Sutter Health antitrust settlement nears approval after long delay

A closely watched antitrust case against Sutter Health, the Sacramento-based nonprofit health giant, is moving toward a final settlement after the judge presiding over the case indicated she would sign off on the terms, pending agreement on attorney fees.

The move by the judge Thursday comes more than 18 months after Sutter Health agreed to a tentative settlement in the case, which includes $575 million in damages and was joined by the California Attorney General’s Office. Sutter stood accused of violating California’s antitrust laws by using its market dominance to drive up prices.

The settlement is expected to have nationwide implications on how hospital systems negotiate prices with insurers.

“These plaintiffs are among the first, but will not be the last, to successfully challenge dominant healthcare systems who undertake land grabs to mark up prices at the expense of patients and employers,” said Leemore Dafny, a Harvard Business School professor who studies the industry. “This settlement has provided a marker for the rest of the nation.”

The settlement was announced on a preliminary basis in December 2019. It marked a dramatic turn in a long-running legal battle initiated in 2014 as a class-action lawsuit filed by the United Food and Commercial Workers International Union & Employers Benefit Trust, representing employers, unions and local governments whose workers use Sutter services. Then-California Atty. Gen. Xavier Becerra joined the case in 2018.

Sutter has 23 hospitals, 33 surgery centers and 12,000 physicians across Northern California, with $13 billion in operating revenue in 2020. Among other allegations, the state’s lawsuit argued Sutter has aggressively bought up hospitals and physician practices throughout the Bay Area and the rest of Northern California, and exploited that market dominance for profit.

In agreeing to the settlement, Sutter did not admit wrongdoing. Throughout the proceedings, it has maintained that its integrated health system offers tangible benefits for patients, including affordable rates and consistent high-quality care. Sutter spokesperson Amy Thoma Tan said in an email that the settlement would not reduce the quality of patient care.

“Our commitment to providing high-quality care to our patients is unwavering, and independent data shows that our quality yields better health outcomes and a lower total cost of care,” she wrote. “Sutter’s quality of care is nationally recognized, with the majority of our hospitals and facilities outperforming state and national averages in nearly every measure of quality.”

Numerous twists and turns slowed the court’s approval of the settlement over the past year-and-a-half. Last year, San Francisco Superior Court Judge Anne-Christine Massullo rejected the independent monitor chosen by the parties to oversee the agreement’s rollout, over diversity, equity and inclusion concerns.

More months passed as Sutter argued for further delays and suggested it would push to alter the settlement in light of the potentially dramatic effects of the COVID-19 pandemic on the healthcare system’s finances and operations.

Preliminary approval was eventually granted, but most recently, final approval was postponed because of a dispute between UEBT and their lawyers over attorney fees.

Thursday’s hearing, which concluded without a resolution, was largely devoted to a tense back-and-forth over that issue. But Massullo indicated she would approve the terms of the settlement in a written order once the fees had been sorted out. The timing of that final order was left unclear.

The parties had agreed earlier to plaintiffs’ attorneys, led by Richard Grossman of Pillsbury & Coleman, getting 30% of the settlement amount. Given the size of the settlement, that comes to $172.5 million in attorney fees, a figure UEBT now argues is unreasonably high.

An additional 2% in fees will go to the Attorney General’s Office. UEBT expects to receive about $15 million, and what is left of the $575 million will be distributed among the rest of the class, made up of other unions and employers who purchase health insurance for their workers.

Experts say Sutter’s practices are not unique in the industry: Negotiating tactics including all-or-nothing contracts and anti-tiering provisions have become widespread among hospital systems nationwide.

“Any system could change their practices tomorrow. If we have to wait for the courts to force them to not use anti-competitive practices, that’s really disappointing,” said Elizabeth Mitchell, Chief Executive of the Purchaser Business Group on Health, which represents employers that buy insurance coverage for their workers.

“What the Sutter case proves is that the people who pay for and receive care can achieve accountability from the health care system. But it shouldn’t be that hard.”

Among other terms, the settlement requires Sutter to:

— Limit what it charges patients for out-of-network services.

— Increase transparency by allowing insurers and employers to give patients pricing information.

— Cease bundling services and products, and instead offer stand-alone pricing.

Sutter has also agreed to end a host of practices that Becerra, who now heads the U.S. Department of Health and Human Services, alleged unfairly stifled competition. Among other conditions, the settlement also requires Sutter to limit what it charges patients for out-of-network services and end its all-or-nothing contracting deals with payers, which demanded that an insurer that wanted to include any one of the Sutter hospitals or clinics in its network must include all of them.

Sutter has earned an average 42% annual profit margin over the past decade from medical treatments paid for by commercial insurers like the plaintiff companies, according to a recent analysis by Glenn Melnick, a healthcare economist at USC.

Sutter also faces a second federal class-action lawsuit alleging anti-competitive behavior.

This story was produced by KHN (Kaiser Health News), a national newsroom that provides in-depth coverage of health issues and that is one of the three major operating programs at KFF (Kaiser Family Foundation). KHN is the publisher of California Healthline, an editorially independent service of the California Health Care Foundation.