Wednesday, November 30, 2022 | Back issues
Courthouse News Service Courthouse News Service

Sutter Health cleared of wrongdoing in landmark antitrust trial

A unanimous jury found Sutter Health did not force five major California health insurers to agree to restrictive contracts that raised premium prices for roughly three million Californians.

SAN FRANCISCO (CN) — Northern California’s largest hospital chain prevailed in a landmark federal antitrust lawsuit claiming its contracting practices with insurers drove up the cost of premiums for millions of Californians.

A nine-member jury unanimously found Sutter Health did not abuse its market power by forcing five major California health insurers to agree to all-or-nothing contracts that tied seven largely rural areas of the state where Sutter had the only hospital around to hospitals in areas with more competition.

Jones Day partner Jeffrey LeVee, one of the lead attorneys who represented Sutter in the case, said he was "very pleased and grateful to the jury."

The jury answered “no” to two critical questions. The first was whether Sutter sold inpatient hospital services in one or more tying hospitals located in Berkeley-Oakland, Antioch, Auburn, Crescent City, Davis, Jackson, Lakeport and Tracy, on the condition that health plans also include San Francisco, Sacramento, Santa Rosa and Modesto-based hospitals in their networks.

The second was whether Sutter’s contract terms preventing insurers from steering consumers toward cheaper care providers, or using tiered plans as an incentive for patients to go elsewhere.

The verdict is the culmination of 10 years of legal wrangling. Originally filed in 2012, the case has survived multiple motions to dismiss and a trip to the Ninth Circuit Court. In 2016, the appellate court reversed a federal judge’s order dismissing the case, finding the plaintiffs had alleged sufficiently detailed geographic markets for inpatient hospital services.

The lead plaintiffs — a handful of individuals and two small businesses — claimed Sutter's practices caused 3 million California families and businesses to collectively pay nearly $411 million in insurance premium overcharges between 2011 and 2017.

The case was the first antitrust class action against the giant hospital network to go before a jury. Two similar state actions brought by a group of employers and unions in 2014 and California's attorney general in 2018 settled just hours before the start of trial. Sutter agreed to pay $575 million and change some of its business practices "to restore competition in Northern California’s health care market."

The four-week trial took place in a sealed courtroom in San Francisco. Though the press and the public were allowed access to the proceedings through a phone line and separate video feed in another courtroom, the trial was marked by frequent periods of confidential testimony, mostly at the request of the insurance companies.

“We are extremely pleased with today’s unanimous verdict in Sutter Health’s favor,” Sutter Health’s interim president and CEO James Conforti said in an emailed statement. “After hearing many hours of testimony from witnesses, insurance plan representatives, provider organizations and experts, the jury found that Sutter Health did not engage in anticompetitive conduct and did not cause consumers to pay higher prices or premiums as plaintiffs alleged.” 

Through testimony offered by its executives, Sutter argued that its contracting practices allowed them to better predict patient volume, which translates to revenue. For a nonprofit system like Sutter Health, more revenue means more resources that can be put back into improving hospital quality and patient care, and more funds to invest in innovative treatments and technology.

Sutter also asserted that Kaiser Permanente, one of the nation’s largest non-profit hospital systems with a growing presence in California, neutralized its market power by taking a large portion of Sutter’s market share.
During the trial, LeVee presented the jury with a pie chart indicating that Sutter only has 25% market share in Northern California. Factoring in Kaiser, Sutter’s share went down to 17%.

“Most people can select Kaiser during open enrollment, and Kaiser has been increasing its market share over at least a decade,” LeVee told the jury. “It's an odd notion that Kaiser is not in the market for hospital services and yet is increasing its market share for hospital services.”

It was an argument that persuaded at least one juror, who said Kaiser’s presence factored into her decision. “We don’t live in a vacuum with Kaiser,” said the juror, who asked not to be named.

“This case was difficult and we certainly saw both sides of the case,” she said. But ultimately, she did not believe the plaintiffs had done a sufficient job of proving their claims. Another juror, who also asked that his name be withheld, agreed, saying “This was a very complicated case for a jury to decide and both sides did a good job.” While he believed Kaiser does compete with Sutter for market share, his decision boiled down to whether the plaintiffs could prove that they had suffered $411 million in damages.

Constantine Cannon partner Matthew Cantor, one of the lead attorneys for the plaintiffs, told Courthouse News after the verdict, "In our view the evidence demonstrated substantially that consumers and class member were harmed by Sutter’s conduct. We’re now evaluating our next steps given the jury’s verdict."

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.

Loading
Loading...