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Sutter Health avoids trial, settles antitrust case with California Attorney General

Sutter said no antitrust violations occurred, citing market competition in the area it served, but the California AG disagreed.

Jeff Lagasse, Associate Editor

Sutter Health headquarters in Sacramento, California.Sutter Health headquarters in Sacramento, California.

Until yesterday, it seemed as though Northern California-based healthcare system Sutter Health would be heading to trial in an antitrust case. It avoided that fate on Wednesday by agreeing to settle for an undisclosed amount, with the deal still awaiting the court's final approval, according to the Office of California Attorney General Xavier Becerra.

The settlement pertains to a class-action lawsuit brought forth by thousands of Sutter employees, which was later joined by the California AG. The plaintiffs sued the system for allegedly raising consumer prices by leveraging its market power, an anti-competitive practice.

According to the Sacramento Bee, it had been Becerra's goal to end certain of Sutter's practices, including a contract provision that allegedly blocked insurers from financially incentivizing doctors to guide patients toward less expensive, quality providers.

In the weeks leading to trial, Sutter said it was integrating its hospital system and negotiating system-wide contracts with insurance companies, but was not violating antitrust laws or putting a damper on competition. It cited a number of new hospitals that opened in the area, as well as existing facilities that have continued to expand in markets Sutter serves.

The state disagreed, saying Sutter's contracts were designed to increase prices and restrict competition, and included restrictions on the sharing of its rates, thereby making it difficult for consumers to compare prices.

WHAT'S THE IMPACT

According to the San Francisco Chronicle, San Francisco Superior Judge Anne-Christine Massullo said court hearings for preliminary approval of the agreement will likely take place in February or March. Massullo is overseeing the case.

Under California antitrust law, the state's lawsuit was consolidated with a 2014 civil suit brought by the UFCW and Employers Benefit Trust, a health plan run by the grocer's union, which sought billions of dollars in damages on behalf of about 1,500 employer-sponsored health plans in California.

THE LARGER TREND

Just this past April, Sutter agreed to pay $30 million to resolve allegations that it and its affiliates inflated the severity of illness of Medicare Advantage patients to get higher risk scores and the resulting increase in financial benefits.

Sutter contracts with certain Medicare Advantage organizations to provide healthcare services to California beneficiaries, and in return, receives a share of the MA payments that the organizations receive.

The health system submitted diagnoses to the MA organizations for the plan enrollees. The MAOs, in turn, submitted the diagnosis codes to the Centers for Medicare and Medicaid Services from the medical encounters, such as office visits and hospital stays. The diagnosis codes were used in CMS' calculation of a risk score for each beneficiary.

CMS overpaid the plans and providers, the Justice Department said in April. The $30 million settlement resolved the allegations, and there was no determination of liability.

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com