals and physician practices that oftentimes are struggling to survive.

There may be many good reasons for a health system to expand its reach through acquisitions, and sometimes it’s a win for everyone — the acquirer, the acquired, providers, suppliers, vendors, and, yes, even consumers. But we all know what can happen in markets where choices become too limited.

Incidentally, a new study in The New England Journal of Medicine weighs in on what happens to quality and performance at a hospital after it’s been acquired.

A research team from the Department of Health Care Policy at Harvard Medical School studied 246 hospitals that were acquired between 2007 and 2016, comparing performance on four quality measures: a composite of clinical process measures, a composite of patient experience measures, mortality, and readmission rates.

The researchers found no statistical difference in 30-day readmission rates or 30-day mortality two to three years prior to the acquisition compared with three to four years post-acquisition.

The researchers did find marginal improvements on the clinical process composite measure, but could not attribute the gains to the acquisition.

On the other hand, they did find a decline in the patient experience measure that was analogous to a fall from the 50th to the 41st percentile.

“Taken together, these findings provide no evidence of quality improvement attributable to changes in ownership,” the researchers wrote. “Our findings corroborate and expand on previous research on hospital mergers and acquisitions in the 1990s and early 2000s and are consistent with a recent finding that increased concentration of the hospital market has been associated with worsening patient experiences.”

Back to our Sutter story. As Xavier Becerra, California’s AG, succinctly stated during a press conference when the Sutter Health settlement was announced, according to The New York Times: “If we’re going to treat something that’s precious and lifesaving like a business, then the marketplace for health care must be vibrant and competitive so that the best in the business can rise to the top naturally.”

In a statement on the AG’s website, Becerra added, “This first-in-the-nation comprehensive settlement should send a clear message to the markets: if you’re looking to consolidate for any reason other than efficiency that delivers better quality for a lower price, think again.”

You may be hoping this is the last you’ll hear about Sutter Health for a while, but there’s still a federal antitrust lawsuit ahead.

What else you need to know
Cigna’s Express Scripts and Prime Therapeutics formed a three-year alliance to lower drug costs for their clients, who collectively serve more than 100 million people. Prime Therapeutics is a pharmacy benefit manager (PBM) owned by 18 Blue Cross and Blue Shield plans or their affiliates. The companies said in a press release that Express Scripts will provide Prime Therapeutics with services related to retail pharmacy network and pharmaceutical manufacturer contracts. Express Scripts will also handle negotiations with drugmakers for the pharmacy benefit, but each company will manage its own relationships in terms of the medical benefit and value-based contracting. Forbes noted that the collaboration will give Prime Therapeutics’ Blue Cross health plans more leverage through Express Scripts’ “buying clout and large pharmacy network.” Financial details were not disclosed.

Wisconsin-based Gundersen Health System and Marshfield Clinic Health System have decided not to merge after all. The two health systems had been discussing a potential union since last May but have instead opted to remain independent. “[W]e have to make the right decision for our patients and for our organizations,” said Dr. Scott Rathgaber, Gundersen’s CEO, in a press statement. The organizations said they would continue to partner on existing initiatives, such as the Wisconsin National Community Oncology Research Program, as well as future opportunities that may arise.

Some Albertsons Cos. pharmacies now provide 1- to 2-hour prescription delivery. For now, the service is available at Safeway pharmacies in San Jose, Calif., and Washington, D.C.; Albertsons pharmacies in Louisiana; Randalls pharmacies in Austin and Houston; and Albertsons and Tom Thumb pharmacies in Dallas-Ft. Worth. The company plans to extend the service to additional markets throughout the year ahead. According to a press release, Albertsons is partnering with ScriptDrop on the delivery service.
Dr. Steven Kalkanis is the new CEO of the Henry Ford Medical Group, a group practice with 1,900 physicians. He is the successor to Dr. William Conway, who served more than four decades with the Henry Ford Health System. In addition to his role as CEO of the medical group, Dr. Kalkanis, a renowned neurosurgeon, is now also Henry Ford Health System’s senior vice president and chief academic officer, the organization announced. He has been with Henry Ford since 2004.
University Hospitals Health System has appointed Dr. Cliff Megerian as its next CEO. He will succeed Thomas Zenty, who said in October that he would step down in January 2021. Until that time, Dr. Megerian will serve as president of the health system. A noted ENT specialist and researcher, Dr. Megerian is a “surgical pioneer” in cochlear implants for children, according to University Hospitals’ press announcement.
FDA Approvals
The Food and Drug Administration ended 2019 with a flurry of drug approvals, including several that are particularly noteworthy:
  • Seattle Genetics and Astellas’ Padcev (enfortumab vedotin-ejfv), a first-in-class antibody-drug conjugate that received accelerated approval for treating adults with locally advanced or metastatic urothelial cancer — the most common form of bladder cancer.
  • Allergan’s Ubrelvy (ubrogepant), a first-in-class oral CGRP receptor agonist approved for the acute treatment of migraine, with or without aura, in adults. According to Allergan, the drug has “a completely new mechanism of action for the acute treatment of migraine” — it prevents a protein that’s released during a migraine attack from binding to its receptors.
  • Intra-Cellular Therapies’ Caplyta (lumateperone), a drug approved for treating adults with schizophrenia. It targets the neurotransmitters serotonin, dopamine, and glutamate and is also being tested as a potential treatment for bipolar disorder and major depressive disorder.
  • Eisai’s Dayvigo (lemborexant), an insomnia treatment approved for adults. Dayvigo belongs to a new class of drugs that target the orexin system — they act on the brain’s neurotransmitter system to suppress the wake drive, rather than targeting the brain’s sleep centers to increase the sleep drive, according to Eisai.
What we’re reading
Primary Care Spending in the Commercially Insured Population. JAMA, 12.10.19 (subscription required)
MedPAC Chief Expects Waning Support for Medicare’s MIPS. Medscape, 12.13.19 (registration required)

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