Health war: Price-fixing lawsuits mount against Sutter Health amid mysteriously shredded documents

In March, Sutter Health found itself fighting a legal battle on two fronts, with a Bay Area union closing in on one side and the state’s highest ranking law enforcement official on the other. Attorneys from both sides of this pincer say what’s at stake is nothing less than the future of California’s health care costs.

By its own account, Sutter has consolidated its way to being responsible for the health care of more than 3 million patients in Northern California. The state’s antitrust lawsuit and the private class action filing contend that the scale of this portfolio came into being under dubious circumstances and is now over-charging the people under its weight.

When state Attorney General Xavier Becerra announced a lawsuit against Sutter on March 30, he said the health-care giant’s conduct is clearly hurting California families. Becerra’s decision came on the heels of a long-term investigation by the Los Angeles Times and an analysis by UC Berkeley’s Nicholas C. Petris Center on Health Care Markets and Consumer Welfare. The LA Times found that hospitals in Northern California’s six most populous counties—where Sutter is a major entity—collected 56 percent more revenue on each patient, per day, than hospitals based in Southern California. Similarly, the UC Berkeley study found that Sutter’s six-year campaign to consolidate medical centers, physicians and insurance markets pushed the price of the average inpatient procedure in Northern California to nearly double that of the price in Southern California.

The state’s justice department has now concluded its own investigation, alleging Sutter triggered those financial shockwaves through elaborate price-fixing, acquiring and eliminating competitors, and by preventing insurance companies from fair negotiations. According to Becerra’s team, all of these tactics are illegal under the Cartwright Act, a California antitrust law that’s existed since 1907.

Sutter Health spokeswoman Karen Garner pushed back against such assertions this week. She stressed that data from the Office of Statewide Health Planning and Development shows that, on average, “total charges” for an inpatient stay in a Sutter hospital are lower than other Northern California medical facilities.

“Unfortunately, the California attorney general’s filing is factually inaccurate,” Garner said via email. “It mischaracterizes the activities of our not-for-profit organization, and it fails to adequately account for Northern California’s robust and competitive health care environment. Our integrated network plays a valuable role in providing our communities with more efficient care … including [for] the poor and vulnerable.”

But that doesn’t square with the feedback the attorney general’s office has been getting from around the state, including from companies concerned about what’s happening to their employees. In 2014, one organization of employees decided to take Sutter Health on directly:

The United Food and Commercial Workers filed a lawsuit claiming that Sutter’s manipulation of the health market was hurting blue-collar Californians. And almost as soon as the UFCW got Sutter’s attorneys into a courtroom, strange things started happening. Specifically, Sutter’s chief contracting officer Melissa Brendt ordered the destruction of 192 boxes of documents union attorneys were trying to force them to produce. San Francisco Superior Court Judge Curtis E.A. Karnow issued an official determination that Sutter’s Saturday-night massacre of documents was no accident.

“The circumstances of the document destruction were, to put it as mildly as I can, decidedly odd, and Sutter has not explained them except to argue it was all a mistake,” Karnow wrote. “But records show Sutter’s conduct was more than just an inadvertent error. Ms. Brendt personally selected the 10-year timeframe for the boxes to be destroyed.”

Referring to a witness in the case, the judge added, “This was not a routine destruction authorization: Ms. Santagata testified that in her 17 years at Sutter, she was not aware of any other time when the Managed Care department authorized destruction of records in storage.”

UFCW attorney Richard Grossman has said there’s no mystery behind Sutter’s shredding spree of documents he was compelling them to produce, calling the move “incriminating.”

Grossman said if his class action suit prevails, Sutter could owe as much as $2 billion in damages.

One person following both the UFCW’s lawsuit, as well as state attorney general’s legal action, is Richard Holober, executive director of the Consumer Federation of California. Holober’s nonprofit organization frequently works with the state Legislature on trying to improve health care access and affordability. Holober thinks Becerra is making the right move.

“When you have these bigger health corporations or nonprofits gobbling up hospitals throughout Northern California, they become very dominant, monopolistic, oligarchic players,” Holober said. “They’re controlling the market place at a time when health care costs are skyrocketing, and their actions are passing more costs onto the consumers. … I think it’s the right thing, and necessary, for the attorney general to try to stop this price-gouging.”