April 4, 2018

Could a California lawsuit signal a new wave of antitrust cases against health systems?

Daily Briefing

    California Attorney General Xavier Becerra (D) has filed a suit accusing Sutter Health of anticompetitive pricing—a move that one expert said could signal "a new level of activity by state antitrust enforcers" nationwide. But Sutter says its charges are "reasonable and competitive" and lower than those of nearby hospitals.

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    An absence of competition in health care in California has received attention from state officials in the past, according to the Los Angeles Times. For instance, California in 2012 launched an investigation into the market concentration of several health systems, including Sutter, in the state and the effects of such market concentration on medical prices. Becerra during a press conference also cited a recent report by researchers at the University of California, Berkeley's that found prices for inpatient procedures were 70% higher in Northern California when compared to Southern California.

     According to The Hill, Sutter in Northern California operates 31 ambulatory surgery centers, 24 acute care hospital facilities, nine cancer centers, nine physician organizations, and six specialty care centers. Sutter in 2017 reported a net income of $893 million on $12.4 billion in revenue, The Hill reports.

    Lawsuit details

    The lawsuit, filed Friday in the San Francisco County Superior Court, alleges Sutter engaged in "anticompetitive contractual practices" that raised the prices of health care services in Northern California to levels above what it would have been able to charge in a competitive market. The lawsuit contends Sutter's actions "injured the general economy of Northern California and thus of the state."

    For instance, the lawsuit alleges Sutter imposed "gag clauses" that blocked network vendors—insurers that put together provider networks—from disclosing information about prices negotiated with Sutter. The lawsuit contends that this practice limited consumers' ability to compare and seek out better pricing.

    Further, the lawsuit alleges Sutter used "all-or-nothing" contract terms that required all of the system's facilities to be included in health insurance networks, and set "punitively high" out-of-network prices.

    Overall, the lawsuit contends Sutter's actions "improperly block any and all practical efforts to foster or encourage price competition between Sutter and any rival health care providers or hospital systems," and encouraged other health care providers in the state to raise their prices as well.

    Implications

    According to KHN, the lawsuit will likely draw attention from employers and policymakers around the United States about the financial implications of health consolidation, according to the Times.

    Martin Gaynor, a health care economist at Carnegie Mellon University, said the lawsuit could mean "we're going to see a new level of activity by state antitrust enforcers looking at competition in their own backyards," because "[t]here are a number of markets in the U.S. that are dominated by one very large, powerful health system."

    Separately, Glenn Melnick, an economist and expert on hospital finances at the University of Southern California, said if California prevails in the lawsuit, the result could be "a chill on anticompetitive practices that are being adopted across the U.S. and that could help slow down hospital price increases."

    According to Modern Healthcare, the California lawsuit might be consolidated into an existing class-action lawsuit seeking to recover hundreds of millions in alleged overcharges by Sutter.

    Sutter's response

    Karen Garner, a spokesperson for Sutter Health, declined to comment on the lawsuit, saying Sutter Health is aware of the suit, but the system's administrators had not seen the complaint. Garner said, "[O]n average, total charges for an inpatient stay in a Sutter hospital are lower than what other Northern California hospitals charge," adding that "industry comparisons show our salaries are reasonable and competitive, given the size, scope and complexity of our organization."

    "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," Garner said. (McGreevy/Terhune, Los Angeles Times, 3/30; Hellmann, The Hill, 3/30; Terhune/Ibarra, Kaiser Health News, 4/1; Bannow, Modern Healthcare, 3/30).

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