Sutter Health sued by California for alleged anticompetitive practices

California Attorney General Xavier Becerra announced his office has filed an antitrust lawsuit against Sacramento-based Sutter Health, alleging the system used its dominance in Northern California to unlawfully raise prices for services and then used the profits reaped from these practices to grow even larger.

The suit claimed Sutter violated state antitrust laws by pressuring “nearly all” health insurers in the region into contracts that allow Sutter to expand and consolidate its power in the market. For example, the complaint said Sutter’s contracts with payers requires all Sutter Health providers be included in their networks, even when nearby competitors would offer low-priced care, prohibits insurers from incentivizing patients to go to a Sutter competitor and prevents insurers from disclosing Sutter’s “inflated” prices before a patient uses and is billed for the service.  

“Sutter thereby gains the power to illegally insulate itself from the price competition that otherwise would be present in an unfettered free market,” the complaint said. “As a result, Sutter’s competitors cannot effectively compete based on price or quality, allowing Sutter to charge and maintain system-wide prices at levels that are significantly higher than the prices currently charged by its Northern California healthcare competitors and substantially higher than those that could be charged in a competitive market that is unconstrained by Sutter’s illegal conduct.”

This conduct has been a “deliberate strategy” on Sutter’s part since the 1990s, according to the suit, as it began expanding with acquisitions of the California Healthcare System and Summit Medical Center. The larger it’s grown, the suit alleged, it’s used revenues from its “inflated” prices to fuel further expansion. Sutter is now the dominant provider in Northern California and among the largest integrated systems in the country.

As its power has grown, the suit said, so have healthcare costs in Northern California. A recent report commissioned by the attorney general’s office said consolidation among hospitals there is “considerably more concentrated” than in Southern California, resulting in prices often 20 to 30 percent higher even after accounting for differences in cost of living.

Sutter has already been battling an antitrust suit first filed in 2014 by the UFCW & Employers Benefit Trust, a health plan for grocery workers. Becerra is seeking to combine that complaint with the lawsuit filed by his office.

“We are delighted to have the State join in our four-year legal battle to recover the hundreds of millions of dollars that Sutter Health overcharged Californians for over a decade,” Richard Grossman, lead attorney for UFCW plaintiffs, said in a statement to Health Exec.

After the suit was filed, Sutter said it couldn’t comment on specific claims. It did dispute the general concept of the suit, however, arguing prices for inpatient care are lower at Sutter than at other Northern California hospitals.

“Sutter Health has held average overall rate increases to health plans to the low single digits since 2012 in spite of our actual expenses for labor, facilities and technology increasing more than 37 percent during the same time period,” the health system said in a statement. “We don’t know why some health plans have increased their rates to consumers as much as 20 percent annually.”