Sacramento, CA…California Attorney General Xavier Becerra today applauded Judge Massullo’s preliminary approval of the groundbreaking settlement reached with Sutter Health (Sutter) in December 2019. The settlement agreement resolves allegations by the Attorney General, the United Food and Commercial Workers International Union and Employers Benefit Trust (UEBT), and class action plaintiffs, that Sutter’s anticompetitive practices led to higher healthcare costs for consumers in Northern California compared to other places in the state. The settlement requires Sutter to pay $575 million in compensation, prohibits anticompetitive conduct, and requires Sutter to follow certain practices to restore competition in California’s healthcare markets. Today’s preliminary approval is a big step towards getting this settlement in place so it can start helping Californians.

“Today’s settlement represents a huge step toward making healthcare more accessible and affordable for patients who need it, especially for Northern California patients served by Sutter,” said Attorney General Becerra. “This landmark settlement will require Sutter to stop practices that drive patients into more expensive health services and to operate with more transparency. The California Department of Justice will continue to work to keep the healthcare market competitive so that patients, families, and employers aren’t left holding the bag when big players dominate the market.”

This settlement is the result of litigation that began in 2014 when the UEBT and numerous individual plaintiffs — later consolidated into a class action — filed their 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 healthcare 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 of 2019, on the eve of trial, the parties reached an agreement to settle. The settlement was filed with the court on December 19, 2019, together with an unopposed motion for its preliminary approval. Today’s ruling grants preliminary approval and following the required class notice period, sets a hearing date for final approval.

With today’s approval of the settlement, Sutter is 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.
• 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 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.

Sutter is the largest hospital system in Northern California. 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 over-consolidation 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, costs more than $27,000, nearly double what it costs in Los Angeles or New York, making Northern California one of the most expensive places in the country to have a baby.

A copy of the order granting preliminary approval is available here.