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Saturday, March 16, 2024 | Back issues
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Sutter Health executives grilled on revenues and costs in antitrust trial

Northern California's largest hospital system is accused of abusing its market power and driving up health insurance costs by forcing health insurers to accept unfair contracts.

SAN FRANCISCO (CN) — Sutter Health’s revenues and costs continue to be scrutinized in a federal trial over whether Northern California’s largest hospital system imposed anticompetitive contracts on health insurers, thereby driving up the cost of insurance premiums for millions of Californians.

Sutter executives took the stand Friday to defend Sutter’s practices and their so-called pro-competitive benefits, touting the hospital system’s quality and efficiency.

Sarah Krevans, who recently retired as CEO, said Sutter tried to reduce costs and curb rising prices for inpatient hospital services by consolidating non-patient care services throughout its system; for example, processing payroll and paying vendors from one location rather than at each individual hospital.

By 2011, she said, the hospital system had saved $340 million, making significant progress toward its goal of cutting costs by $700 million.

“We were able to take advantage of modern technology that you wouldn't be able to do at individual locations,” she said. “That effort alone saved several hundred million dollars.”

She also said Sutter was under tremendous financial pressure as more Californians joined the Medi-Cal rolls after the passage of the Affordable Care Act.

“We serve a disproportionate share of people from disadvantaged backgrounds. Every year we serve more patients who are governmental patients than people who are commercial patients,” she said, referring to Medicare and Medi-Cal, California’s version of the federal Medicaid program that pays a portion of healthcare services for low-income adults and children.

The government reimburses Sutter for some of the costs, but it’s hardly enough to cover it all. The rest comes from revenue generated by insured patients, whose numbers Krevans testified are dropping as Californians leave the system for cheaper care at Kaiser Permanente.

"We cover it in part from what we receive from the care for commercial patients and when there's a drop in commercial patients we're concerned," she said. "When we lose commercial patients that create a great financial stress on the system and that's what happened."

Still, she said the rate of Sutter’s price increases to health plans slowed during her tenure, dropping from 6.2% in 2010 to 3% in 2016.

“We were able to accomplish this by reducing overall expenses,” Krevans said.

But under questioning from attorney Matthew Cantor, counsel for a class of more than three million Californians and their employers, Krevans conceded that Sutter and other non-profit hospital systems like Dignity Health, Adventist Health and John Muir Health are required to provide “charity care” to retain their federal tax exempt status, while receiving paltry reimbursement for the cost of that care.

He also presented a chart showing that while Sutter reduced its in-patient price increases year over year, it still charged health insurers more than the cost of inflation. For example, the rates it charged insurers went up 5% in 2013, but the Consumer Price Index was 3% that year. In 2015 its rate went up 3.7% while the CPI was only 1.2%

He also showed jurors a survey showing that the cost of premiums, which are generally passed on by health insurance companies to their members, are “extremely important” to employers who buy health plans for their employees.

James Conforti, Sutter’s former Chief Operating Officer and interim CEO also testified about Sutter’s financial challenges, saying Sutter lost 42% of its commercial patients in Modesto when Kaiser built a new hospital just a few miles away.

He also emphasized declining reimbursements for Medicare and Medi-Cal. “Today, the reimbursement for government patients doesn't cover the cost of delivering that care.It’s pretty clear that the government is trying to pay less and less for care.”

He added that even with government funding under the Coronavirus Aid, Relief, and Economic Security Act in 2020, Sutter an operating loss of over $300 million that year.

But on cross examination, plaintiffs’ counsel David Goldstein presented conflicting evidence of Sutter’s financial health, noting that Sutter was able to defer paying $209 million in payroll taxes to the federal government, and benefited from a $13 minion payroll tax credit. It also received approximately $812 million in federal Covid-19 relief funds, and got a $990 million advance from the Centers for Medicare & Medicaid Services.

Sutter Health’s cash assets also doubled from 2019 to 2020, from $505 million to $1.169 billion.

All that revenue is essential to provide quality healthcare, Dr. William Isenberg, Sutter’s Chief Medical Officer told the jury.


He recounted how an integrated health system helped ensure that patients could continue to receive care when Sutter’s hospital in Santa Rosa was threatened by wildfires in 2017 and 2019. Doctors were also able to see patient charts across Sutter’s vast 24-hospital system.

"We were able to send all the refill renewal requests to physicians across the network to be sure patients didn't miss their medicines,” he said.

Patrick Ryan, an attorney for Sutter Health, asked Isenberg whether this would have been more difficult if some Sutter hospitals were excluded from a health insurer’s network. “It would have been, and it would have impacted the bills charged to their families,” Isenberg said.

Sutter stands accused of forcing health plans to accept systemwide “all or nothing” contracts that require 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.

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.

While Sutter’s side of the case will focus on Sutter’s innovations and investments in patient care as pro-competitive benefits of its practices, U.S. Magistrate Judge Laurel Beeler, who is overseeing the jury trial, said she didn’t want the trial to be a propaganda fest.

“Sutter can't make itself a hero over healthcare. This is about Sutter's contracting practices,” Beeler said.

Isenberg spent nearly an hour touting innovations like electronic health records, an electronic intensive care unit to provide remote critical care, and an advanced surgery tool called the Gamma Knife. On cross, plaintiff attorney Jane Kim questioned him on whether Sutter’s contracting practices directly contributed to these initiatives.

“I don't know about the provision but the contracts were how we would get the revenue for services,” he said. “I know there's money that comes into Sutter Health from the contracts that goes to pay for these initiatives. There’s a black box in between that I don't know what's in it.”

Kim asked, “You can't say whether any of the contract provisions are necessary to engage in any of the clinical integral efforts you've testified to today?”

Isenberg responded, “I can't say that, no.”

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Categories / Business, Health, Trials

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