As noted in our news article published on Dec. 26, the Sacramento, California-based Sutter Health agreed on Dec. 20 to pay $575 million to settle an antitrust case filed by California Attorney General Xavier Becerra, whose office had accused the nonprofit healthcare giant of using its market dominance in Northern California to drive up prices.
As The New York Times’s Katie Thomas reported on Dec. 20, “Sutter Health, the large hospital system in Northern California, said Friday that it had agreed to pay $575 million to settle claims of anti-competitive behavior brought by the California state attorney general as well as unions and employers. In addition to the settlement amount — which will go to compensate employers, unions and the state and federal governments — Sutter will also be prohibited from engaging in several practices that the state attorney general and others said the hospital system used to ensure its dominance. It will be barred from so-called “all or nothing” agreements, which the attorney general said required insurers to include all of Sutter’s medical facilities if they wanted to include some of the system’s hospitals. And it will be required to limit what it can charge patients for out-of-network services, which the state said would prevent people from facing surprise medical bills.”
The Times’s Thomas quoted California A.G. Becerra as stating in a news conference on Dec. 20 that, “If we’re going to treat something that’s precious and lifesaving like a business, then the marketplace for health care must be vibrant and competitive so that the best in the business can rise to the top naturally. This first-in-the-nation settlement is one of the largest actions against anti-competitive conduct in the health care marketplace across the country,” Becerra said.
Meanwhile, in a Kaiser Health News article published in The Los Angeles Times on Dec. 20, Jenny Gold wrote that “Healthcare costs in Northern California, where Sutter is dominant, are 20% to 30% higher than in Southern California, even after adjusting for cost of living, according to a 2018 study from the Nicholas C. Petris Center at UC Berkeley that was cited in the complaint. Sutter has 24 hospitals, 34 surgery centers and 5,500 physicians across Northern California, with $13 billion in operating revenue in 2018,” Gold added, noting that “The state’s lawsuit alleged Sutter has aggressively bought up hospitals and physician practices throughout the Bay Area and elsewhere in Northern California and exploited that market dominance for profit.”
Gold went on to note that “Sutter Health consistently denied the allegations, saying its large, integrated health system offers tangible benefits for patients, including more seamless, high-quality care and increased access for residents in rural areas. Sutter also disputed that its prices are higher than other major healthcare providers, saying its internal analyses tell a different story.” Further, she wrote, “The settlement is expected to have nationwide implications for how hospital systems negotiate prices with insurers. Though a settlement does not set a legal precedent, ‘it is strong guidance that the kinds of behavior Sutter engaged in are not going to be allowed going forward,’ said Jaime King, associate dean and professor at UC Hastings College of the Law. ‘This really opens the door for attorneys general in other states to begin examining their own health systems for similar behaviors.’” And Gold noted that “The case was a massive undertaking, encompassing years of work and millions of pages of documents. Had the plaintiffs prevailed in court, Sutter might have faced damages of up to $2.7 billion.”
Meanwhile, also on Dec. 20, The Sacramento Bee’s Cathie Anderson quoted Flo Di Benedetto, a Sutter senior vice president and general counsel, as saying that, “Together with the Attorney General, the parties selected an experienced monitor who will oversee the agreement, which specifies parameters for contracting between Sutter Health and insurance companies going forward. There were no claims that Sutter’s contracting practices with insurance companies affected patient care or provider quality,” Di Benedetto told the Sacramento Bee.
The policy implications involved
So what might some of the policy implications be of this situation, involving Sutter and its settlement with the State of California? There are plenty. The reality is that all the stakeholders in healthcare are involved in a strange kind of healthcare system chess game right now. The senior executives of hospitals, medical groups, and health systems are locked in an ongoing battle royal with the senior executives of health plans, in most of the major metropolitan markets in the U.S. Determined to bring down rising healthcare prices, health plans, as the representatives of employer-purchasers, are consolidating and gaining market dominance; in turn, providers have been consolidating, in order to keep bed capacity and revenues up, by becoming indispensable to health plans’ provider networks.
I’ve often said that all of this jockeying for market position reminds me of a middle-school “rumble,” in which younger students threaten to beat each other up, and then each side brings in their bigger, older siblings, and the whole thing continues to exponentially escalate. Inevitably, large numbers of metro areas now have just one or two dominant health plans, and a few large healthcare systems.
At the same time, the top federal healthcare officials in this country, especially Secretary of Health and Human Services Alex Azar, and most especially Seema Verma, Administrator of the Centers for Medicare & Medicaid Services (CMS), have been making it clear that they want to push as many providers as possible into two-sided risk contracts, via the Medicare Shared Savings Program (MSSP). Yet many leaders of accountable care organizations (ACOs) are stating quite publicly that they’re not ready yet for two-sided risk; and that the intensifying insistence on two-sided risk on the part of Azar, Verma, and everyone else at CMS and HHS is only going to cause numerous ACO organizations to withdraw altogether from the MSSP (A few already have, and many more might). The ACO executives are particularly concerned about the structures and schedules of downside risk might undermine their efforts to lower costs under the MSSP.
And that’s where this all becomes a gordian knot, because the leaders of hospitals and health systems see intense consolidation as their only strategy in the face of downward pressure on prices and charges on the part of health plans; but health plans see provider consolidation as tying their hands, as they attempt to establish the narrow networks that can keep prices and charges under control.
So where is the “give” in all this, across the U.S. healthcare system, as provider organizations and health plans alike jockey for individual market dominance, at a time when overall U.S. healthcare inflation threatens to push us over a $6 trillion cost curve sometime in the coming decade? To put it very bluntly, not everyone can be fat and happy, as we go from a current $3.6 trillion in annual total U.S. healthcare expenditures, to $6 trillion—a 60-percent increase—in the next seven years.
And that’s where the Sutter settlement comes in. Sutter’s having to settle that antitrust action speaks to the ability to set boundaries around provider consolidation, at least in some markets in some states, even as the financial imperatives push all providers nationwide towards “bulking up”-based business strategies. It feels like some kind of curbing effect in the nation’s largest state by population, where state authorities have set limits for market dominance through business consolidation.
Things are very unsettled right now in the entire area of federal and state policy around healthcare market consolidation. But California A.G. Xavier Becerra’s success with the Sutter case speaks to government’s ability (in this case, a state government’s ability, not that of the federal government) to force some limits on provider consolidation, as all of these issues get sorted out.
What’s clear is that this tension around market consolidation will continue into the foreseeable future, but also almost certainly with some possible surprises along the way, as the federal and state governments, provider organizations, health plans, and healthcare employer-purchasers all jockey for dominance and control, in a rapidly shifting landscape whose shifts are reflecting the inherent tensions in U.S. healthcare right now.
Who knows what that landscape will look like ten or even five years from now? It’s hard to say, but also clear that some elements will be falling into place in the coming years that will impact all the stakeholders in this three-dimensional chess game in U.S. healthcare. Stay tuned, as more moves are made, and the chessboard rearranges itself over time.
