Health Plans to Square Off Against a California Hospital Company

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.

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