Sutter Health will pay $575 million to settle allegations that the Sacramento-based health system engaged in anticompetitive practices that led to higher costs for patients.
One of Northern California’s largest health systems, Sutter Health employs roughly 12,000 physicians, and has 24 hospitals and 36 surgery centers in its network.
Though the California Attorney General and Sutter Health previously announced the settlement in October, they did not disclose the terms until Dec. 20. If approved by the court, the sweeping terms of the settlement may set a tone for other large health systems across the state.
“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,” California Attorney General Xavier Becerra said in a news release.
Per the terms, Sutter Health must pay $575 million to cover class action compensation and legal costs. The health system must also cease all-or-nothing contracting deals with payers, limit what it charges for out-of-network services, work with a court-approved compliance monitor for at least 10 years, and must allow insurers to provide plan members with information on pricing, quality and cost. The nonprofit must also meet clearly set definitions of clinical integration, meaning “…it must meet strict standards beyond regional similarities or the mere sharing of an electronic health record, and must be integrating care in a manner that takes into consideration the quality of care to the patient population,” according to the settlement.
Flo De Benedetto, Sutter Health’s general counsel, said in a statement that the organization was “committed to keeping our care connected so patients continue to receive affordable, high-quality, personalized and coordinated care. Despite the increasing cost of care and operating in high-wage markets, we remain focused on making healthcare more affordable for our patients.
“We were able to resolve this matter in a way that enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care. Together with the Attorney General, the parties selected an experienced monitor who will oversee the agreement, which specifies parameters for contracting between Sutter Health and insurance companies going forward,” Di Benedetto stated.
In the future, Sutter Health will have to evaluate future capital investments based on the impact of the settlement, she added.
The suit, originally brought against Sutter Health by the United Food and Commercial Workers International Union and Employers Benefit Trust in 2014, alleged that Sutter Health used its market dominance to prevent insurers from carving out narrower networks that would exclude some of its facilities. The case was later consolidated with a separate lawsuit filed by California Attorney General Xavier Becerra in 2018.
According to the complaint, Sutter Health acquired significant market concentration after its acquisition of Summit Medical Center in 2000. The California Attorney General’s complaint alleged that shortly after, Sutter Health began bundling together its providers, requiring payers to contract for them on a system-wide basis.
Sutter also allegedly used other measures to prevent the formation of narrow networks that might exclude some of its providers, including high out-of-network costs and provisions that restricted health plans from putting its providers in any tier other than the most favored benefit tier. The health system also used confidentiality provisions that restricted health plans’ ability to provide comparisons about price and quality to plan members, according to the complaint.
The lawsuit alleged that additional funds went toward “succeeding waves of acquisitions,” Sutter’s commercial insurance plan and executive compensation.
From 2005 to 2016, Sutter’s assets increased from $6.4 billion to $15.6 billion, according to court documents. Prior to his retirement in 2016, Sutter Health CEO Patrick Fry received $13.6 million in compensation, according to form 990 filings. The majority of that was in deferred retirement pay.
The complaint also pointed to a University of California Berkeley report that showed the cost of many procedures is substantially more costly in Northern California than in Southern California. For example, an outpatient cardiology procedure cost nearly $18,000 in Southern California compared to nearly $29,000 in Northern California.
The settlement must be approved by the court before it goes into effect, with a hearing set for Feb. 25.
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