California v. Sutter Health: The State AG Takes Its Gloves Off

June 2018

NORTH AMERICA COLUMN BANNER

California v. Sutter Health: The State AG Takes Its Gloves Off

By Michael S. McFalls, Amy D. Paul & Christina N. Phillips (Ropes & Gray, LLP)1

1. INTRODUCTION

On March 30, the State of California brought a broad and far-reaching antitrust complaint against Sutter Health (“Sutter”), a sprawling health system in Northern California with 24 hospitals and over 5,000 physician employees and collaborators.2  At the center of the lawsuit are three contracting practices that allegedly harm competition:

  • The All-or-Nothing Terms:  According to the Complaint, Sutter requires payors to accept all of Sutter’s sites – regardless of location, cost or attractiveness – as part of a single contract.3  Because Sutter allegedly has must-have hospitals that payors require for commercially viable networks, California contends that it can condition access to sites on the acceptance of other Sutter sites facing greater competition elsewhere.4
  • The Anti-Incentive Terms:  California also alleges that Sutter prohibits payors from incentivizing patients to select certain providers on the basis of cost.5  Absent these restrictions, payors theoretically could discipline higher pricing from Sutter by incentivizing the use of less expensive alternative healthcare providers.
  • The Price Secrecy Terms:  California also alleges that Sutter prohibits payors from informing patients about the cost of procedures and services at its facilities prior to the provision of servi

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