Hospital Giant Sutter Health Faces Legal Reckoning Over Medical Pricing

SAN FRANCISCO — Economists and researchers lengthy have blamed the excessive value of well being care in Northern California on the enormous medical programs which have wolfed up hospitals and doctor practices — most notably Sutter Health, a nonprofit chain with 24 hospitals, 34 surgical procedure facilities and 5,000 physicians throughout the area.

Now, these arguments could have their day in courtroom: An extended-awaited class-action lawsuit towards Sutter is ready to open Sept. 23 in San Francisco Superior Court.

The hospital big, with $13 billion in working income in 2018, stands accused of violating California’s antitrust legal guidelines by leveraging its market energy to drive out competitors and overcharge sufferers. Health care prices in Northern California, the place Sutter is dominant, are 20% to 30% greater than in Southern California, even after adjusting for value of residing, in line with a 2018 study from the Nicholas C. Petris Center on the University of California-Berkeley cited within the grievance.

The case was initiated in 2014 by self-funded employers and union trusts that pay for employee well being care. It since has been joined with a similar case introduced final 12 months by California Attorney General Xavier Becerra. The plaintiffs search as much as $900 million in damages for overpayments that they attribute to Sutter; beneath California’s antitrust legislation, the award could be tripled, leaving Sutter responsible for as much as $2.7 billion.

The case is being adopted intently by trade leaders and lecturers alike.

“This case could be huge. It could be existential,” stated Glenn Melnick, a well being care economist on the University of Southern California. If the case is profitable, he predicted, well being care costs may drop considerably in Northern California. It additionally may have a “chilling effect” nationally for big well being programs which have adopted comparable negotiating ways, he stated.

The case already has proved controversial: In November 2017, San Francisco County Superior Court Judge Curtis E.A. Karnow sanctioned Sutter after discovering it had deliberately destroyed 192 boxes of documents sought by plaintiffs, “knowing that the evidence was relevant to antitrust issues.” He wrote: “There is no good explanation for the specific and unusual destruction here.”

Antitrust enforcement is extra generally throughout the purview of the Federal Trade Commission and U.S. Department of Justice. “One of the reasons we have such a big problem [with consolidation] is that they’ve done very little. Enforcement has been very weak,” stated Richard Scheffler, director of the Nicholas C. Petris Center. From 2010 to 2017, there have been more than 800 hospital mergers, and the federal authorities has challenged only a handful.

“We feel very confident,” stated Richard Grossman, lead counsel for the plaintiffs. “Sutter has been able to elevate their prices above market to the tune of many hundreds of millions of dollars.”

Or, as Attorney General Becerra put it at a information convention unveiling his 2018 lawsuit: “This is a big ‘F’ deal.”

Sutter vigorously denies the allegations, saying its massive, built-in well being system gives tangible advantages for sufferers, together with extra constant high-quality care. Sutter additionally disputes that its costs are greater than different main well being care suppliers in California, saying its inside analyses inform a distinct story.

“This lawsuit irresponsibly targets Sutter’s integrated system of hospitals, clinics, urgent care centers and affiliated doctors serving millions of patients throughout Northern California,” spokeswoman Amy Thoma Tan wrote in an emailed assertion. “While insurance companies want to sell narrow networks to employers, integrated networks like Sutter’s benefit patient care and experience, which leads to greater patient choice and reduces surprise out-of-network bills to our patients.”

There’s no dispute that for years Sutter has labored aggressively to purchase up hospitals and physician practices in communities all through Northern California. At concern within the case is the way it has used that market dominance.

According to the lawsuit, Sutter has exploited its market energy by utilizing an “all-or-none” strategy to contracting with insurance coverage firms. The tactic — often known as the “Sutter Model” — includes sitting down on the negotiating desk with a requirement: If an insurer needs to incorporate any one of many Sutter hospitals or clinics in its community, it should embody all of them. In Sutter’s case, a number of of its 24 hospitals are “must-haves,” that means it might be nearly unimaginable for an insurer to promote an insurance coverage plan in a given neighborhood with out together with these amenities within the community.

“All-or-none” contracting permits hospital programs to demand greater costs from an insurer with little alternative however to acquiesce, even when it could be cheaper to exclude among the system’s hospitals which might be dearer than a competitor’s. Those greater costs trickle all the way down to shoppers within the type of greater premiums.

The California Hospital Association contends such negotiations are essential for hospitals struggling financially. “It can be a great benefit to small hospitals and rural hospitals that don’t have a lot of bargaining power to have a larger group that can negotiate on their behalf,” stated Jackie Garman, the CHA’s authorized counsel.

Sutter is also accused of stopping insurers and employers from tiering advantages, a method used to steer sufferers to more cost effective choices. For instance, an insurer may cost $100 out-of-pocket for a process at a most well-liked surgical procedure middle, however $200 at a dearer facility. In addition, the lawsuit alleges that for years Sutter restricted insurers from sharing details about its costs with employers and employees, making it almost unimaginable to check costs when deciding on a supplier.

Altogether, the plaintiffs allege, such ways are anti-competitive and have allowed Sutter to drive up the price of care in Northern California.

Hospitals in California and different areas throughout the nation have watched the success of such ways and brought observe. “All the other hospitals want to emulate [Sutter] to get those rates,” stated Anthony Wright, government director of the advocacy group Health Access.

A verdict that finds such ways unlawful would “send a signal to the market that the way to compete is not to be the next Sutter,” stated Wright. “You want them to compete instead by providing better quality service at a lower price, not just by who can get bigger and thus leverage a higher price.”

Along with damages, Becerra’s grievance requires dismantling the Sutter Model. It asks that Sutter be required to barter costs individually for every of its hospitals — and prohibit officers at completely different hospitals from sharing particulars of their negotiations. While leaving Sutter intact, the strategy would give insurers extra negotiating room, significantly in communities with competing suppliers.

Consolidation within the well being care trade is probably going right here to remain: Two-thirds of hospitals throughout the nation are a part of bigger medical programs. “It’s very hard to unscramble the egg,” stated Melnick.

California legislators have tried to restrict the “all or nothing” contracting phrases a number of occasions, however the laws has stalled amid opposition from the hospital trade.

Now the courts will weigh in.

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