(CN) – Northern California’s largest health care provider on Friday agreed to pay $575 million to settle antitrust and price gouging claims, capping a five-year legal fight with an influential union and the state.
California Attorney General Xavier Becerra and the United Food and Commercial Workers and Employers Benefit Trust accused Sutter Health of using its market power to bully insurers and deterring them from offering low-cost plans to employers.
Becerra celebrated the settlement Friday, calling it a “first-in-the-nation” and “game-changing” action that will benefit consumers by creating more competition in the health care industry.
“When one health care provider can dominate the market, those who shoulder the cost of care-patient, employers, insurers- are the biggest losers,” Becerra said in a statement.
Sutter Health is a major player in California’s health care industry, operating 24 hospitals and 36 surgery centers across 19 counties. It employs over 50,000 and brought in $13 billion in revenue in 2018.
The union filed the first case in 2014 and Becerra filed a similar action in 2018, just days after a University of California, Berkeley, study found that the price of many hospital procedures in Southern California were 20% to 30% lower than in the northern part of state where Sutter operates.
In the lawsuits, which were combined in San Francisco Superior Court, the plaintiffs accused Sutter of leveraging its massive network and forcing insurers to “all or nothing” anticompetitive contracts. The union and Becerra say Sutter’s actions inflated medical costs for insurers and led to unreasonable out-of-network rates for patients.
The parties were on the verge of a high-profile jury trial and had just completed a week of jury selection when they announced a private settlement two months ago. The settlement details were under wraps until Friday’s announcement.
Sutter says the settlement was necessary to avoid years of litigation and that it admits no wrongdoing.
“There were no claims that Sutter’s contracting practices with insurance companies affected patient care or quality. In fact, Sutter’s quality of care is nationally recognized with the majority of our hospitals and care facilities outperforming state and national averages in nearly every measure of quality,” said Flo Di Benedetto, Sutter vice president and general counsel.
Along with the $575 million doled out to employers, unions and attorneys involved with the class action, Sutter will have to make its rural hospitals and San Francisco locations available to more insurers, employers and self-funded payers. It will also have to limit what it charges for out-of-network services and operate under a court-approved compliance monitor for at least 10 years.
A judge must still sign off on Friday’s deal. The parties will be back in court Feb. 25 for a settlement hearing.
The union hopes the settlement will stop Sutter’s “anticompetitive conduct” and allow more insurers and employers to enter its network at a fair cost.
“Our settlement with Sutter represents an extraordinary result for working people, their employers and every Californian who has struggled with the high cost of health care,” said Jacques Loveall, union chair.
A collection of law firms represented the class, including Pillsbury & Coleman of San Francisco and Cohen Milstein Sellers & Toll of Washington.
The 2018 UC Berkeley study that sparked the state’s involvement found the trend of market consolidation was directly related to higher insurance rates and Affordable Care Act premiums. Researchers found that in Northern California – which is more concentrated than Southern California – in-patient prices were sometimes 70% higher and ACA premiums were 35% higher.
“It is now time for regulators and legislators to take action,” the study concluded.
Becerra said the sweeping settlement is a warning to other health care providers.
“This first-in-the-nation comprehensive settlement should send a clear message to the markets: If you’re looking to consolidate for any reason other than efficiency that delivers better quality for a lower price, think again. The California Department of Justice is prepared to protect consumers and competition, especially when it comes to health care.”