A California jury recently rejected antitrust claims brought by a class of California consumers seeking more than $400 million in damages from Sutter Health, a large Northern California hospital system. The case, Sidibe v. Sutter Health, Cas. No. 12-04854, N.D. Cal., originally filed in 2012, alleged that Sutter Health had abused its market position by imposing anticompetitive terms in its agreements with commercial insurers, thereby increasing the prices paid by insured consumers for healthcare in Northern California.
Specifically, the suit alleged that Sutter Health (a system that includes more than 50 hospitals and ASCs) used its market power to force major insurers (including Aetna, Anthem Blue Cross, Blue Shield of California, HealthNet, and United HealthCare) to accept “all facilities” clauses and “anti-steering” provisions in their contracts, thereby restricting their ability to create lower-cost networks that excluded some Sutter Health facilities or encouraged consumers to seek lower-cost care at non-Sutter Health facilities. As alleged in the Complaint, Sutter Health stated that any insurer that rejected these provisions would not be able to contract with any Sutter Health hospital, a prospect that would seriously impede the insurers’ ability to offer competitive insurance products in that market (given Sutter Health’s large presence in the market).
Notably, however, Sutter Health’s trial victory comes almost two years after Sutter Health inked a settlement with the California Attorney General’s Office concerning the same conduct. To resolve that case, Sutter Health agreed to pay $575M to the State, coupled with an agreement by Sutter Health to eliminate the use of the challenged contractual terms going forward. At the time, then-California Attorney General Xavier Becerra (who is now the Secretary of HHS), announced that the settlement would be a “game changer for restoring competition” by requiring Sutter Health to “stop practices that drive patients into more expensive health services and products.” The settlement also required Sutter Health to accept the appointment of a court-approved monitor, who would oversee Sutter Health contracting for the next 10 years.
How could the same conduct result in two very different results, and where does it leave the law on the use of “anti-tiering” and “anti-steering” provisions in hospital contracts? Putting aside the fact that the prior case was settled—without any finding of liability—and the other tried before a jury, the jury’s decision in favor of Sutter Health appears to have hinged upon the jury’s apparent finding that Sutter Health, despite its size, did not have a “dominant” market position in the Northern California hospital market. And, because market dominance was a necessary precondition to finding the contracting terms anticompetitive, the claims failed. In reaching that decision, the jury credited evidence that another hospital system in Northern California, Kaiser Permanente, has an even larger share of the hospital market than Sutter Health, and the plaintiffs’ argument that competition from Kaiser Permanente should be ignored because it is a “closed” system (both a provider and insurer) apparently did not resonate with the jury.
The Sidibe case has been closely followed in the healthcare industry for almost 10 years, as it presented a “test case,” in the civil context, on the potential antitrust risks created by large hospitals when using “anti-steering” and/or “anti-tiering” provisions in their contracts with commercial insurers. And, notably, the case followed closely on the heels of a U.S. Department of Justice Antitrust Division action against Atrium Health, a large North Carolina health system, for similar contracting practices. That case, like the California case against Sutter Health, also led to a settlement that required Atrium to terminate the use of such contract provisions.
However, with Sutter Health having now prevailed at trial on these claims, can hospital systems seeking to utilize these provisions presume that such conduct is lawful as a matter of law and adopt them without concern? Or, perhaps, did the somewhat unique evidence about Kaiser-Permanente in the Sidibe case influence the verdict, and thus would reliance (or over-reliance) on the Sidibe trial result by other health systems be ill-advised? Given the huge costs of answering these questions in future lawsuits and government investigations, a cautious approach to the use of restrictive contracting provisions in provider agreements with insurers—particularly by health systems with significant market shares—remains advisable. In short, the Sidibe decision, while clearly a favorable result for Sutter Health, should not, standing alone, signal an “all clear” for the use of these provisions by large health systems at this time.