Sutter Health, long accused of abusing its market power in California, is squaring off against major U.S. employers in a closely watched legal fight over health care competition and high prices.
The latest fight has erupted over Sutter鈥檚 demand that employers sign an arbitration agreement to resolve disputes. Without it, Sutter says employers must pay听sharply higher rates 鈥斕�95 percent of its full charges 鈥斕齠or out-of-network care at its hospitals, surgery centers and clinics.
Some companies and labor unions say Sutter鈥檚 ultimatum is aimed at preventing them from joining an ongoing class-action lawsuit that accuses the giant health system of imposing anticompetitive terms and 鈥渋llegally inflated prices.鈥�
Sutter disputes the allegations and says its charges are in line with its peers.
In a听March 16听court filing, David Lansky, chief executive of the Pacific Business Group on Health, said it isn鈥檛 feasible for large employers with Northern California workers to exclude Sutter from their insurance networks, given its size and reach. His members include big employers such as Wells Fargo, Intel and Chevron as well as government agencies like the California Public Employees鈥� Retirement System.
鈥淭heir choice is between two unacceptable alternatives: Pay 95 percent out-of-network pricing for enrollees that access Sutter services or agree to give up their claims in this litigation鈥� by consenting to arbitration, Lansky said.
Major insurers have split over Sutter鈥檚 move. Industry giants Anthem and Aetna are urging customers to accept arbitration in order to remain in the network while rival Blue Shield of California said it opposes Sutter鈥檚 request. Blue Shield has clashed publicly with Sutter before over contract terms and prices.
All this comes amid growing concern nationwide about the financial toll from industry consolidation as big health systems amass market clout by acquiring more hospitals, outpatient facilities and physician offices.
鈥淭his is an important legal case because it could have national repercussions,鈥� said Glenn Melnick, a health care economist at the University of Southern California. 鈥淪utter is the model for the rest of the country and there are so many other health systems doing similar things so they can raise prices.鈥�
The current fight centers on larger employers that tend to self-insure because they have the financial resources to pay their own medical claims. They often hire an insurer to negotiate with hospitals and other providers for discounted rates as part of their health plan network for employees.
Sutter insists it won鈥檛 use the arbitration agreements to prevent employers from participating in the class-action lawsuit brought by a grocery workers鈥� health plan in San Francisco County Superior Court.
Sutter, a Sacramento-based nonprofit, has 24 hospitals, 34 surgery centers and more than 5,000 physicians in its network. It reported $11 billion in revenue last year and an operating profit of $287 million.
The health system said it only sought the听new agreements听after a state appellate court ruling last year. The court said the plaintiff suing Sutter, the United Food and Commercial Workers and its Employers Benefit Trust, wasn鈥檛 bound听by the arbitration provisions in the听contract Blue Shield signed with Sutter as the health plan administrator.
Sutter said it鈥檚 asking employers听and labor groups听to review and agree to its contract terms听directly听so there鈥檚 consistency among all parties involved. Arbitration is widely used by companies of all types to help resolve disputes and avoid costly litigation.
鈥淚f self-funded payers wish to access the discounted rates that Sutter Health makes available under these contracts, it is reasonable to ask that they abide by the package of terms that make those rates financially feasible,鈥� Sutter spokesman Bill Gleeson said. 鈥淭hey should not be able to cherry pick which provisions apply to them and which do not.鈥�
But attorneys for the grocery workers鈥� health plan are asking the court to stop Sutter from seeking arbitration agreements because they say it鈥檚 an attempt to hinder the litigation. A hearing on the matter will be held听April 7.
鈥淲e do not want potential class members precluded from this lawsuit at the point of a gun,鈥� said Richard Grossman, lead counsel for the joint employer-union health plan, which represents more than 60,000 employees, dependents and retirees. 鈥淭he fact they are even willing to make this threat to obtain the arbitration clause has shocked the payer community.鈥�
Bill Kramer, executive director of national health policy at the Pacific Business Group on Health, agreed that Sutter鈥檚 threat to pull all of its facilities from an insurance network took employers by surprise.
鈥淭his can appear to be an arcane legal battle between corporations, but it has real-world consequences for the affordability of health care for employees and their families,鈥� Kramer said. 鈥淭he in-network rates at Sutter are already too high and out-of-network prices are even higher.鈥�
The lawsuit over antitrust violations and unfair competition alleges that Sutter鈥檚 hospital prices in San Francisco have exceeded those of competitors by as much as 56 percent. It also says an overnight hospital stay at Sutter hospitals in San Francisco or Sacramento costs at least 38 percent more than a comparable stay in the more competitive Los Angeles market.
Employers began expressing concerns about Sutter鈥檚 move in recent weeks after insurers raised the issue.
Aetna said it is 鈥渢aking steps to meet Sutter鈥檚 requirement for attestations from our self-funded plan sponsors.鈥�
In a Feb. 22 memo to customers, Anthem said it 鈥渕ust now obtain a signed attestation from all California-based self-funded customers and all Anthem national accounts with 50+ members in Sutter鈥檚 Northern California service area.鈥� Many customers face a听May 16听deadline to sign, according to Anthem.
The insurer noted that state and federal investigations into Sutter鈥檚 market conduct haven鈥檛 yielded any results so far.
California Attorney General Kamala Harris has been investigating Sutter and other big medical providers for several years over potential harm to consumers. A spokeswoman said the agency can鈥檛 comment on any ongoing investigations.
Meanwhile, Sutter accounts for 28 percent of Anthem鈥檚 medical spending in a 21-county area of Northern California,听according to the insurer.
鈥淪utter鈥檚 market share is over 35 percent in eight counties and over 45 percent in six counties,鈥� Perry Pogany, Anthem鈥檚 vice president for account management, wrote to customers in February. 鈥淪utter is able to secure significant and unique concessions in its carrier contracts due to its position in northern California.鈥�
Anthem and Blue Shield both declined to comment further on the Sutter matter. The grocery workers鈥� self-funded plan suing Sutter is a customer of Blue Shield.
Melnick and other experts say the lack of competition in Northern California helps explain why health insurance premiums are about 25 percent higher, on average, compared to the southern part of the state.
Covered California, the state鈥檚 insurance exchange, has reported a similar pattern with an average rate increase of 7 percent in northern California this year compared to 1.8 percent for policyholders in southern California.
This story was produced by , which publishes , a service of the .