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Sutter Health defends contracts with health insurers in antitrust trial

The chief contracting officer for the largest hospital system in Northern California defended contract provisions as a way to keep patients from receiving surprise bills."

SAN FRANCISCO (CN) — Lawyers for 3 million Californians and their employers have depicted Sutter Health, Northern California’s largest hospital system, of strong-arming health insurers to accept unfair contract terms in a landmark antitrust trial currently unfolding in San Francisco federal court.

Sutter Health pushed back on those accusations Monday, with chief contracting officer Melissa Brendt testifying the health plans gave as good as they got during tough yearly negotiations over whether to include Sutter hospitals in their networks.

“We absolutely have a ton of back and forth. I've seen times when we've had 24 proposals back and forth. I can't think of a single proposal where we weren't negotiating prices until the bitter end,” Brendt testified.

She said that as the largest health insurers in California, Anthem Blue Cross and Blue Shield wield significant power in these negotiations.

"Anthem has $2 billion of our revenue. Without Anthem it would be difficult to survive. So obviously those negotiations are tougher,” Brendt said. “Blue Shield is the next largest. They’re big and they push back hard on everything they want.”

What they want, she said, are lower rates. “They get the largest discounts because they can drive the largest volume of patients to us,” she said.

Brendt testified that when its contract with Blue Shield lapsed in 2015, the health plan began sending Covered California patients notice that they would have to find new doctors.

As head of Sutter’s contracting team, Brendt said she worried about losing the Blue Shield contact, which “would devastate our ability to provide patient care in all the communities that we serve."

Sutter also fought for years to be included in the health plan for the California Public Employees' Retirement System (CalPERS), which is run by Blue Shield. She said Sutter was included for a time but no longer participates because Blue Shield demands such deep discounts.

“When we did ask a few times if we could get back in, but the discounts they were seeking to get back into the CalPERS product for Blue Shield were significant. We couldn't afford to work for that price point and sustain our mission."

Though not plaintiffs in the case, health insurers Anthem Blue Cross, Aetna, Health Net, Blue Shield and United Healthcare have all complained that Sutter’s contracts make it impossible for them to exclude Sutter from networks to lower costs, or at least move them into tiered health plans without Sutter’s consent. They are also prevented from using incentives to steer patients away from Sutter’s higher-cost hospitals.

The landmark antitrust case is being led by two small businesses and four people who claim they paid inflated health insurance premiums because Sutter Health forced insurers to accept anticompetitive “all or nothing” tying contracts. These systemwide contracts required them to accept all of Sutter’s hospitals in their networks, even in competitive markets where they could have otherwise chosen to work with cheaper care providers.

Brendt, whose testimony consumed all of Monday’s trial time, defended those contract provisions as a way to curb surprise bills for patients.

"It's us who hear from the patient about ‘why am I paying all this extra money,’” she said.

This became all the more concerning with the passage of the Affordable Care Act, when health insurers began offering more narrow networks to cut costs. Brendt said Sutter wanted to keep their hospitals and doctors in the same tier to avoid confusing patients. She said Sutter’s contracts didn’t prohibit tiering or narrow networks, but required that health plans notify them well in advance of such changes.

“The health plans hadn't done a great job of educating patients and their websites and provider directories were wrong,” Brendt said. “We experienced this with our Anthem product. Our physicians didn't participate and a lot of patients chose Anthem versus Blue Shield because they thought our doctors were in the network and we have many calls from patients who were angry with us because they thought they could still use us because they thought we were in network. A lot of patients were being billed for out-of-network cost shares and we were getting a lot of complaints about that.”


The out-of-network rates Sutter charges health insurers for emergency services have also been a big issue in the case. For example, if one of Sutter provider’s was not included in a network or benefit plan Anthem offered, also called a "nonparticipating provider” in health care parlance, then Anthem would have to pay 95% of the patient’s billed charges.

Sutter has argued this is a reasonable rate, in part to avoid being underpaid by health plans. Brendt said even Kaiser, which maintained that the value of out-of-network care that Sutter provided for emergency services was far lower than 95% of billed charges, had to pay that rate after an arbitrator declared it reasonable.

This was a sticking point for Matthew Cantor, one of the lead attorneys representing the class. During a break, he told U.S. Magistrate Judge Laurel Beeler that Brendt’s testimony about Kaiser should be stricken since the arbitrator’s finding was “hearsay” and not evidence.

He said Sutter was able to convince the arbitrator that 95% of billed charges was a reasonable non-par rate for Kaiser because health plans who had contracts with Sutter paid 95% for out-of-network services. The arbitrator found this to be the most convincing evidence, though no health plans testified during the arbitration about being forced to pay those rates in order to contract with Sutter.

“So now what's happening is a shell game. It’s coming to the jury and it's going to infect their decision about what the reasonable rate is,” Cantor said. "Not only is it irrelevant, it’s extremely prejudicial to our case."

Sutter attorney David Kiernan countered, “The arbitrator evaluated a host of evidence, including expert testimony that compared Sutter's out-of-network rates to those of non-Sutter providers.”

Beeler didn’t need much convincing from Kiernan. “A substantial part of plaintiffs’ case is that 95% par rate is uncompetitive and unreasonable and it can't be that Sutter can't put in evidence to the contrary. If you want to attack that basis you can bring it up on cross-examination, but you can't just prevent them from putting in evidence to win your case,” she said.

Cantor said the evidence opened the door for him to bring up a 2018 settlement between Sutter Health and the state of California over claims of anticompetitive conduct. “This opens the door to fact that the California attorney general has stated that the 95 % non-par rate is not reasonable and a violation of antitrust law,” Cantor said.

Beeler quickly quashed that idea, saying, “You're not letting in a settlement of a lawsuit by the California attorney general.”

Cantor got Brendt to concede on cross-examination that she had never studied how many patients are issued surprise bills as a result of narrow or tiered networks.

She also conceded that she never tested the affect of Sutter’s anti-steering policy; whether it was actually critical to Sutter’s financial health that health plans treat all Sutter hospitals equally and put them in the same tier. Cantor asked whether Sutter had ever dared the health plans to their steer members away from Sutter, to see if patients would revolt because they prefer Sutter’s quality.

"Why would we do that?” she asked.

Cantor pressed: “So you don't know whether these provisions were indeed necessary because you never tested whether or not for example Sutter’s revenue would go down without the equal treatment provision," to which Brendt answered, “I didn't run a test."

Cantor also targeted Sutter’s antitransparency policies regarding its prices, showing the jury an email Brendt sent to Bill Gleeson, Sutter’s vice president of communications. In 2007, Aetna launched an online tool for its members to calculate and compare the cost of common medical procedures at various health care providers.

"This is the transparency initiative. We said no for all,” Brendt wrote.

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