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Health Plans to Square Off Against a California Hospital Company

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Union trusts and self-funded employer plans are heading toward a long state court jury trial, in San Francisco, over a massive antitrust dispute with Sutter Health — a large, nonprofit, California-based health system.

The UFCW & Employers Trust (UEBT) and about 1,500 other health plans have accused  Sutter Health of using provider network manipulation, lack of price disclosure, and other means to keep its hospital services prices as much as 56% higher than Northern California competitors’ prices, and to contribute to Northern California inpatient care costing about 38% more than inpatient care in the Los Angeles area.

(Related: Hospital Group: ‘Remedies’ for Insurer Deal Market Effects Are Quackery)

San Francisco Superior Court Judge Anne-Christine Massullo issued an order in August that calls for formal jury selection for the trial to start Sept. 23.

The order reveals that the parties in the case — UFCW & Employers Benefit Trust on  behalf of itself and all others similarly situated, v. Sutter Health, et al. — are submitting hundreds of thousands of pages of documents as exhibits, and that giving the parties a chance to review the documents, and to ask that some of the documents be kept confidential, has been be a major project.

Court officials are expecting the trial to be hard on the jurors. The San Francisco jury commissioner subpoenaed citizens to come in for jury selection panels every day from Sept. 3 through Sept. 6. The judge set aside time throughout that week to hear all of the requests from prospective jurors who would be asking to be excluded from the jury due to hardship, according to the minutes from an Aug. 30 pretrial hearing.

“The court indicates we may need to add hardship additional jury panels in order to obtain enough jurors for selection,” according to the pretrial hearing minutes.

The Plaintiffs

The lead plaintiff in the case, UEBT, helps buy and manage health benefits and other benefits for members of the United Food and Commercial Workers International Union in California.

In 2014, when UEBT filed one of the suits that started the current litigation, UEBT was running self-funded health plans that were providing health coverage for about 60,000 employees, retirees and dependents.

UEBT is representing a class that includes all self-funded health plans that operate under California law and that have used Sutter Health prices that were set by contracts between Sutter Health and Aetna, Anthem, Blue Shield of California, Cigna Corp. or UnitedHealth between 2013 and the present.

California Attorney General Xavier Becerra filed a suit of his own in 2018, and his suit is being considered together with the UEBT case.

The Defendant

Sutter Health is a Sacramento, California-based organization that was founded in 1921. The organization is descended from Sutter Hospital, which was set up in the aftermath of the deadly 1918 Spanish Flu pandemic.

The health care system as a whole provides care for about 32,000 people every week. It has 24 hospitals, five trauma centers, eight neonatal intensive care units, and 53,000 employees.

Sutter Health reported a $120 million loss in 2018 on $13 billion in operating revenue. The loss was due to a $454 million decrease in the carrying value of investments. The organization reported a $201 million gain on operations.

Sutter Health hospitals helped care for people affected by the Northern California fires last year, and its hospitals would have to help care for people affected in Northern California if Northern California was rocked by a major earthquake.

The Plaintiffs’ Allegations

The plaintiffs say Sutter Health has gained an unfair advantage in provider network negotiations by using mergers and acquisitions to become the most dominant health care system in Northern California.

In some hospital markets, the plaintiffs say, Sutter Health is so dominant that the only way to create a viable health plan provider network is to contract with a Sutter Health hospital, the plaintiffs say.

The plaintiffs also say that Sutter Health:

  • Requires a provider network manager to put all Sutter Health facilities in its network, or none.
  • Forbids provider provider network managers that use its hospitals from giving the enrollees financial incentives to use other, cheaper hospitals.
  • Prohibits provider network managers from disclosing Sutter Health care prices to other parties.

Because the UEBT case is a California state case, the plaintiffs are basing their case on California’s Cartwright Act, rather than on federal antitrust rules.

Sutter Health’s Position

Sutter Health, contends in fact sheets and other response documents posted on its website, that the plaintiffs are misrepresenting Sutter Health’s size and negotiating power.

Sutter Health says that:

  • Kaiser Permanente serves a majority of the patients in Northern California, and there are a total of 17 unique hospital networks in Northern California.
  • A group of just four insurers and managed care organizations controls about 90% of the California health insurance market.
  • The California Office of Statewide Health Planning and Development has found that the total charges for an inpatient stay in a Sutter Health hospital are about 19% lower than what other Northern California hospitals are charging.
  • Sutter Health rate increases for insured patients have averaged less than 3% per year since 2014.

Sutter Health contends that the plaintiffs’ real goal is to reduce reimbursement amounts by creating narrower provider networks, and that those narrower networks will limit patients’ choices and reduce patients’ access to quality health care.

— Read Busy Health Insurance Legal Sector Could Get Busieron ThinkAdvisor.

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