Case alleging overcharging by Sutter to seek class-action status

A federal appellate court ruled Friday a lawsuit accusing California hospital operator Sutter Health of overcharging patients, employers and health insurers will be allowed to seek class-action status, the Sacramento Business Journal reported.

The ruling from the U.S. Ninth Circuit Court of Appeals in San Francisco overturned a previous decision from a lower court that had dismissed the case that was brought by health plan members. The decision paves the way for a class-action antitrust trial that examines whether the health system is leveraging its dominance in northern California to push contracts that include all of its hospitals.

What it's all about

Matthew Cantor, partner and attorney at Constantine Cannon and lead lawyer for the plaintiffs, told Healthcare Dive the plaintiffs allege to have contracts which require health plans to purchase all the hospital services that Sutter provides in Northern California.

Sutter is "leveraging its larger power in those markets to say to these health plans that they have to also purchase Sutter Health hospital services elsewhere and not only do they have to purchase them but they have to purchase those Sutter services at higher, super competitive prices," Cantor said, adding that this, in turn, raises the costs of medical services to health plans. These higher costs, Cantor said, are then sent downstream to insurance policyholders.

"The plaintiffs seek to recover the overcharges they've incurred as a result of this tying arrangement," Cantor stated.

The rebuttal

Sutter steadfastly states the allegations have no basis in fact. “The plaintiff’s allegation that we demand to include all of our hospitals in contracts is simply false," the SBJ quoted Sutter public relations director Karen Garner. "We have many agreements that include only some of our hospitals and physicians."

At the same time, Sutter is no stranger to related cases. In a separate 2014 case, the United Food and Commercial Workers & Employers Benefit Trust argued the system required health plans to include all Sutter hospitals in their networks, SBJ reported.

Before that, Sutter made news in 2013 for paying $46 million to settle a whistleblower lawsuit alleging it overcharged payers through obscured anesthesia billing practices. California insurance commissioner Dave Jones hailed the settlement as a “record payment” and a "groundbreaking step in opening up hospital billing to public scrutiny," Healthcare Finance reported.

In 2011, Sutter paid $1.4 million to settle allegations that it overcharged Medicare for infusion therapy and lithotripsy services, the Novato Patch reported. Garner told the media Sutter agreed and paid accordingly, adding, "Honesty and integrity are cornerstones of our organization-wide values, and we strive to always do the right thing. When mistakes are made, we acknowledge and fix them."


"The case in my view is a bellwether case," Cantor told Healthcare Dive. He points to the FTC expressing concern over hospital tying arrangements. "Powerful hospital systems have the ability to raise the prices of medical care. Health plans have no alternative but to take these forced, higher costs upon them because [if they refused] then no one would buy their insurance."

Cantor stated hospitals that are "must have" systems are able to raise the price of medical care in different ways, including tying arrangements.

"It's a litmus test as to how these tying arrangements will be viewed by hospitals services against health plans," he stated. So the case, Cantor noted, is about trying to stop these hospital exercises of market power by health systems in order to reduce the cost of medical care.

"We intend to prosecute it vigorously," he concluded.

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