One of California’s largest hospital systems is facing a trial over accusations that it has used its market dominance to snuff out competition and overcharge patients for medical bills.
Opening arguments begin Thursday in the antitrust case against Sutter Health, which operates 24 hospitals with 5,500 doctors across Northern California. It was first brought by employers and unions amid growing frustration over the rising cost of health care in 2014; California’s attorney general, Xavier Becerra, filed a similar suit last year following a six-year DOJ investigation.
“We’re alleging that Sutter Health Systems is offering care at a higher price and perhaps even undermining quality by the way it goes about doing its business,” Becerra said in a briefing ahead of last month’s jury selection. “And that’s not only not fair, but we believe and we allege it is against the law.”
“Bottom line,” Becerra said, “the public is being ripped off.”
The trial is expected to last months. The lawsuit points to research showing that health care costs in Northern California are higher than elsewhere in the state, including a 2018 study that found unadjusted inpatient procedure prices are 70% higher in Northern California than Southern California.
“Much of the increased cost of health care in Northern California is attributable to Sutter” the AG alleges in a 49-page complaint that details a range of anticompetitive practices it says the Sacramento-based nonprofit has pursued as it gobbled up competition.
In the 1990s, Sutter embarked on “a deliberate strategy” to gain market power in certain geographic areas through a campaign of mergers and acquisitions, the parties allege, noting that Sutter’s assets rose to $15.6 billion in 2016 from $6.4 billion in 2005.
Sutter Health denies the claims, saying it faces fierce competition across the San Francisco Bay Area and the Sacramento Valley and insurance companies are to blame for pushing up costs.
“Sutter Health looks forward to demonstrating in court why its integrated care model promotes competition and, most importantly, benefits patients and communities,” Sutter spokeswoman Amy Thoma Tan said in a statement. She said the largest health insurance companies support the lawsuit.
“Insurance companies want to maximize profits by pushing insurance plans that limit their choices and result in surprise billing,” Thoma Tan said.
At issue are several of Sutter Health’s contracting policies that Becerra says have allowed the company to “thoroughly immunize itself from price competition.”
One way insurance companies keep costs down is to steer patients to cheaper health care providers through a variety of incentives. Becerra says Sutter Health bans insurance companies from using these incentives, making it harder for patients to use their lower-priced competitors.
Becerra also says Sutter has an “all or nothing” approach to negotiating with insurance companies, requiring them to include all the company’s hospitals in their provider networks even if it doesn’t make financial sense to do so.
The case was originally filed in 2014 by a group of self-funded employers and picked up steam last year when Becerra filed a similar lawsuit and the cases were combined.
Becerra’s lawsuit seeks to halt Sutter’s alleged practices and does not seek monetary damages. But the private litigation brought by a class of about 1,400 self-funded employers seeks damages that could exceed $1 billion.
It’s rare for antitrust lawsuits of this size to go to trial. Atrium Health, a North Carolina-based hospital system, settled a similar anti-trust lawsuit with the federal government last year. And CHI Franciscan, a health system based in Washington state, also settled similar claims in March that had been brought by the state.