Additional settlement details were recently released in the antitrust case brought against Sacramento-based Sutter Health, one of the nation’s largest hospital systems. In October 2019, Sutter settled People of the State of California ex rel. Xavier Becerra v. Sutter Health, an antitrust suit brought by the California Attorney General’s Office and a class of private plaintiffs, shortly before a three-month trial was set to begin. Under the deal, additional details of which were only recently revealed, Sutter agreed to pay $575 million to resolve the plaintiffs’ claims and to stop certain business practices (which are described below). Sutter’s settlement represents about 60% of the $980 million in damages plaintiffs were seeking at trial. The settlement remains preliminary and still must be approved by the court following a hearing scheduled for February 25, 2020.

Hospital systems need to be aware of this case, as copycat lawsuits may follow across the country. The following contracting practices formed the basis for the antitrust claims against Sutter:

“All-or-Nothing” Contracting

Sutter allegedly required health insurers to include all Sutter hospitals in their networks in order to have any Sutter hospitals. A key allegation in the case is that Sutter possesses certain “must-have” hospitals—that is, hospitals which insurers must include in their networks to make them commercially viable, due to factors such as physician referrals, strong reputation, or lack of alternatives. Because insurers needed Sutter’s “must-have” hospitals in their networks, they were allegedly compelled to take Sutter’s less desirable hospitals as well. Sutter allegedly reinforced this strategy by setting excessive out-of-network rates, which further deterred insurers from building networks without Sutter hospitals by making it prohibitively expensive for participants in those plans to use Sutter facilities.

Use of Anti-Steering Provisions

Even if insurers were forced to accept all Sutter hospitals into their networks, they might still have steered enrollees toward more cost-effective hospitals by creating “tiered networks”—i.e., by offering consumers a choice between a more expensive “tier” including all of Sutter’s hospitals, and a less expensive tier excluding some Sutter hospitals. Sutter allegedly foreclosed this option by forbidding tiered networks or severely penalizing insurers that used them.

Price Secrecy

Finally, Sutter is alleged to have contractually prohibited insurers from disclosing upfront to patients the prices of Sutter’s healthcare services. This allegedly prevented patients from shopping around for the best price and shielded Sutter from potential price competition by other hospitals.

What Does This Settlement Mean for Hospitals?

This case has been closely watched, as some observers claim these contracting practices are widespread throughout the industry. Given the lucrative settlement, private plaintiffs and state attorneys general may be enticed to target other large hospital systems nationwide. Hospital systems should pay careful attention to make sure the terms of their network contracts do not expose them to unnecessary risk.

For more information on this case or any other antitrust risk-related issues, contact the authors of this alert.