Attorney General Becerra: State, Unions, Employers, and Workers Reach Settlement to Address Alleged Anticompetitive Practices by Sutter Health that Increased Healthcare Costs for Californians

SACRAMENTO – California Attorney General Xavier Becerra today announced the terms of a settlement agreement reached with Sutter Health (Sutter), the largest hospital system in Northern California. The settlement resolves allegations by the Attorney General, the United Food and Commercial Workers International Union and Employers Benefit Trust, and class action plaintiffs, that Sutter’s anticompetitive practices led to higher healthcare costs for patients in Northern California compared to other places in the state. As a result of the settlement, Sutter will pay $575 million in compensation and make significant changes in its operations and practices to restore competition in Northern California’s healthcare market. This constitutes one of the largest legal actions in the country attacking anticompetitive behavior in the healthcare sector and includes unprecedented levels of injunctive relief to restore competition in the market.

“When one healthcare provider can dominate the market, those who shoulder the cost of care — patients, employers, insurers — are the biggest losers,” said Attorney General Becerra. “Today’s settlement will be a game changer for restoring competition in our healthcare markets. Sutter has agreed to pay over half a billion dollars to compensate those who challenged its billing practices. It must operate with more transparency. It must stop practices that drive patients into more expensive health services and products. And it must operate under the watchful eye of a court-approved monitor selected by the Attorney General’s Office for at least 10 years. 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. The California Department of Justice is prepared to protect consumers and competition, especially when it comes to healthcare.”

This litigation against Sutter began in 2014 when the United Food and Commercial Workers International Union and Employers Benefit Trust and numerous individual plaintiffs — later consolidated into a class action — filed their lawsuit challenging Sutter’s practices in rendering services and setting prices. They sought compensation for what they alleged were unlawful, anticompetitive business practices, which caused them to pay more than necessary for healthcare services and products. In March of 2018, Attorney General Becerra filed a similar lawsuit against Sutter on behalf of the people of California principally seeking injunctive relief to compel Sutter to correct its anticompetitive business practices moving forward. The separate lawsuits were combined by the court into one case. In October of 2019, on the eve of trial, the parties reached an agreement to settle the lawsuits. The settlement must be approved by the court. The court has set a hearing on the settlement for February 25, 2020.

Under the terms of the settlement, Sutter will be required to:

• Pay $575 million to compensate employers, unions, and others covered under the class action and to cover costs and fees associated with the legal efforts;

• Limit what it charges patients for out-of-network services, helping ensure that patients visiting an out-of-network hospital do not face outsized, surprise medical bills;
• Increase transparency by permitting insurers, employers and self-funded payers to provide plan members with access to pricing, quality, and cost information, which helps patients make better care decisions;
• Halt measures that deny patients access to lower-cost plans, thus allowing health insurers, employers and self-funded payers to offer and direct patients to more affordable health plan options for networks or products;
• Stop all-or-nothing contracting deals, thus allowing insurers, employers and self-funded payers to include some but not necessarily all of Sutter’s hospitals, clinics, or other commercial products in their plans’ network.

• Sutter must also make facilities such as their rural hospitals, the Alta Bates Summit Medical Center, and Sutter hospitals in San Francisco available to insurers, employers, and self-funded payers as part of commercial healthcare benefit plans;

• Cease anticompetitive bundling of services and products which forced insurers, employers, and self-funded payers to purchase for their plan offerings more services or products from Sutter than were needed. Sutter must now offer a stand-alone price that must be lower than any bundled package price to give insurers, employers, and self-funded payers more choice;
• Cooperate with a court-approved compliance monitor to ensure that Sutter is following the terms of the settlement for at least 10 years. The monitor will receive and investigate complaints and may present evidence to the court; and
• Clearly set definitions on clinical integration and patient access considerations. The settlement makes clear that for Sutter to claim it has clinically integrated a system, it must meet strict standards beyond regional similarities or the mere sharing of an electronic health record, and must be integrating care in a manner that takes into consideration the quality of care to the patient population. This is important because clinical integration can be used to mask market consolidation efforts by hospital systems, when in fact there is no true integration of a patient’s care. For example, saying that hospitals are regionally close or that the hospitals are sharing electronic health records is not enough, there must be close coordination that will lead to less costly, higher quality care for local communities.

The Sutter network consists of some 24 acute care hospitals, 36 ambulatory surgery centers, and 16 cardiac and cancer centers. It also includes some 12,000 physicians and over 53,000 employees. In addition, Sutter negotiates contracts on behalf of the Palo Alto Medical Foundation and many affiliated physician groups.

A number of studies have shown how over-consolidation drives up prices for consumers. For example, a University of California Berkeley report found that outpatient cardiology procedures in Southern California cost nearly $18,000 compared to almost $29,000 in Northern California. For inpatient hospital procedures, the cost in Southern California is nearly $132,000 compared to more than $223,000 in Northern California, a more than $90,000 difference. A 2016 study found that a cesarean delivery in Sacramento, where Sutter is based, cost more than $27,000, nearly double what it cost in Los Angeles or New York, making Northern California one of the most expensive places in the country to have a baby.

This is the latest victory in Attorney General Becerra’s fight to keep California markets balanced and competitive and to protect patients’ rights to affordable care. Earlier this year, Attorney General Becerra announced four settlement agreements totaling nearly $70 million against pharmaceutical companies for entering into collusive “pay-for-delay agreements” that illegally delay affordable prescription drugs from entering the market. In May, the Attorney General filed a lawsuit against the Trump Administration’s “Healthcare Refusal Rule,” which threatened to allow anyone who provides healthcare services to patients to refuse to render those services based on the provider’s religious or moral objections. The Attorney General also sponsored a bill, enacted this year, banning collusive pay-for-delay agreements that keep cheaper generic medications off the market and raise costs for consumers. Attorney General Becerra also leads a coalition of 20 states and the District of Columbia in defending the Affordable Care Act after the Trump Administration abandoned the role.

A copy of the settlement to be provided to the court is available here.