California attorney general sues Sutter Health over alleged anticompetitive behavior

California's attorney general has sued Northern California's largest health system, accusing Sutter Health of anticompetitive behavior that he says has driven up healthcare prices in the region.

Xavier Becerra on Friday said the lawsuit follows a six-year investigation by his office into Sutter's practices. The attorney general filed the suit Thursday in San Francisco County Superior Court.

The Sacramento-based not-for-profit system operates 24 hospitals throughout Northern California with more than 4,300 beds.

"It's time to hold healthcare corporations accountable and bring down illegally inflated healthcare costs that are imposed on California's families," Becerra said Friday. "We seek to stop Sutter from continuing this illegal conduct."

Becerra said his office's investigation found that Sutter's practices violate state antitrust law. He said the health system's contracting practices with health insurance carriers were done under an "all or nothing" approach that restricted insurers from providing low-cost health plan options to California residents. He also accused Sutter of setting excessively high out-of-network prices and restricting transparency around provider cost information.

Becerra cited a University of California, Berkeley report released Monday as further evidence that Northern California's consolidated healthcare market has driven up prices. That report found that inpatient procedure prices were 70% higher in Northern California compared with Southern California, or $131,586 on average in Southern California compared with an average of $223,278 in Northern California.

"That's more than a $90,000 difference for essentially the same bundle of hospital inpatient procedures," Becerra said.

Sutter spokeswoman Karen Garner wrote in an email that the health system has not yet seen the complaint, so she could not comment on the claims. She wrote that Sutter saves patients, government payers and health plans "hundreds of millions of dollars" annually by providing efficient, integrated care. She noted that the health system has held overall rate increases to the low single digits since 2012 despite labor, facility and technology expenses increasing by more than 37% during the same period.

Garner added there are 15 hospital systems and 142 hospitals in Northern California, including Kaiser Permanente, Dignity Health and Adventist.

"And health plans can elect to include or exclude parts of the Sutter Health system from their networks, and health plans have been doing so for many years," she wrote.

Sutter's total revenue in 2016 exceeded $12 billion, according to Modern Healthcare data. A Modern Healthcare analysis in January found that Sutter provided the second-lowest amount of charity care as a percentage of revenue among the country's top 20 largest health systems by revenue in 2016, or 0.48% compared with 1.4% across all 20 systems.

Becerra's lawsuit may be consolidated into an ongoing class-action antitrust lawsuit against Sutter that aims to recover hundreds of millions in alleged overcharges paid to Sutter by California employers on behalf of their employees. Richard Grossman, the lead attorney representing the plaintiffs in that case said in a statement Friday that counsel would be "delighted" to have the state join its four-year legal battle.

"We look forward to standing shoulder to shoulder with the Attorney General in our efforts to end Sutter Health's anticompetitive practices," said Grossman, an attorney with the San Francisco firm Pillsbury & Coleman LLP.

A judge ruled in November that Sutter employees intentionally destroyed 192 boxes of documents that plaintiffs had sought in relation to that case.