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Sutter Antitrust Class Action Could Upend Industry Consolidation

Sept. 20, 2019, 9:23 AM

Health-care consolidation and antitrust allegations are the focus of litigation that alleges Sutter Health Systems uses its Northern California dominance to force higher fees out of employer-funded health plans and consumers.

Jury selection begins Sept. 23 in San Francisco in a case that could translate into more than a billion-dollar liability for California’s third-largest hospital system. Sutter denies the allegations.

Employers, payors, and the health-care industry are closely watching the case. Success in California could spill into other states and undermine consolidation efforts by other health-care providers, observers said.

“If I’m a system somewhere else and these guys lose, these class-action lawyers I assume are going to start putting pins in the map around the country and say, ‘OK let’s go look at Utah, Florida, other parts of California’” that have dominant players, said Glenn Melnick, a health-care economist at the University of Southern California. “They have a template now.”

Total Revenue Hit $13 Billion in 2018

Sutter Health is a California behemoth, consisting of 24 acute care hospital facilities, 36 ambulatory surgery centers, nine cancer centers, six specialty care centers, nine major physician organizations, with 12,000 physicians and 53,000 employees located in 19 counties in Northern California. The system reported $13 billion in revenue in 2018.

“There is no evidence that Sutter has hurt competition, as demonstrated by the fact that new hospitals continue to open and existing facilities continue to expand in markets that Sutter Health serves, including in the San Francisco Bay Area and the greater Sacramento region,” Sutter said in a statement.

Northern California has experienced more rapid consolidation of hospital, physician, and insurance markets from 2010 to 2016 than Southern California, University of California Berkeley researchers found. And inpatient prices were 70% higher, outpatient prices 17%-55% higher depending on physician specialty, and Affordable Care Act premiums 35% higher in the northern part of the state.

Sutter inflated prices by an average 15.5% between 2003 and 2016, a United Food & Commercial Workers & Employers Benefit Trust expert analysis said. The UFCW trust sued Sutter first, followed by the state. For trial purposes, the court joined California’s lawsuit with the UFCW class action.

The inflated prices translated into $756 million in overcharges, the state and class members allege. More than 90% of class members for which measurements were available paid higher average prices at Sutter than class members paid for services at other California hospitals, they said.

Patients Protected, Sutter Says

The hospital system says its offerings shield patients from unforeseen expenses.

“Our broad provider network gives patients greater choice and predictability and protects patients from surprise billing. It also prevents patients from paying more in co-pays and deductibles for out-of-network doctor and hospital visits,” Sutter’s statement said.

Treble damages and attorneys’ fees are available if the UFCW and state win under the Cartwright Act, California’s antitrust law. The union trust fund, representing a class of large California employers who self insure their health-care costs, seeks damages from the jury while the California Attorney General wants to stop the practices alleged.

Jury selection is set for Sept. 23-24 with a two-week break while the parties argue over issues including sealing contracts negotiated with third parties including Anthem Inc., Blue Shield of California Inc., United Healthcare Services Inc., Teamsters Benefit Trust, Apple Inc., and HealthNet of California Inc. The trial is expected to last 60-90 days.

Consolidation Concerns

Health-care costs are one of the most important concerns in the U.S., said Jaime King, associate dean of the University of California Hastings School of Law and director of the Concentration on Law and Health Sciences.

“I know that attorneys general in other states are paying very close attention to what’s happening because concentration is not something that is just happening in California—it’s happening all over the country. If successful we will start to see a rollout of lots of similar cases across country,” King said.

“I think we will see ripple effects that go well into the future,” she said.

The case has implications especially in Northern California and could have legs elsewhere, Attorney General Xavier Becerra (D) said.

“Does this have an impact outside California? I would say that most everything that California does has an impact on this country and dare say the world. We hope that in our effort to pursue lower costs and higher quality of care in health care that the beneficiaries are not just Californians but people throughout the country,” Becerra said.

The case is UFCW & Employers Benefit Trust v. Sutter Health, Cal. Super. Ct., No. CGC-14-538451, voir dire/jury panel order 9/19/19.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Peggy Aulino at maulino@bloomberglaw.com