The antitrust settlement will resolve allegations that Sutter Health engaged in anticompetitive practices, resulting in higher healthcare prices for self-funded plan members.

A Superior Court of California judge has granted preliminary approval for a $575 million antitrust settlement Sutter Health proposed to resolve a case alleging that it engaged in anticompetitive practices that drove up healthcare prices in Northern California.

The Sacramento-based health system reached the settlement agreement over a year ago with plaintiffs, including California Attorney General and current HHS Secretary nominee Xavier Becerra and the United Food and Commercial Workers International Union (UEBT).

The settlement agreement will now be heard by a court for final approval on July 19, 2021.

The settlement resolves a class action lawsuit brought on by UEBT in 2014 claiming that Sutter’s anticompetitive business practices caused them to pay more for healthcare items and services than necessary.

Attorney General Becerra later filed a similar lawsuit on behalf of the people of California seeking injunctive relief to compel the health system to correct any anticompetitive practices moving forward. The lawsuits were combined by the court.

The anticompetitive practices identified in the lawsuit included intentionally establishing, increasing, and maintaining market power in Northern California, which it used to negotiate significantly higher healthcare prices than would have been charged in a competitive market.

Plaintiffs described the approach as an all-or-nothing strategy, which required payers in the region to negotiate with all facilities in the health system or have their contracts terminated.

Other claims included setting excessively high out-of-network rates and limiting publication of provider cost information and rates.

Sutter denies the claims and has pointed to data showing that it actually charged less for inpatient stay compared to hospital hospitals in the region and citing other hospital systems in the area including Kaiser Permanente, Dignity, and Adventist.

The settlement recently approved by a judge will prohibit the health system from anticompetitive conduct, such as charging exorbitant fees for out-of-network services, all-or-nothing contracting, and anticompetitive bundling of services and products.

Additionally, the health system will have to grant payers, employers, and self-funded payers access to pricing and quality information, more clearly define clinical integration and patient access considerations, and cooperate with a court-approved compliance monitor.

The settlement money will also go toward compensating employers, unions, and others covered by the class action lawsuit to cover legal costs and fees.

In a prepared statement on the California Attorney General website, Becerra said the settlement “represents a huge step toward making healthcare more accessible and affordable for patients who need it, especially for Northern California patients served by Sutter.” 

“This landmark settlement will require Sutter to stop practices that drive patients into more expensive health services and to operate with more transparency. The California Department of Justice will continue to work to keep the healthcare market competitive so that patients, families, and employers aren’t left holding the bag when big players dominate the market,” Attorney General Becerra continued.

Sutter was not immediately available for a comment, but a spokesperson told the American Hospital Association (AHA) that the ruling “enables the settlement approval process to continue moving toward final approval, which will ultimately help preserve our integrated network of care and is in the best interests of our patients and the communities we serve.”

Sutter is the largest hospital system in Northern California with 24 acute care hospitals, 36 ambulatory surgery centers, and 16 cardiac and cancer centers. The system also includes about 12,000 physicians and over 53,000 employees total.

The health system also negotiates contracts on behalf of Palo Alto Medical Foundation and some affiliated physician groups in the region, according to the Attorney General’s office.

Market concentration has been associated with higher healthcare prices. A University of California Berkeley report assessing the impact of hospital consolidation in California actually found that outpatient cardiology procedures in Southern California cost nearly $18,000 compared to almost $29,000 in Northern California, which is considered more concentrated.

For inpatient hospital procedures, the cost in Southern California is nearly $132,000 versus more than $223,000 in Northern California.