Sutter Health is $575 million poorer — and now must operate under new rules designed to curb its ability to dictate the price of health care in Sacramento and Northern California.
A judge late Friday approved a landmark antitrust settlement agreement between the Sacramento-based hospital chain, the state of California and a group of health insurers and big employers.
The final approval by Judge Anne-Christine Massullo, in San Francisco Superior Court, came nearly two years after Sutter tentatively agreed to the deal – and seven years after a health insurance plan run by the United Food and Commercial Workers union sued the health care giant. The state joined the case in 2018.
The case, which drew national attention, focused on Sutter’s business practices. The state and others said Sutter – with 24 main hospitals, 12,000 doctors and $13 billion in annual revenue – used its market power to strong-arm employers and insurers into lopsided contract terms that inflated prices for a wide range of services.
Because of an “umbrella effect,” Sutter’s high prices allowed its competitors to raise their rates, too, critics said. State officials frequently cited various studies showing the high cost of medical care in Northern California, including a 2016 report showing that cesarean births cost about $27,000 on average in Sacramento, nearly twice the cost of Los Angeles.
Among other things, Sutter agreed to end “all-or-nothing” contracts that critics said were forcing insurers and big employers to cover services at Sutter hospitals and clinics they didn’t necessarily want. Sutter will be under a court-approved independent monitor’s supervision for 10 years. In addition, Sutter agreed to pay $575 million in damages to the employers and insurers.
“This is a groundbreaking settlement and a win for Californians,” said Attorney General Rob Bonta in a prepared statement. “Sutter will no longer have free rein to engage in anticompetitive practices that force patients to pay more for health services.”
The final agreement was delayed by several weeks because of a fight over attorney’s fees. The judge approved $186 million in fees and costs, leaving $389 million for the employers and insurers.
‘We are comfortable with what we agreed to’
Sutter didn’t admit to any wrongdoing in the settlements and has repeatedly downplayed the impacts of the changes coming in its business practices.
“We are comfortable with what we agreed to in the settlement as a part of how we run our business, serving our mission, serving the community,” Brian Dean, Sutter’s chief financial officer, said in an interview in May. “I don’t know that there is a significant change in how we have been running the business.”
In a statement Saturday, the organization said the judge’s ruling “brings closure to this matter …. This voluntary settlement enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care.”
Sutter’s legal troubles aren’t over. A class-action lawsuit filed by a group of Bay Area patients – alleging the same basic charges – is scheduled to go to trial in October in federal court in San Francisco.
Meanwhile, Sutter is vowing to trim costs after encountering losses last year due to the COVID-19 pandemic, which raised operating expenses while depressing patient revenue. It has eliminated more than 1,400 workers in the past year and a half, in a combination of layoffs and buyouts.
Sutter posted $321 million in operating losses last year — despite receiving $800 million from the federal government in COVID relief funding. Lately, it has appeared to turn things around. It recorded a $106 million operating profit in the second quarter of this year.
The $575 million payment from the court case won’t affect Sutter’s bottom line; it was already recorded in its 2019 financial results.
This story was originally published August 28, 2021 9:17 AM.
Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.