Sutter Health settled its antitrust lawsuit with California and unions and employers in the state for $575 million, adding to the healthcare industry's fight over hospital consolidation.
The Northern California-based health system was accused of anti-competitive practices that lead to higher prices for patients in Northern California than other regions of the state, according to a Dec. 20 press release from California's Office of the Attorney General.
Along with the payout, Sutter Health agreed to a list of operational changes, including no longer using "all-or-nothing" contracting, which requires insurers to include all Sutter Health facilities in their plans.
California Attorney General Xavier Becerra said in a statement that the deal sends a signal to the hospital industry that market consolidation will not go unchecked.
"Today's settlement will be a game changer for restoring competition in our healthcare markets," Becerra said. "This 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 lawsuit was brought by California's Office of the Attorney General, United Food and Commercial Workers International Union and Employers Benefit Trust, and class action plaintiffs.
The settlement was first agreed to in October, but no details were made public. The terms of the settlement will have to be approved by the Superior Court for the State of California in San Francisco, and a hearing for the settlement is scheduled for Feb. 25, 2020, according to the attorney general's press release.
Sutter Health defended the company's practices in a Dec. 20 statement and made no admission of wrongdoing.
"There were no claims that Sutter's contracting practices with insurance companies affected patient care or quality," Sutter Health's Senior Vice President and General Counsel Flo Di Benedetto said in the statement.
Under terms of the settlement, the hospital system is also required to limit what it charges for out-of-network service, increase price transparency practices and stop anti-competitive bundling of services.
Sutter Health will also have to work with a court-approved compliance monitor and follow the terms of the settlement for at least 10 years.
The lawsuit and settlement add to a growing debate around hospital consolidation in the healthcare industry. While the hospital industry says consolidation decreases costs and improves care, some economists argue that the lack of competition actually increases healthcare costs and decreases the quality of care.
The attorney general's statement highlighted a March 2018 report from the University of California - Berkley showing prices for services were lower in Southern California than in Northern California, which had higher rates of concentration and is where Sutter Health's facilities are predominantly located.
For example, inpatient hospital procedures like hip replacements or treatments for heart attacks were an average of $223,278 in Northern California compared to $131,586 in Southern California, according to the report.
The American Hospital Association, a national hospital representative, came out against the settlement shortly after the terms were announced, saying that the settlement will actually increase healthcare costs for patients.
"Unfortunately, it will be several dominant commercial health insurance companies—not consumers—that will benefit from terms that will allow those insurers to cherry-pick the hospitals with which they contract, as well as eliminate incentives for them to work with hospitals to develop and sustain value-based care," Melinda Hatton, general counsel for AHA, said in a Dec. 20 statement.