How Sutter Health's antitrust trial could chill in-network industry practices

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Sutter Health, a sprawling system of 24 hospitals, 5,500 affiliated doctors and a number of North Bay facilities, faces trial in San Francisco on Monday over accusations that it used its dominance in Northern California to stifle competition and force patients to pay higher medical bills.

Our colleague Reed Abelson, who covers the business of health care, explains the significance of the case:

The courtroom is expected to be standing room only. The case is being brought by the state’s attorney general, Xavier Becerra, along with employers and unions that say they have been harmed by Sutter’s actions.

Because Sutter is able to force health plans to include all of its hospitals and doctors in their networks, patients can’t go elsewhere for care that is cheaper or better quality, Becerra said. He describes Sutter as showing signs of being a “bully.”

Sutter’s critics say this leads to much higher prices in Northern California for medical care than in the southern part of the state. Hospital care for a heart attack costs around $25,000 in San Francisco, according to research by the Petris Center at the University of California, Berkeley. It’s closer to $15,000 in parts of Los Angeles.

Sutter says that its big system benefits patients and that it does not engage in any behavior that would hurt competition in the market. It says the big insurance companies support the case because they want to limit patients’ choice and increase their own profits.

There’s a lot at stake: Sutter could be liable for more than $2 billion under state law, which can treble the amount of damages awarded.

But other big systems, many of which employ similar tactics to prevent insurers from steering patients to other places, are also paying attention to what happens in court. The wave of mergers and acquisitions of physician practices across the country has left many markets with a dominant hospital.

If the case doesn’t go in Sutter’s favor, it is expected that other big systems will start worrying about their own behavior in making sure insurers don’t send patients outside their hospitals and medical groups. As Leemore Dafny, a former antitrust official and Harvard business professor, said: “It could have a chilling effect on these practices nationwide.”

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