9th Circuit Orders New $411M Antitrust Trial For Sutter Health

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Dive Brief:

• Sutter Health must once again face an antitrust lawsuit after the 9th U.S. Circuit Court of Appeals ruled Tuesday that the original 2022 jury received improper instructions and was barred from hearing relevant evidence.
• The lawsuit, which was originally filed in the U.S. District Court for the Northern District of California in 2012, alleged the Sacramento, California-based nonprofit health system wielded its market dominance to force health plans into contracts that only included services at Sutter-affiliated locations. 
• However, the district court ruled in Sutter’s favor at the time — perhaps due to improper procedural decisions by the district court. The appellate court’s ruling Tuesday opens the door to a new trial, in which plaintiffs can seek up to $411 million in damages.

Dive Insight:

In the lawsuit, a group of Northern California businesses that buy health insurance argued Sutter forced them to pay higher premiums by ensnaring them in “all-or-nothing” contracts, where payers had to go in-network with all Sutter hospitals — even if the insurers only wanted to work with a handful of Sutter facilities. 

The health system settled similar allegations in 2021 for $575 million when the then-attorney general of California, Xavier Becerra, and a grocers union sued Sutter, alleging the health insurer imposed all-or-nothing contracting that forced insurers to pay steep rates. 

In internal memos, Sutter executives said the insurance contracts were a way to push profits up, according to Tuesday’s court filings.

Former CFO Robert Reed said in a 1998 memo that Sutter would make an extra $200 million per year by forcing insurers to contract with all of its hospitals.

“Related to the health plans, we force them to pay us more… In some cases, they have paid us more than the market,” Sarah Krevans, who would become CEO, said in an interview included in a 2006 Strategy Advantage memo.

However, the original jury never heard those statements. 

The district court reasoned that statements made pre-2006 were too dated to apply to a case about spending between 2011 and 2020.

However, the appellate court called Krevans’ comments “direct evidence” of anticompetitive effects.

Sutter “not only intended to force health plans to pay above-market rates but actually did force the health plans to pay above-market rates,” the appellate court said.

Circuit Judge Patrick Bumatay dissented, saying that asking jurors to consider a company’s intent would create a new antitrust rule in California that could ripple out across the country.