Sutter Health on Thursday attempted to shake off federal antitrust allegations by arguing that the 24-hospital system doesn't have market power in the Northern California region it serves.
Sutter Health's attorney Jeffrey LeVee, a Jones Day partner who gave Sutter's opening statement as the trial kicked off, claimed that the $13 billion organization faces "vigorous competition," particularly from a larger California health system, Kaiser Permanente.
"The most important thing for you to remember is if you conclude Sutter does not have market power, it cannot violate the antitrust laws, and that's what the evidence will show," LeVee said.
Opening statements in Sidibe v. Sutter in U.S. District Court in the Northern District of California lingered on the dispute over whether not-for-profit Sutter requires health plans to contract with all its hospitals as a condition of contracting with one of them, a practice known as "tying," which is at the center of the case against Sutter.
LeVee flatly denied that's Sutter's practice, and showed examples of past contracts the Sacramento-based system had with health insurers to make his case. One Anthem Blue Cross of California contract that took effect in 2014 only listed four Sutter hospitals as participating in the network.
"There is no tie," he said.
In his own opening statement, Matthew Cantor, lead attorney for the fully insured employers suing Sutter, explained that Sutter has told insurers if they want its hospitals in Crescent City and the East Bay, they also have to cover its facilities in Modesto and San Francisco. He said Sutter can do that because it's the only game in town in some markets, and is able to use its "overwhelming economic muscle."
"Why did Sutter do this?" Cantor said. "Sutter did this for a single reason: to pad its multi-billion-dollar investment portfolio, to the detriment of health insurance premium payers."
David Kiernan, another Jones Day attorney representing Sutter, scoffed at Cantor's comment about Sutter's investment portfolio.
"First of all, it's very reasonable and they have a fiduciary duty to the community as a non-profit to ensure they have the funds to support an integrated care model," he said, after describing a variety of new technologies the health system bought to improve patient care.
Arguments in the Sidibe lawsuit, filed about a decade ago, are very similar to those in UFCW & Employers Benefit Trust. Sutter paid $575 million to settle the latter case ahead of trial in 2019. Both lawsuits accuse the health system of imposing all-or-nothing contracts that have forced people to overpay by hundreds of millions of dollars over the years. The difference is UFCW centers on harm to self-insured plans, while Sidibe concerns fully insured plans, those that companies buy for employees.
Ultimately, Cantor, a partner with Constantine Cannon, said Sutter's practices prevent insurers from lowering members' out-of-pocket costs, since using narrow networks and steering plan members to lower-priced providers are their main ways of doing that. Further, he argued the high prices health plans have been forced to pay over the years have driven up members' premiums.
Cantor said his antitrust economics expert, Tasneem Chipty, founder of Matrix Economics who has done similar work on antitrust cases, analyzed 140 million hospital-health plan transactions and determined that 97% of the higher costs caused by Sutter's actions were passed on to premium payers. She calculated damages for the class of more than 3 million people to be about $411 million, which Cantor said likely understates losses by $55 million.
LeVee, Sutter's lawyer, spent a good portion of his time focused on Kaiser, an $89 billion integrated system based in Oakland that's not part of the lawsuit. LeVee said Kaiser is "the elephant in the room" that plaintiffs want jury members to ignore. Although Kaiser runs a closed system where its health plan members can only visit its own facilities, LeVee argued Kaiser is a market leader in Northern California with respect to both plan membership and hospital market share.
"Even if plaintiffs are right and Kaiser is somehow not in the marker for hospital services, evidence will show Sutter still doesn't have market share to violate antitrust laws," LeVee said. "But the fact of Kaiser's presence will make it easy for you because the evidence will be so overwhelming that Kaiser and Sutter compete directly."
Class members in the case are Northern Californians who paid premiums to Aetna, Anthem, Blue Cross, Blue Shield of California, HealthNet or UnitedHealthcare since January 2011. The health plans have shared a variety of data with the plaintiffs, although they're not parties in the case.
Both Sutter attorneys who spoke Thursday were critical of the insurers. LeVee said it's no wonder those whose contracts are at issue are working with the plaintiffs: They're hoping Sutter will charge them less. He also noted that antitrust laws don't require Sutter to agree to every tier or network, and acknowledged that jurors will see evidence of Sutter not agreeing.
"But it's not a violation of antitrust laws not to agree," he said.