California Attorney General Xavier Becerra on Friday announced the terms of a settlement agreement reached with Sutter Health, the largest hospital system in Northern California which also includes Sutter Lakeside Hospital in Lakeport.

The settlement resolves allegations by the attorney general, the United Food and Commercial Workers International Union and Employers Benefit Trust, and class action plaintiffs, that Sutter’s anticompetitive practices led to higher health care costs for patients in Northern California compared to other places in the state.

As a result of the settlement, Sutter will pay $575 million in compensation and make significant changes in its operations and practices to restore competition in Northern California’s health care market.

There is no admission of wrongdoing on the part of Sutter Health, and no court has found that Sutter violated any laws, the company reported.

The Attorney General’s Office said the settlement constitutes one of the largest legal actions in the country attacking anticompetitive behavior in the health care sector and includes unprecedented levels of injunctive relief to restore competition in the market.

“When one health care provider can dominate the market, those who shoulder the cost of care — patients, employers, insurers — are the biggest losers,” said Attorney General Becerra. “Today’s settlement will be a game changer for restoring competition in our health care markets. Sutter has agreed to pay over half a billion dollars to compensate those who challenged its billing practices. It must operate with more transparency. It must stop practices that drive patients into more expensive health services and products. And it must operate under the watchful eye of a court-approved monitor selected by the Attorney General’s Office for at least 10 years.”

Becerra said the 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.”

Sutter Health Senior Vice President and General Counsel Flo Di Benedetto said the settlement “enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care.”

Di Benedetto added, “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. 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.”

Over the past decade, Sutter Health has invested nearly $10 billion in new technologies and state-of-the-art facilities to increase access to safe, high-quality care in the communities it serves, De Benedetto said. “

“We have rebuilt hospitals to withstand earthquakes, taken care of millions of Medicare and Medi-Cal patients, expanded services in rural communities and spread new life-saving technologies and best practices across our integrated network. As an organization, we will have to evaluate future capital investments based on the impact of the settlement,” Di Benedetto said.

“Sutter Health is 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 health care more affordable for our patients,” Di Benedetto concluded.

This litigation against Sutter began in 2014 when the United Food and Commercial Workers International Union and Employers Benefit Trust and numerous individual plaintiffs – later consolidated into a class action – filed a lawsuit challenging Sutter’s practices in rendering services and setting prices.

They sought compensation for what they alleged were unlawful, anticompetitive business practices, which caused them to pay more than necessary for health care services and products.

In March of 2018, Attorney General Becerra filed a similar lawsuit against Sutter on behalf of the people of California principally seeking injunctive relief to compel Sutter to correct its anticompetitive business practices moving forward. The separate lawsuits were combined by the court into one case.

In October, on the eve of trial, the parties reached an agreement to settle the lawsuits. The settlement must be approved by the court. The court has set a hearing on the settlement for Feb. 25.

Under the terms of the settlement, Sutter will be required to:

– Pay $575 million to compensate employers, unions, and others covered under the class action and to cover costs and fees associated with the legal efforts;
– Limit what it charges patients for out-of-network services, helping ensure that patients visiting an out-of-network hospital do not face outsized, surprise medical bills;
– Increase transparency by permitting insurers, employers and self-funded payers to provide plan members with access to pricing, quality, and cost information, which helps patients make better care decisions;
– Halt measures that deny patients access to lower-cost plans, thus allowing health insurers, employers and self-funded payers to offer and direct patients to more affordable health plan options for networks or products;
– Stop all-or-nothing contracting deals, thus allowing insurers, employers and self-funded payers to include some but not necessarily all of Sutter’s hospitals, clinics, or other commercial products in their plans’ network. Sutter must also make facilities such as their rural hospitals, the Alta Bates Summit Medical Center, and Sutter hospitals in San Francisco available to insurers, employers, and self-funded payers as part of commercial health care benefit plans;
– Cease anticompetitive bundling of services and products which forced insurers, employers, and self-funded payers to purchase for their plan offerings more services or products from Sutter than were needed. Sutter must now offer a stand-alone price that must be lower than any bundled package price to give insurers, employers, and self-funded payers more choice;
– Cooperate with a court-approved compliance monitor to ensure that Sutter is following the terms of the settlement for at least 10 years. The monitor will receive and investigate complaints and may present evidence to the court; and
– Clearly set definitions on clinical integration and patient access considerations. The settlement makes clear that for Sutter to claim it has clinically integrated a system, 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. This is important because clinical integration can be used to mask market consolidation efforts by hospital systems, when in fact there is no true integration of a patient’s care. For example, saying that hospitals are regionally close or that the hospitals are sharing electronic health records is not enough, there must be close coordination that will lead to less costly, higher quality care for local communities.

The Sutter network consists of some 24 acute care hospitals, 36 ambulatory surgery centers, and 16 cardiac and cancer centers. It also includes some 12,000 physicians and over 53,000 employees. In addition, Sutter negotiates contracts on behalf of the Palo Alto Medical Foundation and many affiliated physician groups.

A number of studies have shown how overconsolidation drives up prices for consumers. For example, a University of California Berkeley report found that outpatient cardiology procedures in Southern California cost nearly $18,000 compared to almost $29,000 in Northern California.

For inpatient hospital procedures, the cost in Southern California is nearly $132,000 compared to more than $223,000 in Northern California, a more than $90,000 difference.

A 2016 study found that a cesarean delivery in Sacramento, where Sutter is based, cost more than $27,000, nearly double what it cost in Los Angeles or New York, making Northern California one of the most expensive places in the country to have a baby.