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CA Sues Sutter Health Over Healthcare Cost, Competition Concerns

Sutter Health allegedly engaged in anti-trust behaviors that reduced competition and increased healthcare costs in Northern California, the state’s Attorney General said.

Healthcare costs and competition

Source: Thinkstock

By Jacqueline LaPointe

- California’s Attorney General Xavier Becerra recently announced that the state filed a lawsuit against Sutter Health that accuses the largest health system in Northern California of engaging in anticompetitive behavior that resulted in higher healthcare costs.

The lawsuit claimed that Sutter Health intentionally established, increased, and maintained market power to control healthcare prices and exclude competition. The non-profit health system also allegedly set prices for hospital services and ancillary products that were significantly higher than the prices that would have been charged in a competitive market.

“Sutter Health is throwing its weight around in the healthcare market, engaging in illegal, anticompetitive pricing that hurts California families,” Becerra said. “These tactics are risking Californians’ lives by driving up the cost of healthcare for everyone. Big business should not be able to throttle competition at the expense of patients.”

Sutter Health is one of the largest health systems in the northern region of California with 24 hospitals, 31 ambulatory surgery centers, 9 cancer centers, 6 specialty care centers, and 9 major physician organizations. The health system also negotiates on behalf of several other affiliated organizations, including the Palo Alto Medical Foundation.

The system generated over $12 billion in operating revenues in 2017, according to the organization’s website.

The Attorney General alleged that the non-profit health system of over 53,000 employees violated a state anti-trust law by negotiating with payers through an “all or nothing” approach, which requires payers to negotiate with all facilities in the health system or face termination of contract.

Sutter Health also allegedly prevented insurance companies from expanding low-cost health plan options for beneficiaries.

“For example, an insurance company might charge a $200 out-of-pocket cost for an outpatient surgery performed by a facility outside of the preferred group and $100 for outpatient surgery performed by a facility inside the preferred group,” the California Attorney General explained.

Other illegal behaviors alleged in the lawsuit included setting “excessively high” out-of-network rates for patients receiving care outside of the network and limiting publication of provider cost information and rates.

The complaint accused Sutter Health of using the profits earned from illegal practices to acquire provider organizations, excessively compensate their executives, and finance its own insurance line.

Sutter Health did not comment on specific claims from the California Attorney General’s office.

However, the health system said on its website that it is “proud to save patients, government payers and health plans hundreds of millions of dollars each year by providing more efficient and integrated care.” The announcement pointed out that publicly available data shows that, on average, Sutter Health charged less for an inpatient stay compared to other hospitals in the region.

Furthermore, Sutter Health reported that it maintained overall rate increases in the single digits since 2012 even though labor, facility, and health IT costs rose 37 percent during the same period.

“It’s also important to note that healthy competition and choice exists across Northern California,” the health system added. “There are 15 major hospital systems and 142 hospitals in Northern California, including Kaiser Permanente, Dignity, Adventist, Tenet, UC and more. And health plans can elect to include or exclude parts of the Sutter Health system from their networks, and health plans have been doing so for many years.”

California Attorney General Becerra noted that the Sutter Health complaint is part of a larger investigation into the wide healthcare cost disparity between Northern and Southern California. He referenced a 2011 Los Angeles Times report that found hospitals in Northern California’s six most populous counties earned 56 percent more revenue per patient per day from payers and patients compared to hospitals in Southern California’s six biggest counties.

Healthcare mergers and acquisitions in California contributed to higher healthcare costs throughout the state, a recent University of California Berkeley study showed. But consolidation in Northern California was especially an issue for healthcare costs.

The average inpatient procedure cost $223,278 in the consolidated Northern California market versus just $131,586 in the Southern California market, researchers reported.

In light of the report, Becerra called for action prior to filing the lawsuit against Sutter Health. He aims to make consumer protections and market competition a top priority during his tenure.

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