On Friday, a district judge granted final approval to settle employer groups’ class action lawsuit against Sutter Health that alleges anti-competitive practices and overcharging, requiring the health system to pay $575 million in fines.
Elizabeth Mitchell, the president and CEO of Purchaser Business Group on Health—which helped convene employers and unions to file the lawsuit—said the lawsuit should serve as a model for the rest of the country.
The lawsuit was originally filed in 2014 by union trusts and employers, who claimed Sutter was overcharging for in-patient services and using its market power and consolidation to raise health care prices in Northern California. A 2018 report from the University of California Berkeley found that hospital consolidation resulted in outpatient cardiology procedures in Northern California costing more than $10,000 more than those in the southern part of the state.
After what Mitchell called years of “research and quantification” of the problem, then-Attorney General Xavier Becerra “was able to confirm and document that the pricing really had nothing to do with quality differentials or anything other than anticompetitive practices.”
Sutter agreed to settle in October 2019. The parties filed the settlement in Dec. 2020, it was granted preliminary approval in March 2021, and finalized on Friday. The settlement money will go toward union workers and employers impacted by Sutter’s practices, as well as to the state government.
In addition to paying $575 million, the settlement, through an injunctive relief provision, requires a court-approved compliance monitor to investigate complaints and ensure Sutter complies with the settlement for the next ten years. Mitchell told State of Reform this is one of the most significant parts of the settlement.
“We believe that will enable greater value over time, and frankly, really provide the roadmap for the entire country because Sutter is just one case…. [other health systems] are using the same practices.
So we believe that implementing some of the injunctive relief provisions, like banning gag clauses and requiring transparency, would actually be beneficial across the country.”
Sutter Health released the following statement after the settlement was finalized:
“Today’s ruling brings closure to this matter, which was settled almost two years ago. This voluntary settlement enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care. Sutter’s quality of care is nationally recognized, with the majority of hospitals and care facilities outperforming state and national averages in many measures of quality. We look forward to continuing to work with our health plan partners at the same time we continue to care for the underserved in our communities.”
Under the settlement, Sutter is also required to limit its charges for out-of-network services, provide more transparency about its pricing to beneficiaries, cease anti-competitive service and product bundling that forced beneficiaries to purchase more than they needed, and stop making it difficult for patients to access lower-cost plans.
California Attorney General Rob Bonta responded to the settlement in a statement released Friday:
“Sutter will no longer have free rein to engage in anticompetitive practices that force patients to pay more for health services … A competitive healthcare market is essential to ensuring patients and families aren’t bearing the brunt of healthcare costs while one company dominates the market.”
Several days after Friday’s settlement approval, Sutter also reached a settlement with the US Department of Justice to pay $90 million for submitting unsupported diagnoses for beneficiaries of its Medicare Advantage plans. In other words, Sutter was claiming Medicare patients were more ill than they were.
This lawsuit began in 2015, when a Sutter employee who had observed discrepancies in the health system’s beneficiary diagnosis claims between 2010 and 2016, filed a False Claims Act allegation against her employer.
The settlement includes a $30 million penalty and an additional $60 million to settle the case. It also requires an outside group to review Sutter’s patient records and diagnoses to ensure it no longer overcharges Medicare Advantage beneficiaries.