The settlementrequires Sutter to limit what it charges patients forout-of-network services and increase transparency by allowinginsurers and employers to give patients pricing information.(Photo: Shutterstock)

Six months after agreeing toa $575 million settlement in aclosely watched antitrust case filed by California Attorney GeneralXavier Becerra, Sutter Health has yet to pay a single dollar, andno operational changes have gone into effect. The nonprofit healthcare giant was accused of using its market dominance in NorthernCalifornia to illegally drive up prices.

Late last week, lawyers for Sutter filed a motion requestingthat San Francisco Superior Court Judge Anne-Christine Massullodelay approval of the settlement for an additional 90 days, due to"catastrophic" losses stemming from the COVID-19 pandemic. Massullooriginally was scheduled to rule on the agreement in February, butin April granted an earlier request from Sutter for a 60-day delayin the proceedings.

Related: Sutter Health settles antitrust case, avertingtrial

In court documents supporting its request, Sutter argues thepandemic has upended the financial landscape for hospitals and madenumerous aspects of the agreement untenable. Last month, Sutterreported an operating loss of $404 million through April, citingdeclining patient revenue and expenses resulting from the pandemic.System officials said that loss took into account the more than$200 million the system received in COVID-19 relief funds from thefederal government via the CARES Act.

"We're in a crisis situation," David C. Kiernan, a lawyerrepresenting Sutter, told Massullo during a settlement conferenceearlier this month. "There are certain provisions that, if theywent into effect today, would interfere with Sutter's ability toprovide coordinated and integrated care to patients inCalifornia."

The settlement, announced in December, marked a dramatic turn ina long-running legal battle initiated in 2014 as a class-actionlawsuit filed by the United Food and Commercial WorkersInternational Union & Employers Benefit Trust, representingemployers, unions and local governments whose workers use Sutterservices. Becerra's office joined the case in 2018.

Sutter has 24 hospitals, 34 surgery centers and 5,500 physiciansacross Northern California, with $13 billion in operating revenuein 2019. Among other allegations, the state's lawsuit argued Sutterhas aggressively bought up hospitals and physician practicesthroughout the Bay Area and Northern California, and exploited thatmarket dominance for profit.

Health care costs in Northern California, where Sutter isdominant, are 20% to 30% higher than in Southern California, evenafter adjusting for cost of living, according to a 2018 study fromthe Nicholas C. Petris Center at the University ofCalifornia-Berkeley that was cited in the complaint.

In agreeing to the settlement, Sutter did not admit wrongdoing.Throughout the proceedings, it has maintained that its integratedhealth system offers tangible benefits for patients, includingaffordable rates and consistent high-quality care.

Still, under terms of the settlement, Sutter agreed to end a host of practices thatBecerra alleged unfairly stifled competition. Among otherconditions, the settlement requires Sutter to limit what it chargespatients for out-of-network services and increase transparency byallowing insurers and employers to give patients pricinginformation.

Sutter Health spokesperson Amy Thoma Tan, in a statement to KHN,said the health care system "has not objected to any aspect of thesettlement" but is asking whether the settlement approval processshould be deferred, "given the extreme disruption to the healthcare industry caused by COVID-19 and the potential for COVID-19 tomaterially impact certain settlement terms."

In the court papers filed last week, Sutter's attorneys wentfurther, arguing that the settlement "may no longer make sense inits current form and could jeopardize Sutter's ability to continueproviding care.

"In this regard, Plaintiffs' statement that they will notreassess even a single provision of a proposed injunctionnegotiated prior to COVID-19 is troublesome because it ignores thepotentially harmful consequences of railroading the settlementthrough to approval in such an uncertain time," they continued.

The court filing notes some specific settlement terms Sutter nowconsiders problematic. Among them is a provision that calls forSutter to end its all-or-nothing contracting deals with payers,which demanded that an insurer that wanted to include any one ofthe Sutter hospitals or clinics in its network must include all ofthem. Also cited is a provision that would limit the size of rateincreases. Sutter says in the filing that it now may need toincrease prices more than expected to pay for personal protectiveequipment and other unanticipated costs resulting from thepandemic.

In its filing, Sutter does not specifically object to the $575million settlement amount. But Jaime King, an associate dean at UCHastings College of the Law who has followed the case, said therequest for a delay could be a tactical strategy to support such amove.

"The longer they can delay, the more they can show they havesignificant losses from COVID-19, which allows them to plead for alower settlement," King said.

While Becerra's office has acknowledged the difficultcircumstances that the pandemic has created for Californiahospitals, state lawyers said the settlement is binding and shouldnot be delayed further.

"The plaintiffs are not going to renegotiate the settlement,"Emilio Varanini, a lawyer from Becerra's office, told Massullo lastmonth. "It's even more in the public interest in an era of COVID-19that COVID-19 not be an excuse to allow anticompetitive acts thatwill hurt consumers."

Richard Grossman, lead counsel for the plaintiffs in theclass-action lawsuit, echoed that sentiment. "Every hospital systemin California is required to abide by California's antitruststatutes, and they are all required to abide by the rules ofcompetition that are prescribed by our legislature," Grossman toldKHN. "Sutter does not get an exception to that because there is apandemic."

Sutter has earned an average 43% annual profit margin over thepast decade from medical treatments paid for by commercial insurerslike the plaintiff companies, according to a recent analysis byGlenn Melnick, a health care economist at the University ofSouthern California. "Google and Apple would be jealous of thoseprofit margins!" Melnick said.

Without a settlement in place, critics said, Sutter can continueto employ the negotiating tactics that the attorney general calledanticompetitive. Some noted, with irony, that the more than $200million in relief funds Sutter received from the federal CARES Actwas based on a formula that awarded funds according to a hospital'sprior-year revenues — meaning Sutter was compensated for a pricingsystem the attorney general argued was artificially inflated.

"I'd be curious if they're trying to get in their last licks onusing these types of tactics to inflate prices in one last round ofnegotiations with insurers and other payers," said Anthony Wright,executive director of the advocacy group Health AccessCalifornia.

KHN (Kaiser HealthNews) is a nonprofit news service covering health issues. It is aneditorially independent program of KFF (Kaiser Family Foundation),which is not affiliated with Kaiser Permanente.

Read more: 

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