Sutter Health agrees to $575M settlement over allegation it drove up California healthcare prices

Sutter Health Building
Sutter Health reached a $575 million settlement to end a class action lawsuit that it drove up prices for Northern Californian patients. Image: Sutter Health

California-based hospital system Sutter Health reached a $575 million settlement with California and a major union trust over charges by the state they drove up healthcare prices.

The settlement announced Friday also requires Sutter Health, the largest healthcare provider in Northern California, to take several steps to end anticompetitive behavior. Those include capping out-of-network costs and increasing transparency.

“This first in the nation settlement is one of the largest actions against anticompetitive conduct in the healthcare marketplace across the country,” said California Attorney General Xavier Becerra in a press conference announcing the settlement. “It is a gamechanger.”

The settlement avoids an upcoming trial for the massive class-action antitrust case brought by the UFCW & Employers Benefit Trust, a health plan benefit trust for the United Food and Commercial Workers International Union.

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The lawsuit cites a 2018 study that found rapid consolidation among hospitals, physicians and insurers in California from 2010 to 2016 led to higher costs.

Healthcare procedures in Northern California often cost 20 to 30% more compared to Southern California, according to the study from the University of California, Berkeley.

Becerra said that the average cost of an inpatient procedure in southern California cost about $131,586, and cost $223,278 in northern California, a difference of “more than $90,000 essentially because you live in a different part of the state.”

The money from the settlement will be spread among workers from employers, union and the state government. Sutter must also pay legal fees and costs associated with the lawsuit.

Sutter had announced back in October that it was going to reach a settlement to the antitrust case originally filed back in March 2018.

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Becerra touted the terms of the settlement aimed at clamping down on anticompetitive behavior.

Sutter must limit what it can charge patients for out-of-network services. The system must also permit insurers, employers and self-funded payers to share pricing, quality and cost information with plan holders to help patients make better decisions.

Sutter also must halt “all-or-nothing” contracting deals that require insurers and employers to include all of Sutter’s hospitals and facilities or none of them. Now a payer can include some but not all of the system’s facilities in a contract.

An independent monitor will be appointed to make sure that Sutter meets the settlement's conditions. 

The system emphasized in a statement that "there were no claims that Sutter’s contracting practices with insurance companies affected patient care or quality."

Sutter’s system encompasses 24 hospitals, 36 ambulatory surgery centers, 16 cardiac and cancer centers. It employs 12,000 physicians.

The settlement drew condemnation from the American Hospital Association that warned it will increase healthcare costs.

“Unfortunately, it will be several dominant commercial health insurance companies — not consumers — that will benefit from terms that will allow those insurers to cherry-pick the hospitals with which they contract, as well as eliminate incentives for them to work with hospitals to develop and sustain value-based care,” said AHA General Counsel Melinda Hatton in a statement.

The settlement comes about a month after the hospital system reached a $46 million deal with the Department of Justice to settle allegations of Stark Law violations.

The system also agreed to pay $30 million to settle allegations that it submitted inaccurate information to the federal government in order to get higher Medicare Advantage payments.