California Attorney General Brings Action Against Sutter Health Contending its Contracting Practices Violate the Antitrust Laws

by Akerman LLP - Health Law Rx

The California Attorney General recently filed a precedent-setting antitrust action against Sutter Health, the largest health system in Northern California (People of the State of California v. Sutter Health, Case No. CGC-18-565398, San Francisco Superior Court), contending that Sutter Health’s contracting practices violate the antitrust laws. The action, filed in the San Francisco Superior Court, seeks to “restore competition in healthcare markets in California,” and claims that Sutter Health has “found a way to illegally control price and severely limit competition by compelling [insurers] to enter into contracts that improperly block any and all practical efforts to foster or encourage price competition between Sutter and any rival hospital systems.” To remedy the alleged violations, the State seeks, among other things, to have the Court require Sutter Health to terminate the challenged contracting practices, to “disgorge” previously received “overcharges” that Sutter Health received as a result of those practices, and to require Sutter Health to submit to mandatory arbitration to determine Sutter Health rates going forward.

Specifically, the alleged contracting practices implemented by Sutter Health that the State has challenged include (1) requiring that an insurer include all Sutter Health facilities in their networks if they want to have any Sutter Health facilities in the network (an “all or nothing” provision), even in situations where lower-cost alternatives might otherwise be chosen by the insurer to reduce costs; (2) prohibiting insurers from creating “tiers” in their networks that might permit them to steer insureds to other, lower cost health providers also in the insurer’s network; and (3) restricting insurers from providing information about Sutter Health’s rates, allegedly to reduce potential price comparisons by prospective patients and insureds. As a result, according to the State’s Complaint, the cost for inpatient procedures in Northern California, on average, is 70% higher than in Southern California.

Notably, the action is somewhat factually similar to another closely-watched case brought by the DOJ Antitrust Division against the Carolinas Healthcare System in 2016 (United States v. The Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Health System, Case No. 3:16-cv-00311, Western District of North Carolina). In that case, the Antitrust Division (and the State of North Carolina) contend that Carolinas Health System (CHS), the largest health system in the greater-Charlotte area, also insisted upon contractual provisions in its network contracts with insurers that were designed to increase prices and restrict competition, including “anti-steering” provisions and “restrictions limiting the [insurers’] ability to inform their customers about, or incentivizes them to use, other health-service providers which may be able to provide better or more affordable service.” In March of 2017, the Court denied CHS’s motion to dismiss the case, and it is currently scheduled for trial in early 2019.

The Sutter Health case, however, is different from the CHS in two potentially significant ways.  First, in Carolinas Health System, the DOJ contends that CHS’s conduct constitutes a “rule of reason” violation of Section 1 of the Sherman Act. As such, to prevail, the DOJ must demonstrate both that CHS entered into such agreements with the insurers and that the alleged conduct has significant anticompetitive effects in a properly defined market (contentions that CHS has already signaled in its defense of the case that it believes the DOJ will ultimately not be able to prove). In contrast, the California Attorney General’s case against Sutter Health is brought under the Cartwright Act (California’s antitrust law) which, unlike federal antitrust law, arguably characterizes the alleged conduct as a per se, rather than rule of reason, violation. Thus, if the California court ultimately agrees that the conduct alleged is susceptible to per se treatment, the State could potentially prevail in the case without the necessity of proving that the impact of the provisions in the market was, on balance, anticompetitive. Second, the relief sought by the State is significantly broader than that sought by the United States in the Carolinas Health System case, with the request for “disgorgement” in the Sutter Health case potentially totaling millions of dollars, if not more.

On May 14, Sutter Health filed its response to the California Attorney General’s Complaint.  Perhaps not surprisingly, Sutter Health response focuses largely on the relief sought by the State, and not the merits of the antitrust claims (given the more limited defenses available to a per se claim). Instead, Sutter Health challenges the State’s right to seek disgorgement for the alleged “overcharges,” contending that the Cartwright Act provides for no such remedy. In addition, Sutter contends that the State’s request that Sutter Health be required to arbitrate the terms of its contracts with insurers going forward is “unprecedented” and that it would “threaten to upend Sutter’s business model and hobble Sutter’s efforts to innovate.” A hearing is set on Sutter Health’s motion for June 11. Stay tuned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akerman LLP - Health Law Rx | Attorney Advertising

Written by:

Akerman LLP - Health Law Rx

Akerman LLP - Health Law Rx on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.