By Bryan Koenig

Law360 (July 10, 2020, 7:14 PM EDT) -- If Sutter Health wants to use COVID-19 as a reason to try to tweak the $575 million antitrust settlement it inked with California's attorney general, it must wait until the deal has been finalized, a state court judge said Thursday in refusing to postpone final approval.

County of San Francisco Superior Court Judge Anne-Christine Massullo noted that the deal specifically allows parties to seek modifications after final approval. Alternatively, according to the ruling, Northern California's largest health care provider could outright oppose the deal, which includes major changes to its operations to address claims that the system overcharged millions of workers through anti-competitive behavior that forced health plans to use its overpriced hospitals.

What Sutter cannot do, Judge Massullo said, is win a delay because "it might oppose approval" depending on how the COVID-19 pandemic ultimately affects its operations. The judge said the hospital system, which claims the outbreak has already cost it over $1 billion, is trying to stake out the "uncomfortable middle ground" between supporting and opposing approval.

"[T]he court is not persuaded that the proposed injunction will interfere with Sutter's ability, or the broader healthcare system's ability, to provide patient care during the COVID-19 pandemic," Judge Massullo said. "To the extent that a provision of the proposed injunction poses a threat to patient care or the public interest during the COVID-19 pandemic, or as a result of some other presently unforeseen circumstance, any party may seek a modification of the offending provision if and when such a modification becomes appropriate."

Sutter had asked the court not to resume approval proceedings for either 90 days or until 30 days after California's state of emergency and shelter-in-place orders are lifted, whichever was sooner. The hospital system argued that the extra time would enable it to assess the full impact of the coronavirus.

As of Friday, Centers for Disease Control and Prevention data showed that nearly 1 out of 100 Americans across the country have been diagnosed with COVID-19, with over 3.1 million cases and more than 132,000 deaths. In California, the CDC counted over 296,000 cases and in excess of 6,700 deaths.

Reacting to the pandemic "has been an incredibly costly and difficult endeavor that will significantly impact us for years to come," Sutter said in a statement provided to Law360 on Friday.

"Our entire integrated network acted quickly to adapt our 'normal' operations and prepare and manage through patient surges in response to this pandemic. Over the last few weeks, like the rest of the state, we've seen an uptick in cases of COVID-19, including hospitalizations that have pushed us to our highest surge levels," the company said. "This surge requires ongoing emergency response efforts across our integrated network as we continue to provide high quality care during these uncertain times."

The Sutter deal struck last year, which includes no admission of wrongdoing, calls for a variety of changes to the system's operations in addition to the monetary payment, according to the California attorney general's office.  

Those tweaks 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 calling for delay, which is opposed by California Attorney General Xavier Becerra and other plaintiffs, Sutter had argued that the pandemic could make parts of the proposed injunction "impracticable." Specifically problematic, Sutter said, were limits on what it can charge that "may be too low to cover the unprecedented and unforeseeable increase in expenditures" and a general prohibition on some hospitals saying they'd only participate in an insurance network if other Sutter hospitals were also included.

Judge Massullo, however, said that any changes to Sutter's "chargemaster rates" can be addressed after approval "if and when it is necessary." And if Sutter thinks the injunction "is inadequate to protect its interest, or the public interest," because the rate cap adjustment procedure is insufficient, the company can argue that now during the approval proceedings without needing additional information.

Sutter's ability to dictate which hospitals are covered under insurance networks, according to the decision, is another "discrete issue that can be addressed in a contested proceeding to modify the injunction" if needed, or the system could bring the matter up in the approval proceedings.

The judge also rejected Sutter arguments over pending state legislation, SB 977, that would require companies owning multiple hospitals to get approval from the attorney general before going forward with affiliation agreements or acquisitions of health care facilities or providers. Sutter argued that the bill could render the injunction unneeded but Judge Massullo said that just because an "alternative source of protection may exist in the future," that shouldn't upend the settlement review process, and any impacts from the legislation can be addressed as the court considers final approval.

Judge Massullo further held that additional delay would harm the plaintiffs, who also include ones consolidated into a class action and the United Food and Commercial Workers International Union and Employers Benefit Trust, more than it may prejudice Sutter.

Becerra welcomed the ruling in a statement.

"Sutter's practices harmed California's healthcare market by charging higher prices unrelated to quality or cost of care. They did that long before the COVID-19 pandemic. There is no period of time that medical providers, like Sutter, should be able to carry out such destructive market practices," he said.

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, Aaron M. Panner and Daniel G. Bird of Kellogg Hansen Todd Figel & Frederick PLLC, Steven L. Stemerman and Sarah Grossman-Swenson of McCracken Stemerman & Holsberry LLP, Christopher C. Wheeler and Karen P. Kimmey of Farella Braun + Martel LLP and Daniel A. Small of Cohen Milstein Sellers & Toll PLLC.

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, County of San Francisco.

--Additional reporting by Julia Arciga, Hannah Albarazi and Jeff Overley. Editing by Bruce Goldman.

Updated: This story has been updated to include additional counsel information. 

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