Editor's Corner: Could Sutter's arbitration push eventually extend to patients?

Ron Shinkman
Ron Shinkman

Editor's Note: Sutter Health has requested arbitration for employer groups, not individual enrollees in either those groups or its health plans. This article has been revised to reflect that.

Perhaps it's time for the Department of Justice to focus attention on a relatively small healthcare system, which mostly operates in part of just one state but could wind up upending healthcare finance. And who knows, even patient safety could be impacted one day as well.

That would be Sutter Health, which operates 26 hospitals in Northern California (and one psychiatric facility in Hawaii).

Over the years, Sutter has been a business school case study on exploiting market concentrations, particularly the San Francisco Bay Area and Sacramento, where it is predominant. If you want to know why there is a roughly 30 percent differential in hospital prices between Northern and Southern California, Sutter Health may be the likely culprit.

But now Sutter is engaging in a business practice that is particularly troubling, not only for employer groups, but for patients and the overall safety of hospitals in California.

Sutter wants self-insured employer groups to drop the right to sue. Instead, the cases would have to be resolved in binding arbitration, a process that usually favors larger corporate entities. The health system has been engaged in litigation with a variety of groups to determine whether it actually possesses this right.

The dispute is ostensibly over billing and other financial issues. But down the line, what is to stop Sutter or other healthcare systems or hospitals from demanding the same regarding individual enrollees, or even the care being provided to those groups, or even individual patients?

Sutter spokesperson Bill Gleeson has assured me that is nowhere on Sutter's agenda. But we live in interesting times, and a change of course from providers on this issue wouldn't necessarily surprise me.

Many large companies have already pushed for arbitration clauses in other forms of contracts with consumers or smaller entities. In my mind, to even contemplate something like this for patients would be deeply troubling.

That's because the state of hospital safety and oversight in California is currently in an uncertain state at best.

Although the California Department of Public Health (CDPH) was empowered to penalize and fine hospitals for life-endangering medical errors about a decade ago, its ability to do so has been compromised in recent years.

Two major issues occurred. The first is that in 2014 the state expanded the purview of CDPH to issue penalties and fines to incidents that did not endanger patients' lives. At about the same time, Debby Rogers, R.N., the highly competent director of the CDPH's health quality initiatives, left the agency and soon landed at the California Hospital Association.

The number of penalties and fines issued by the state tapered off very soon after Rogers' departure. Moreover, some 60 of those penalties have been appealed, where they often languish in the state's notoriously congested administrative law courts, and are often reversed.

Just a few years ago, the CDPH regularly announced penalties and fines against hospitals. Now it's been nearly a year since it has issued any. The press conferences that were a staple of Rogers' tenure are also a thing of the past. The agency has told me it is trying to address a shortage of facility inspectors, but I don't expect to see any more penalties issued until 2017 at the earliest.

Moreover, if a provider in California was able to foreclose the options of injured patients to pursue legal recourse from their hospitals, it means patients have virtually no good options if they're injured during treatment. The state capped non-economic damages in medical malpractice lawsuits against physicians in 1975 at $250,000. That figure hasn't moved upward in the intervening decades, even though $250,000 in 1975 dollars is the equivalent to more than $1.1 million today. As a result, attorneys have become more reluctant to represent plaintiffs in such cases.

So, if Sutter is successful at putting the arbitration clause into contracts with self-insured employer groups, it could indeed provide the impetus for them to spread (many medical insurers in California already use arbitration clauses in their individual enrollment contracts).

While such an action could no doubt fatten the bottom lines of providers that took that leap, I believe it will also disincentivize hospital managers from being proactive on safety and reducing medical errors, which are a nationwide problem that kills hundreds of thousands of Americans every year. – Ron (@FierceHealth)