Calif. AG Blasts Sutter's Bid To Delay $575M Deal Amid Virus

By Bryan Koenig
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Law360 (June 26, 2020, 6:40 PM EDT) -- California's attorney general has urged a state court not to postpone final approval for Sutter Health's $575 million antitrust settlement, arguing that any COVID-19 impacts on the hospital system can be assessed after the deal is cleared.

State consumers have waited long enough for the deal — which includes major changes to Sutter's operations — to kick in to address claims that the system overcharged millions of workers through anti-competitive behavior that forced health plans to use its overpriced hospitals, California Attorney General Xavier Becerra said in an opposition brief on Thursday.

Sutter wants at least a 90-day reprieve, if not until 30 days after California's state of emergency and shelter-in-place orders are lifted, before the court resumes approval proceedings, arguing that the extra time will enable it to assess the full impact that the coronavirus has had on a system that's already out more than $1 billion.

But Becerra and other plaintiffs countered on Thursday that the mere "possibility" that COVID-19 may justify tweaks to the injunction that will be established by the proposed final judgment is not enough to delay "the benefits of greater competition to consumers."

"The possibility that Sutter may be having second thoughts about whether the settlement serves its own interests is, under governing law, irrelevant to whether approval (preliminary or final) should be granted," Becerra said. "Sutter's concerns cannot serve as a basis for denial of plaintiffs' preliminary approval motion or allowing any alterations to the bargain struck between the parties as reflected in the [proposed final judgment] before the PFJ is approved."

The deal struck last year, which includes no admission of wrongdoing, covers claims from the state enforcer, individual plaintiffs consolidated into a class action and the United Food and Commercial Workers International Union and Employers Benefit Trust. In addition to the cash payment, the settlement comes with fixes to be overseen by a court-appointed compliance monitor for at least 10 years.

Becerra's office said those fixes include limitations on what Sutter can charge for out-of-network services, guaranteed access to pricing, cost and quality information for plan members to increase transparency, a ban on efforts to try to steer patients from lower-cost plans, a ban on "all-or-nothing contracting deals" under which insurers and employers couldn't cover only some Sutter hospitals and not others, and a ban on "anti-competitive bundling of services and products" requiring the purchase of more services than were needed.

In seeking a reprieve earlier in June, Sutter indicated that it may ask for changes to some of those terms. It argued that, in addition to "devastating declines in patient volume" because of government limits on elective procedures, the system has had to drastically shuffle its operations in order to cope with the pandemic.

As of Friday, the virus had killed more than 121,000 people in the United States and infected more than 2.3 million, with over 5,000 deaths and 190,000 cases in California, according to the Centers for Disease Control and Prevention.

"Adjusting our entire integrated network to respond to COVID-19 has been an incredibly costly and difficult endeavor that will significantly impact us for years to come. Our entire integrated network acted quickly to adapt our 'normal' operations and prepare for a surge of patients in response to this pandemic. Sutter has not objected to any aspect of the settlement," Sutter said in a statement provided to Law360 on Friday.

"Sutter has, however, raised a concern about whether the settlement approval process should be deferred given the extreme disruption to the health care industry caused by COVID-19 and the potential for COVID-19 to materially impact certain settlement terms."

In its June 12 brief, the hospital system — northern California's largest — argued that the pandemic could make parts of the proposed injunction "impracticable." Sutter specifically named limits on what it can charge that it said "may be too low to cover the unprecedented and unforeseeable increase in expenditures," along with a general prohibition on some hospitals saying they'd only participate in an insurance network if other Sutter hospitals were also included.

"The rules regarding conditional participation were negotiated based on how Sutter existed and coordinated care in the fall of 2019. But as noted above, there is a distinct possibility that Sutter will operate differently as a result of the pandemic," it said. "Moreover, an exception to the conditional participation restrictions may be needed to avoid interfering with or disrupting Sutter's ability to respond to a future surge."

Becerra countered that any consideration of potential tweaks would be "premature," with the brief noting that the settlement allows for possible changes based on "changed circumstances." But those changes should trigger any modifications after the injunction is put into effect, according to the brief, which argued that the proposed final judgment is just part of the settlement until clearance and Sutter lacks any legal right by which to seek tweaks to a deal it agreed to.

Even if Sutter does have to seek different terms with insurers, it can do so in consultation with the plaintiffs and monitor, according to the brief.

"Until the settlement receives final approval, Sutter can continue its anti-competitive practices, which harm health care consumers and our state's economy," Becerra's office said in a statement announcing the opposition brief. "Attorney General Becerra asserts that emergencies such as COVID-19 are not an excuse for Sutter, or any other health care entity, to skirt their obligations under antitrust law."

Sutter Health, one of the nation's largest health systems, has been fighting this case since 2014, when the United Food and Commercial Workers' benefit trust hit it with a proposed class action alleging it had overcharged millions of workers by using illegal anti-competitive contract terms and contracting practices that forced health plans to use its overpriced hospitals.

Sutter is represented by Jeffrey A. LeVee, David C. Kiernan, Brian G. Selden and Matthew J. Silveira of Jones Day and Robert H. Bunzel, Patrick M. Ryan and Oliver Q. Dunlap of Bartko Zankel Bunzel & Miller.

California is represented by Xavier Becerra, Kathleen Foote, Michael Jorgenson, Cheryl Lee Johnson, Esther La and Emilio Varanini of the attorney general's office.

The class is represented by Richard L. Grossman and Philip L. Pillsbury Jr. of Pillsbury & Coleman LLP.

The case is UFCW & Employers Benefit Trust v. Sutter Health et al., case number CGC 14-538451, in the Superior Court of the State of California, City and County of San Francisco.

--Additional reporting by Hannah Albarazi. Editing by Nicole Bleier.

For a reprint of this article, please contact reprints@law360.com.

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