California Superior Court Sends Healthcare Pricing Case To Trial
On June 18, 2019, California Superior Court Judge Anne-Christine Massullo issued an order denying Sutter Health’s motion for summary judgment on the alleged California antitrust claims concerning allegedly anticompetitive provisions in Sutter Health’s vendor contracts. See UFCW & Employers Benefit Trust, et al. v. Sutter Health, et al., CGC-14-538451 (Sup. Ct. Cal. 2014).
Several employer-funded health-insurance plans (“plaintiffs”) sued Sutter Health (the “Company”) in 2014. Plaintiffs claimed that the Company used its market power to compel its network of healthcare “vendors” to agree to “all-or-nothing,” “anti-incentive,” and “price secrecy” contracts—thereby restricting the ability of the Company’s competitors to compete with one another on price. Plaintiffs also claimed that the Company conditioned the sale of general acute care hospital services and ancillary products on an in-network, supracompetitive price basis at any one of the Company’s hospitals, thereby shifting business away from allegedly lower-cost competitors. Plaintiffs allege these restraints produced the following anticompetitive effects: raising the price for certain “out of network” health services, preventing tiered-pricing plans, and prohibiting the disclosure of rates for certain services to patients. The California Attorney General joined the case against Sutter last year.
The Company disputed that its contracts restrict the price of health services, information about the price, or access to other vendors. It argued that its contracts with other vendors do not prohibit narrowed or tiered pricing. To the extent the Company prohibits steering, it argued, it does so only when health insurers voluntarily contract to forgo steering in exchange for discounted rates for certain health services. As to the supposedly higher prices the Company charges, the Company claimed that the rate it charges for health services cannot, alone, establish a violation of California antitrust law. The Company also disputed that not disclosing to patients how much certain health services cost is “common and has a procompetitive effect.” Finally, the Company argued that plaintiffs failed to make the requisite market power showings required to establish a claim that it unlawfully “tied” or “bundled” health services together as a function of its vendor contracts, and that none of the Company’s services are sold below their costs (a prerequisite for bundling claims, in the Company’s view).
In rejecting the Company’s arguments—and denying summary judgment—the Court characterized the Company’s position as “difficult to follow.” In some instances, the Court found, the Company claimed that it did not implement the practices plaintiffs allege, while in others it claimed that the practices would have no anticompetitive effects if they were implemented, or that, if it did implement them, they were per se lawful. In rejecting the Company’s arguments, the Court’s key point is that the Company improperly broke plaintiffs’ antitrust claim into component parts—when the antitrust violation plaintiffs alleged was a function of evaluating the Company’s various contractual restraints as a whole. Rather than consider their collective effect on competition, the court explained, Sutter wrongly analyzed them in isolation. By disregarding the theory of antitrust liability set forth by plaintiffs, the defendant could not prevail on summary judgment. The Court then proceeded to also deny summary judgment on the basis that plaintiffs lacked any injury recognized under California antitrust laws, and also upheld plaintiffs’ claims under California’s Unfair Competition Law.
This case is a reminder that, even where there may be justifications for individual contractual provisions, multiple provisions taken together can still form a viable antitrust claim.