Big California Firms Take On Health Care Giant Over Cost of Care

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Big California Firms Take On Health Care Giant Over Cost of Care

April 7, 20165:00 AM ET

By CHAD TERHUNE

The entrance to Sutter Davis Hospital in Davis, Calif. Sutter Health has hospitals in more than 100 communities in Northern California; it reported $11 billion in revenue last year, with an operating profit of $287 million.

Sutter Health, a large network of doctors and hospitals in Northern California that has long been accused of abusing its market power, is now squaring off against major U.S. corporations in a closely watched legal fight.

The battle is over Sutter’s demand that companies sign an arbitration agreement to resolve any legal disputes with the health system. If firms don’t sign the agreement, Sutter says, the companies will have to pay sharply higher rates for medical treatment of their employees at Sutter’s hospitals, surgery centers and clinics – 95 percent of Sutter’s full charge.

Sutter’s nonprofit system, based in Sacramento, includes 24 hospitals, 34 surgery centers and more than 5,000 physicians. It reported $11 billion in revenue last year and an operating profit of $287 million.

Some companies and labor unions say Sutter’s ultimatum is aimed at preventing them from joining an ongoing class-action lawsuit that accuses the giant health system of imposing anticompetitive terms and “illegally inflated prices” for health care. Sutter disputes the allegations, and says its charges are in line with those of its peers.

In a March 16 court filingDavid Lansky, chief executive of the Pacific Business Group on Health, said it isn’t feasible for large companies employing people in Northern California to exclude Sutter from their workers’ insurance networks, given the network’s size and reach. Lansky’s organization represents big companies like Wells Fargo Bank, Intel and Chevron, as well as government agencies like the California Public Employees’ Retirement System.

“Their choice is between two unacceptable alternatives,” Lansky said in his filing. “Pay 95 percent out-of-network pricing for enrollees that access Sutter services, or agree to give up their claims in this litigation.”

Major insurers are split in their reaction to Sutter’s move. Industry giants Anthem and Aetna are urging customers to accept arbitration in order to remain in the network, while rival Blue Shield of California says it opposes Sutter’s request. Blue Shield has clashed publicly with Sutter before over contract terms and prices.

All this comes amid growing concern nationwide about the financial toll from industry consolidation, as big health systems amass market clout by acquiring more hospitals, outpatient facilities and physician offices.

“This is an important legal case because it could have national repercussions,” saidGlenn Melnick, a health-care economist at the University of Southern California. “Sutter is the model for the rest of the country, and there are so many other health systems doing similar things so they can raise prices.”

The current fight centers on large employers that tend to self-insure because they have the financial resources to pay their own medical claims. These firms often hire an insurer to negotiate with hospitals and other health care providers to get discounted rates for employees.

Sutter insists it won’t use the arbitration agreements to prevent employers from participating in the class-action lawsuit brought by a grocery workers’ health plan in San Francisco County Superior Court.

The health system says it only sought the new arbitration requirement after a state appellate court ruling last year. The court ruled that the plaintiff suing Sutter — theUnited Food and Commercial Workers and its Employers Benefit Trust — wasn’t bound by the arbitration provisions in the contract that Blue Shield signed with Sutter as the health plan administrator.

Sutter says it is asking employers and labor groups to review and agree to its contract terms so there’s consistency among all parties involved. Arbitration is widely used by companies of all types to avoid costly litigation in resolving disputes.

“If self-funded payers wish to access the discounted rates that Sutter Health makes available under these contracts, it is reasonable to ask that they abide by the package of terms that make those rates financially feasible,” Sutter spokesman Bill Gleesonsays. “They should not be able to cherry pick which provisions apply to them and which do not.”

But attorneys for the grocery workers’ health plan are asking the court to stop Sutter from seeking arbitration agreements, alleging that the health giant’s move is an attempt to hinder the litigation. A hearing on the matter is slated for Thursday.

“We do not want potential class members precluded from this lawsuit at the point of a gun,” said Richard Grossman, lead counsel for the joint employer-union health plan, which represents more than 60,000 employees, dependents and retirees. “The fact they are even willing to make this threat to obtain the arbitration clause has shocked the payer community.”

Bill Kramer, executive director for national health policy at the Pacific Business Group on Health, agreed that Sutter’s threat to pull all of its facilities from an insurance network took employers by surprise.

“This can appear to be an arcane legal battle between corporations, but it has real-world consequences for the affordability of health care for employees and their families,” Kramer says. “The in-network rates at Sutter are already too high, and out-of-network prices are even higher.”

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