California sues Sutter Health alleging excessive pricing

Mar 30 2018

California's attorney general announced a lawsuit Friday against Sutter Health, alleging the hospital giant engaged in anticompetitive conduct that drove up prices for patients and employers in the state.

The lawsuit marked a bold move by state Attorney General Xavier Becerra against the dominant health care system in Northern California as concerns mount nationally about consolidation among hospitals, insurers and other industry middlemen.

"It's time to hold health care corporations accountable," Becerra said at a news conference Friday. "We seek to stop Sutter from continuing this illegal conduct."

Sutter, which owns 24 hospitals, reported net income of $893 million last year on $12.4 billion in revenue.

Sutter did not immediately respond to a request for comment.

Sutter has disputed such allegations in the past and says its market conduct and fees are in line with its competitors'.

This high-profile legal fight will attract attention from employers and policymakers across the country amid growing alarm about the financial implications of industry consolidation. Large health systems are gaining market clout and the ability to raise prices by acquiring more hospitals, outpatient surgery centers and physicians' offices.

The complaints about Sutter's high prices and market power have persisted for years.

A 2016 study found that hospital prices at Sutter and Dignity Health, the two biggest hospital chains in California, were 25 percent higher than at other hospitals around the state. Researchers at the University of Southern California said the giant health systems used their market power to drive up prices — making the average patient admission at both chains nearly $4,000 more expensive.

This week, researchers at University of California-Berkeley issued a report that examined the consolidation of the hospital, physician and health insurance markets in California from 2010 to 2016. The authors said 44 of California's 58 counties had "highly concentrated" hospital markets.

The problem is worse in Northern California, and the report said prices for medical procedures are often up to 30 percent higher there than in Southern California, which has more competition.

"Consumers are paying more for health care as a result of market consolidation. It is now time for regulators and legislators to take action," according to the report by the Petris Center on Health Care Markets and Consumer Welfare at UC-Berkeley.

After the report was issued Monday, Becerra said his office would be reviewing those findings and pledged to apply more scrutiny to health care mergers and anticompetitive practices across the state.

Becerra's lawsuit could build off a similar civil case filed in 2014 by a grocery workers' health plan.

The plaintiffs in that case, scheduled for trial next year, allege Sutter is violating antitrust and fair competition laws. The plaintiffs have been requesting documents related to contracting practices, such as "gag clauses" that prevent patients from seeing negotiated rates and choosing a cheaper provider. They also are challenging "all-or-nothing" terms that require every facility in a health system to be included in insurance networks.

In November, the state judge handling the grocery workers' case said Sutter was "grossly reckless" when it intentionally destroyed 192 boxes of documents that employers and labor unions were seeking in the lawsuit. San Francisco County Superior Court Judge Curtis E.A. Karnow said Sutter destroyed documents "knowing that the evidence was relevant to antitrust issues. … There is no good explanation for the specific and unusual destruction here."

The lead plaintiffs, the United Food and Commercial Workers and its Employers Benefit Trust, are a joint employer-union health plan that represents more than 60,000 employees, dependents and retirees. The court certified its case as a class action in August, allowing hundreds of other employers and self-funded health plans to potentially benefit from the litigation.

In addition to its 24 hospitals, Sutter's nonprofit health system has 35 surgery centers, 32 urgent-care clinics and more than 5,000 physicians in its network.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.