Sutter Health Sued for Anticompetitive Practices

California prosecutors allege the Sacramento-based health system engages in illegal practices that stifle competition and lead to higher healthcare costs for consumers.

The California Attorney General’s Office has filed suit against Sutter Health, alleging that the largest health system in Northern California is engaged in anticompetitive practices that are raising healthcare costs for consumers.

"Sutter Health is throwing its weight around in the healthcare market, engaging in illegal, anticompetitive pricing that hurts California families," California Attorney General Xavier Becerra said Friday.

"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," Becerra said.

Sutter Health spokesperson Karen Garner said the Sacramento-based health system was still reviewing the suit and could not comment on the specifics of the complaint.

"It's important to note that publicly available data show that on average, total charges for an inpatient stay in a Sutter hospital are lower than what other Northern California hospitals charge," Garner said.

 The complaint alleges that Sutter Health’s illegal practices resulted in higher prices for healthcare in Northern California by:   

• Establishing, increasing and maintaining Sutter Health's power to control prices and exclude competition;
   
• Foreclosing price competition by Sutter Health's competitors;
   
• Enabling Sutter Health to impose prices for hospital healthcare services and ancillary products that far exceed the prices it would have been able to charge in an unconstrained, competitive market. Those pricing practices went toward more acquisitions, extreme levels of executive compensation, and financing its own insurance arm.

The complaint alleges that Sutter violated the Cartwright Act by:

• Preventing insurance companies from negotiating with it on an anything other than “all-or-nothing” system-wide basis. This means that health insurers are required to negotiate with all of Sutter Health system or face termination of their contract;
   

• Preventing insurance companies from giving consumers more low-cost health plan options. 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;
   
• Setting excessive high out-of-network rates for patients who must seek care outside of their provider network. These rates exceed those of Sutter’s competitors and Medicare.
   
• Restricting publication of provider cost information in rates.

The AG’s complaint comes in the wake of a new report by University of California Berkeley’s Petris Center on Health Care Markets and Consumer Welfare that documents how the rapid consolidation of healthcare markets in California has led to rising healthcare costs for consumers throughout the state.

The cost of the average inpatient hospital procedure in Northern California $223,278 exceeded that in Southern California $131,586 by more than $90,000, the report found.

Sacramento-based Sutter Health includes 24 acute care hospitals, 31 ambulatory surgery centers, nine cancer centers, six specialty care centers, nine major physician organizations, 8,200 physicians and 48,000 employees in 19 counties in Northern California.

Sutter Health also negotiates contracts on behalf of a variety of other affiliated physician groups, the largest being the Palo Alto Medical Foundation.

Garner's entire statement reads as follows:

"We are aware that a complaint was filed, but we have not seen it at this time, so we cannot comment on specific claims.

Sutter Health is proud to save patients, government payers and health plans hundreds of millions of dollars each year by providing more efficient and integrated care. It's important to note that publicly available data (from the California Office of Statewide Health Planning and Development) show that on average, total charges for an inpatient stay in a Sutter hospital are lower than what other Northern California hospitals charge.

Further, Sutter Health has held average overall rate increases to health plans to the low single digits since 2012 in spite of our actual expenses for labor, facilities and technology increasing more than 37% during the same time period. We don't know why some health plans have increased their rates to consumers as much as 20% annually.

It's also important to note that healthy competition and choice exists across Northern California. 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."