Surprise Settlement In Sutter Health Antitrust Case

Surprise Settlement In Sutter Health Antitrust Case

Sutter Health has reached a tentative settlement agreement in a closely watched antitrust case brought by self-funded employers, and later joined by the California Attorney General’s Office. The agreement was announced in San Francisco Superior Court on Wednesday morning, just moments before opening statements were expected to begin.

While representatives for both sides confirmed they had reached a tentative settlement, they would not divulge details of the agreement, which must be approved by the court.  Superior Court Judge Anne-Christine Massullo told the jury impaneled for the case that details likely would be made public during approval hearings in February or March.

There were audible cheers from the jury following the announcement that the trial, which was expected to last three months, would not continue. Officials with the attorney general’s office and Sutter Health declined requests for comment.

Sutter stood accused of violating California’s antitrust laws by using its market power to illegally drive up prices. Health care costs in Northern California, where Sutter is dominant, are 20% to 30% higher than in Southern California, even after adjusting for cost of living, according to a 2018 study from the Nicholas C. Petris Center at the University of California-Berkeley that was cited in the complaint.

The case was a massive undertaking, encompassing years of work and millions of pages of documents, California Attorney General Xavier Becerra said beforehand. If the plaintiffs prevailed, Sutter was expected to face damages of up to $2.7 billion.

The nonprofit giant has 24 hospitals, 34 surgery centers and 5,500 physicians across Northern California, with $13 billion in operating revenue in 2018. The state’s lawsuit alleged Sutter has aggressively bought up hospitals and physician practices throughout the Bay Area and Northern California, and exploited that market dominance for profit.

Among other tactics, it accused Sutter of employing an “all-or-none” approach to contracting with insurance companies, demanding that an insurer that wanted to include any one of the Sutter hospitals or clinics in its network must include all of them — even if some of those facilities were more expensive than a competitor.

Sutter Health consistently denied the allegations, saying its large, integrated health system offers tangible benefits for patients, including more seamless, high-quality care and increased access for residents in rural areas. Sutter also disputed that its prices are higher than other major health care providers, saying its internal analyses tell a different story.

The case was expected to have nationwide implications on how hospital systems negotiate prices with insurers. Even with details of the agreement not yet public, attorneys and patient advocates said they expect the settlement to mark a pivotal moment.

David Balto, a former federal regulator who is now an antitrust lawyer in Washington D.C., called the developments “precedent-setting.”

“You have all these metropolitan markets where you have large hospital systems, but Sutter Health in the Bay Area is like the filet mignon of the problem,” Balto said. “The problems in San Francisco are bigger than anywhere else. And you see that in how Sutter has exploited its market power to the nth degree.”

Sutter’s tactics were hard to challenge under antitrust law, Balto added. But “what [Becerra] did was bring together hard facts with top-notch scholarship proving there was an overwhelming problem and that Sutter’s strong-arm tactics were the cause of the problem.”

Anthony Wright, executive director of the advocacy group Health Access California, said he wasn’t privy to the settlement details, but that he expected it to include “some meaningful remedies in terms of adjusting some of the anti-competitive practices and contract provisions that Sutter has advanced over the years.”

“While we await the details of the settlement,” he said, “the lawsuit itself sends a strong signal to hospital chains across the nation and all health care providers planning to adopt predatory prices.”

Jaime King, associate dean and a professor of law at UC Hastings College of the Law, said Sutter’s decision to settle “in some ways is not a surprise. On the eve of trial, we often see big settlements.”

Still, she said, it comes at a cost: “I think it’s a shame we won’t ever get to see the evidence that would have been brought forward in this case about Sutter’s contracting and pricing practices. There are a lot of very large health systems that are charging a lot of money for their services, and this case had the opportunity to give us much more insight into what we’re spending our health care dollars on.”

Sutter continues to face trial on a separate federal antitrust lawsuit.

 

 

 

 

Americans already pay a ‘gigantic’ hidden health-care tax, economists say

https://www.washingtonpost.com/business/2019/10/16/americans-already-pay-gigantic-hidden-health-care-tax-economists-say/?fbclid=IwAR1dG0uH1k6nZ8hC3UL7z8pDZtyTQa55NAWxM1Nni1uh7CLsD0sEaGjqie8

Image without a caption

 

The topic of Medicare-for-all was front and center — again — during Tuesday night’s Democratic presidential debate. Moderators were particularly interested in how its supporters, like Sen. Elizabeth Warren (D-Mass.), would pay for it. Specifically, would it require raising taxes on the middle class?

To some economists, the question is moot: Americans already pay a massive “tax” to fund health care, they say. It just happens to go to private insurance companies, rather than the federal government.

That’s the argument put forth in Emmanuel Saez and Gabriel Zucman’s new book,The Triumph of Injustice.” The economists at the University of California at Berkeley, who have advised Warren and Sen. Bernie Sanders (I-Vt.) on the creation of a wealth tax, call private health insurance costs “taxes in everything but name.” They are automatically deducted from workers’ paychecks. And they are essentially mandatory for families who don’t want to be crippled by long-term health-care costs or unexpected illnesses.

“Whether insurance premiums are paid to a public monopoly (the government) or to a private monopoly (the notoriously uncompetitive US private health insurance system) makes little difference,” the economists write. “Both payments reduce the take-home pay of workers; and although it’s always possible to evade taxes or to refuse to pay one thin dime to insurance companies, in practice almost everyone abides.”

The issue sparked a spirited discussion during Tuesday’s debate in Ohio for the 12 Democrats vying to take on President Trump in 2020, with Warren and Sanders’s plans getting blasted as being overly expensive and unworkable. Warren was specifically called out for refusing to say whether her proposal would result in higher taxes for the middle class or get into how it would eliminate employer-sponsored coverage for 160 million Americans. Although she vowed that her plan would not raise overall costs for the middle class, she notably evaded the specific issue of taxes.

Saez and Zucman have produced an estimate of just how much we’re already paying for health insurance and find it’s a little north of $1 trillion per year: “close to 6% of national income in 2019 — the equivalent of one-third of all federal income tax payments!” Health insurance costs raise the average effective tax rate on American labor from 29 percent to 37 percent, they said.

Thinking about health-care costs in this way is useful, Saez and Zucman write, because it allows for better tax comparisons between the United States and other wealthy countries, most of which fund health care via their tax codes. “Americans on average keep about the same fraction of their pretax income as their European brethren,” they write.

One of the key uncertainties about transitioning to a Medicare-for-all plan like the ones proposed by Warren and Sanders is whether doing so would raise or lower total health-care costs. Preliminary estimates have so far yielded wildly divergent outcomes, in part, because the financing specifics behind various candidates’ plans are largely still up in the air. How the change would affect the wallet of the typical middle-class tax payer relative to other groups also remains an open question.

But the Saez and Zucman data underscore that Americans already are paying a large health-care levy that is for all intents and purposes mandatory. If you consider health insurance costs as a tax on labor, as they do, it means the extremely rich, who derive most of their income from capital, are carrying a disproportionately light share of the total health cost load.

 

If a medicine is too expensive, should a hospital make its own?

https://mosaicscience.com/story/price-essential-orphan-drug-self-compounding-pharmacy-leadiant-amsterdam-umc-ctx-cdca/?

When the price of an essential medicine rose to an unacceptable level, there was only one thing for pharmacist Marleen Kemper to do – start making it herself.

When Marleen Kemper was a child, she watched two of her primary-school classmates get ill. One had a brain tumour, and the other contracted an infection in his gut. Both of them died. Kemper was around ten at the time, and knew that she didn’t want to see another friend perish. She told her parents she wanted to do something that would prevent others dying. She wanted to be a doctor.

But training is hypercompetitive in the Netherlands, where Kemper was growing up. She didn’t quite have the grades. She liked chemistry, so chose a career in pharmacy instead. She studied for six years, and did a residency for another four. Today, she’s a highly respected hospital pharmacist based at Amsterdam UMC’s Academic Medical Center, a cavernous building crafted out of concrete on the south-east fringe of the Dutch capital.

To understand what happened next, you have to understand several things about Kemper. Two date back to her childhood. One was those early experiences of losing friends to illness, which ensured she’ll do everything she can to make sick people better.

The second is that, though she’s highly accomplished, Kemper is self-admittedly hard-headed, and has always had a rebellious streak. She once dyed her hair black to stand out from the crowd. Sometimes she likes to shock people.

Which leads into the third, more recent trait: a steely determination to do right by her patients, whatever the cost. And the cost can be great. In 2017, when the price of a drug to treat a rare genetic disorder skyrocketed, Kemper wasn’t happy. The result was a dispute that’s still going on today and has spread beyond the four walls of the UMC hospital. It’s spread beyond the city of Amsterdam. And it’s even spread beyond the borders of the Netherlands.

Most of us never have to worry about chenodeoxycholic acid (CDCA), one of the two primary bile acids produced by our livers. But for a tiny fraction of us, a rare genetic trait means we end up short.

Having this gene variant prevents the body from creating sterol 27-hydroxylase, a liver enzyme. Without it, the liver won’t convert enough cholesterol into CDCA. The result is an overabundance of other bile acids and substances, which then get pumped out of the liver and through the body, causing untold damage.

The illness that results is called cerebrotendinous xanthomatosis, or CTX. It can cause cataracts, dementia, neurological problems and seizures, but it can be treated. Since the 1970s, the pharma industry has been able to produce CDCA, and so people who need it can supplement their shortage. The system worked well; the drug was relatively cheap for such a niche illness. A year’s treatment cost around €30,000 per patient.

Until suddenly it didn’t. In 2017, Leadiant Biosciences, which was supplying CDCA to these patients in the EU, raised the price of its version of the drug – known as CDCA Leadiant – to over €150,000 per patient per year.

The price increase soon had an effect. The Netherlands has an insurance-based health system, and in April 2018, Dutch insurers – who had been paying for 50 or so patients across the country to receive the drug – balked at the fivefold increase, refusing to pay. Patients unable to pay themselves would have gone without treatment, so Kemper – whose hospital was one of the treatment centres for CTX – stepped in. Amsterdam UMC would produce the medicine for these patients itself, at cost price.

She was upset, she admits. “Patients have a medical need. If those patients with CTX don’t get their medication, they get neurological implications, they get complications with their cholesterol and dementia, epilepsy… it is an essential medicine.”

Anyone wanting to manufacture a drug must get a marketing authorisation to do so. But Leadiant had become the only game in town, the owner of exclusive rights to manufacture CDCA commercially in the EU.

Yet there was a solution. Under EU rules, pharmacies can make (or ‘compound’) a prescribed drug on a small scale for their patients.

So Kemper began researching where she could find the ingredients to make CDCA. It was difficult: in the pursuit of better margins, vast numbers of manufacturing companies have closed their factories across the world and concentrated their efforts in China, where the costs of producing pharmaceutical ingredients are lower. Just one European company manufactures the ingredients to EU standards.

Kemper approached them, and they declined to supply her the raw material. In the end, she found a Chinese manufacturer instead. She went to the hospital’s executive board and gained approval to manufacture the drug. It cost the pharmacy €28,000 per patient per year – pretty much exactly the same as the price of the drug beforehand.

CDCA wasn’t initially used to treat CTX. Originally it was developed to treat gallstones. This main use of the drug – which from the mid-1970s had been sold in the Netherlands as Chenofalk – became outmoded when the standard procedure to deal with troublesome gallstones became to just cut out the gallbladder entirely.

At the turn of the millennium, Dutch doctors started using Chenofalk off-label to treat CTX – a practice that carried on for several years. At this time, in the mid-2000s, a year’s supply of the drug cost less than €500.

But in 2008, Leadiant acquired the rights to Chenofalk. Then, nine days before Christmas 2014, it succeeded in getting its version of CDCA classified as an “orphan medicine” for treating CTX. That classification gave Leadiant the exclusive right to manufacture its CDCA drug commercially in Europe for the next ten years. Leadiant then took Chenofalk off the market in 2015.

Introduced by EU regulation in the year 2000, orphan drug classification is given to drugs that treat serious illnesses that affect fewer than five in every 10,000 people in the EU. Its purpose is to help companies recoup the costs of developing treatments that would otherwise be unlikely to generate a profit. Without it, the pharma industry wouldn’t be incentivised to seek new drugs for the rarest diseases.

But in this case, CDCA was already known as a CTX treatment, with Chenofalk having been used off-label to treat it for years. Kemper believes that Leadiant is getting the financial benefits of orphan designation, but for a drug that had gone through development and been released to market long ago. “There were publications already in the 1980s,” she says. “There’s no patents, nothing. It’s really bizarre.”

Kemper isn’t the only one concerned about the price rise and CDCA’s orphan drug status. In September 2018, a lobby group, the Dutch Pharmaceutical Accountability Foundation, asked the Dutch competition authority to investigate the price increase. And this spring Test Achats, a nonprofit consumer-protection organisation in neighbouring Belgium, lodged a complaint against Leadiant with the Belgian Competition Authority.

“We noticed that in 2005, the price for the treatment of a patient in one year was around €500. Now it’s more than €150,000,” explains Laura Marcus, legal counsel to Test Achats. “It’s bad for the sick person but also for the Belgian health system, which is paying most of the [cost of the] treatment.”

When a drug company raises the price of its treatment, and a hospital pharmacy decides not to accept the increase but instead endeavours to compound its own version, undercutting the drug company’s price, things tend to get interesting.

In June 2018, Kemper received a phone call from the Dutch health inspectorate. It had received a letter of concern – who it came from, Amsterdam UMC doesn’t know, though the health inspectorate has said it was acting in response to an enforcement request from Leadiant – with a long list of things for the investigators to check.

Kemper took the news in her stride. She had expected a rocky road. “As a pharmacist, I am a professional and I know what I’m doing, and we have standards for compounding,” she explains. So she wasn’t worried when a team of four inspectorate monitors turned up at the door of her pharmacy in Amsterdam that summer. Two were there to take samples of the raw materials she was using to compound CDCA, and to ensure that all the correct processes were being followed. They rifled through the reams of paperwork and procedures that Kemper had spent hours developing for her staff to follow, while the other two inspectors combed through coverage of the case to ensure that Kemper and her team weren’t advertising their work, which isn’t allowed for medicines that haven’t been given market authorisation.

The lab checked out: its processes were up to standard, and the paperwork was all in order. But in July Kemper got a phone call that floored her: the inspectorate’s analysis of the raw materials her pharmacy was using to compound the CDCA had discovered that they weren’t up to snuff. Two components found in it were above allowed limits.

“As a professional you think: what did I miss? It was very emotional, a bit heavy,” she says. With the board of directors at the hospital, Kemper decided to immediately withdraw the product from patients; the health insurers said they’d step in and cover putting the patients back on the Leadiant version of the drug.

Kemper personally called the 50 or so patients she was providing with the drug. “The first one was hard,” she admits. “I expected they’d be angry or something like that. But no, no one [was]. The patients said: ‘Well, please go on with this job.’”

The Dutch inspectorate has said that Kemper can resume compounding CDCA provided she can find a raw material that doesn’t contain impurities – something Kemper is keeping tight-lipped about.

So, if she can get the materials she needs, Kemper is hopeful to be able to continue compounding CDCA in the future.

But for now, it’s back to square one – paying the full price for CDCA Leadiant.

These events have had wider consequences. What was initially a dispute inside the Netherlands has bled across borders, with Belgian patients with CTX now being affected.

It started with a conversation between the Dutch and Belgian health ministers shortly after Kemper’s production of CDCA was halted, says Thomas De Rijdt, head of pharmacy at University Hospitals Leuven. The Dutch minister wanted to know from his Belgian counterpart why Belgian hospitals were able to make the same drug without any issues.

“For Belgium, we have about ten patients,” De Rijdt says. “So ten patients are helped with the preparations from our hospital and the University Hospital in Antwerp.”

These hospitals had been compounding CDCA capsules for CTX patients for years. Leuven had sourced raw materials that had been tested and approved by a laboratory accredited by the Belgian government. But when the case in the Netherlands started entering conversation at diplomats’ dinners, the Belgian government wanted to double-check that its raw materials were OK.

It ran a second battery of tests – with a different accredited laboratory – which came back with a problem. A single impurity was found. The government ordered a quarantine of the raw material and recalled all the CDCA it had made.

“The patients had to return all their medication,” says De Rijdt. Recalling every capsule of the drug from Belgium, and freezing the work of the only two suppliers in the country, meant that people with CTX were suddenly left without any medicine.

“If you know the disease, you know you can deteriorate very quickly,” says De Rijdt. This was a problem. So, he says, the hospital pharmacists, the National Institute for Health and Disability Insurance, the health minister and the pharmaceutical inspectorate hit upon a solution. For a year, the Belgian government would reimburse the costs of Leadiant’s drug, allowing those patients to still be treated (normally the government only reimburses a portion of a person’s health costs, with the rest being picked up by the patient or insurance). Over the course of that year, the relevant authorities would then work together to adapt the requirements a raw material must comply with – to allow versions of drugs with minor impurities, providing they pose no threat to the patient.

“We have bought time to find a solution with the compounding, because we think by compounding we can save healthcare a lot of money for the same quality of therapy,” says De Rijdt. He hopes to have a solution by the end of 2019.

But in early September, things took another turn. Wouter Beke, the Belgian consumer affairs minister, used his price-regulation powers to bring down the price of CDCA Leadiant to just over €3,600 a month – roughly a quarter of the amount Leadiant was charging. If the drug becomes more cheaply available in Belgium, says De Rijdt, then it could end up being exported and available at a lower price elsewhere.

But exactly how this will pan out remains unclear. In the meantime, Beke has urged the Belgian Competition Authority to prioritise investigating Leadiant, following the complaint lodged by Test Achats.

Debate over what constitutes a fair price for drugs isn’t anything new. Nor is it limited to Europe.

Because of his willingness to play the bad guy in the press (and an odd moment when he bought a Wu-Tang Clan record), Martin Shkreli has attracted more criticism on drug pricing than perhaps anyone else. In 2015, Turing Pharmaceuticals, of which Shkreli was CEO, raised the price of its recently acquired antimalarial drug Daraprim, also used to treat AIDS-related illnesses. A pill went from $13.50 to $750 overnight – a 55-fold increase.

Shkreli’s capitalist tendencies were criticised by almost everyone. This was unlike the situation with CDCA Leadiant – there was no argument that this increase was to cover Daraprim’s development costs – and Shkreli himself was unrepentant: “If there was a company that was selling an Aston Martin at the price of a bicycle, and we buy that company and we ask to charge Toyota prices, I don’t think that that should be a crime,” he told reporters.

But the Daraprim situation was just the highest-profile example of a contest that is going on constantly between big pharmaceutical companies seeking to profit from drugs and medical staff on the frontline who worry that such profit-seeking does damage to patients needing treatment. (For what it’s worth, a competitor to Turing Pharmaceuticals announced soon after that it would produce a compound drug containing the same active ingredient in Daraprim – pyrimethamine – for $1 a pill, rather than the $750 Shkreli wanted to charge.)

One front in this battle has recently opened up in the US. In May, more than 40 states filed an antitrust lawsuit against some of the world’s biggest manufacturers of generic drugs, alleging they that have colluded to fix the price of more than a hundred medicines over a number of years. When prices should go down after a drug’s market exclusivity ended, the antitrust lawsuit claims that many prices have instead shot up – in some cases by more than 1,000 per cent.

And back in Europe, the consumer organisation Euroconsumers – of which Test Achats is part – is investigating the prices of other drugs beyond CDCA. “We’ve noticed a few problems with a few other drugs,” says Laura Marcus of Test Achats. “It’s often about drugs that are able to cure or deal with rare diseases. For sure, it’s not only CDCA.”

No one doubts that developing drugs costs money. A 2016 paper in the Journal of Health Economics estimated that the average cost of developing a prescription drug to the point of reaching the market is nearly $2.6 billion.

But the lack of hard, openly available statistics on the cost of drug development is something that many people, including Marcus and Marleen Kemper, want to change. “In most of the cases, society is willing to pay some price,” says Kemper, “but now the discussion is: what is an acceptable price?”

Marcus acknowledges that Leadiant has to cover its costs, but she thinks that cannot explain the rise of CDCA to over €150,000 – “the profit cannot be that high”. When I ask her how much profit she thought Leadiant was making from the drug, she admits she doesn’t know. “Of course we don’t have access to those numbers,” she says. “That’s what the Belgian Competition Authority is opening an inquiry for – to know more about the figures and the costs the company has to bear.” However, when the price for CDCA has surged from €500 to over €150,000, “nothing justifies it, because there was no new research, no new nothing,” she says.

Leadiant rejects this. Although CDCA had been authorised in the past, the company says that “the active pharmaceutical ingredient as well as the manufacturing of the finished product needed to be upgraded” to make sure that its version was compliant with current EU standards. These, Leadiant says, are more extensive and significantly more strict today than they were when earlier CDCA drugs were developed.

Leadiant says that its CDCA “is not a ‘copy’ of an old product”. The very fact that it gained orphan drug status proves this, it argues. The company also says that “there was no robust evidence that CDCA was effective in CTX until Leadiant produced the data”. Demonstrating this, it says, required “entirely new studies, creating new data sets” – which make up “the largest ever collection of clinical data for CTX”.

“CDCA Leadiant has been developed and brought to market at substantial cost,” the company says. “Our pricing is justified by our costs and investments.”

But the problem is not just that Leadiant’s drug is so expensive: potential alteratives have disappeared. Willemijn van der Wel, a lawyer working at European law firm AKD, has written about Leadiant’s connection to competitors who previously produced CDCA. After buying the marketing authorisations for other products that contained CDCA, he says, “Leadiant began to withdraw these alternative CDCA products from the market, until only one CDCA medicinal product remained”. Marcus has also queried what has happened to these products that might have been competitors to Leadiant’s. But, she says, it’s not clear what is behind their CDCA monopoly.

Leadiant, though, says that it’s willing to negotiate a lower price for its drug with the Dutch Ministry of Health and Dutch insurance companies. “The only reason an improvement has not been determined yet, is that the insurers have been uninterested or unwilling to enter into any substantive negotiations,” it claims. (Leadiant did not respond to follow-up questions asking for more details of the negotiations, or what level of price reduction the company was offering.) It also emphasises that it has not taken legal action against the UMC hospital for seeking to compound its own CDCA, but that it is “involved in a legal discussion with the Dutch Inspectorate about the interpretation of EU and Dutch medicines law”.

Regardless of the outcome of such discussions, something needs to be done. Having pharmacies self-compound medicines is not a sustainable model – it might reduce incentives for developing drugs for rare conditions.

It also, Leadiant argues, exposes patients to risk. Pharmacies do not have to have their compounding processes checked by the European Medicines Agency or the national regulator. “There is no product control by any independent regulatory authority before or after compounding.”

When it comes to market authorisation and orphan drugs, Leadiant says, “it should not be about small or large scale, but safe scale”.

Marleen Kemper’s husband warned her that taking on Leadiant would be more difficult than she first thought. “He said, ‘With this initiative, don’t be naive’,” she recalls. “The pharmaceutical industry is very powerful, so you really have to have back-up from the [hospital] board” – which she had. More than a year into her attempt to make her own version of the drug, she’s recognising just how deeply dug in both sides are to their positions.

She’s at pains to point out that she’s not against the pharma industry. “What people forget is that the pharmaceutical industry is responsible for a lot of innovation.” But if drug pricing means that patients potentially get left behind? “Then I’m getting angry,” she says.

But righteous anger alone can’t sustain someone over a months-long case involving lawyers and regulators, not least when they’re also raising a family, running part of a pharmacy that’s actively studying hundreds of drugs, and doing their job keeping patients supplied with medicine. At times Kemper has felt frustrated and worn down by the effort of taking on the price rise – but she vows to continue.

“I’ve said that sometimes I’ve thought, well, I’ll stop and quit doing it because it’s too much work, too emotionally draining. But due to the support, I think we’ll go on. I’m patient,” she says. “It has to be solved, for the patients.”

Kemper’s determined that she’s going to provide affordable care for her patients by following the letter of the law. “I’m using the rules,” she says. “I’m not cheating.” Leadiant, she accepts, has used the rules and followed them to serve its own purposes. So she will too.

“I’m allowed to make medication for patients. They don’t like it? So what. I’m following the rules.”

 

 

 

Market Consolidation on Trial

Market Consolidation on Trial

Image result for Market Consolidation on Trial

California Attorney General Xavier Becerra alleges that Sutter Health used its pre-eminent market power to artificially inflate prices. Photo: Rich Pedroncelli/Associated Press

As a jury trial draws near in a major class-action lawsuit alleging anticompetitive practices by Northern California’s largest health system (PDF), a new CHCF study shows the correlation between the prices consumers pay and the extensive consolidation in the state’s health care markets. Importantly, the researchers estimated the independent effect of several types of industry consolidation in California — such as health insurers buying other insurers and hospitals buying physician practices. The report, prepared by UC Berkeley researchers, also examines potential policy responses.

While other states have initiated antitrust complaints against large hospital systems and medical groups in the past, the case against Sutter Health is unique in both the expansive nature of the alleged conduct and in the scale of the potential monetary damages. The complaint goes beyond claims of explicit anticompetitive contract terms and argues that by virtue of its very size and structure, the Northern California system imposed implicit or “de facto” terms that led to artificially inflated prices. Sutter Health vigorously denies the allegations.

The formation of large health systems like Sutter is neither new (PDF) nor unique to California (PDF). Several factors seem to be encouraging their growth, including payment models that place health care providers at financial risk for the cost of care, increased expectations from policymakers and payers around the continuum of patient needs that must be managed, and economies of scale for investments in information technology and administrative services. Some market participants also point to consolidation in other parts of the health care system, such as health plans and physician groups, as encouragement for their own mergers.

Economic Consolidation in California

In general, economists study two major categories of market consolidation:

  • Horizontal consolidation: Entities of the same type merge, such as the merger of two hospitals or insurance companies, or the merger of providers into a physician network.
  • Vertical consolidation: Entities of different types merge, such as when a hospital purchases a physician practice or when a pharmacy buys an insurance company.

To measure market consolidation, the CHCF study relied on the Herfindahl-Hirschman Index (HHI), a metric used by the US Department of Justice and the Federal Trade Commission. An HHI of between 1,500 and 2,500 is considered moderately concentrated, and 2,500 or above is considered highly concentrated. According to this measure, horizontal concentration is high in California among hospitals, insurance companies, and specialist providers (and moderately high among primary care physicians), even though the level of concentration in all but primary care has remained relatively flat from 2010 to 2018.

The percentage of physicians in practices owned by a hospital or health system increased dramatically in California between 2010 and 2018 — from 24% in 2010 to 42% in 2018. The percentage of specialists in practices owned by a hospital or health system rose even faster, from 25% in 2010 to 52% in 2018.

Consolidation Is Not Clinical Integration

While this study defined and quantified the extent of consolidation across several industry segments in California, it is important to note that it did not define, quantify, or evaluate clinical integration within the state. Clinical integration has been defined by others in many ways, but generally involves arrangements for coordinating and delivering a wide range of medical services across multiple settings.

As the CHCF study authors point out, other analysis has shown that various types of clinical integration can lead to broader adoption of health information technology and evidence-based care management processes. Data from the Integrated Healthcare Association suggests that certain patient benefit designs and provider risk-sharing arrangements associated with clinical integration can lead to higher quality and lower costs.

Crucially, an emerging body of law (PDF) suggests that clinical integration does not require formal ownership and joint bargaining with payers.

Relationship Between Consolidation and Health Insurance Premiums

Among the six variables analyzed in the CHCF study, three showed a positive and statistically significant association with higher premiums: insurance company mergers, hospital mergers, and the percentage of primary care physicians in practices owned by hospitals and health systems. The remaining three variables studied — specialist provider mergers, primary care provider mergers, and the percentage of specialists in practices owned by a hospital and health system — were statistically insignificant.

The figure below shows the independent relationship between market concentration and premiums for these three variables. As the lines move left to right, concentration increases — that is, fewer individual insurers, hospitals, or providers occupy the market. The vertical axis shows the average premiums associated with each level of market concentration. In short, regardless of the industry structure represented by the other variables, insurer consolidation, hospital consolidation, and hospital-physician mergers each lead to higher premiums.

Unexplained Price Variation and Growth

Health insurance premiums rise when the underlying cost of medical care increases. California ranks as the 16th most expensive state on average in terms of the seven common services the researchers studied, after adjusting for wage differences across states. Among all states, California has the eighth-highest prices for normal childbirth, defined as vaginal delivery without complications. Childbirth is the most common type of hospital admission, and the relatively standardized procedure is comparable across states.

Even within California, prices vary widely and are growing rapidly. For example, the 2016 average wage-adjusted price for a vaginal delivery was twice as high in Rating Area 9 (which has Monterey as its largest county) as it was in Rating Area 19 (San Diego) — $22,751 versus $11,387. (See next figure.) Prices for the service are increasing rapidly across counties — rising anywhere from 29% in San Francisco from 2012 to 2016 to 40% in Orange County over the same period.

The authors of the CHCF report investigated the impact of various types of consolidation on the prices of individual medical services in California. For cesarean births without complications, a 10% rise in hospital HHI is associated with a 1.3% increase in price.

Potential Policy Responses to Consolidation

While the study shows significant associations between various types of market concentration and the prices consumers pay, policymakers should carefully consider implementing steps that restrain the inflationary impact of consolidation while allowing the benefits of clinical integration to proliferate. To that end, the authors of the CHCF report offered a series of recommendations, which include:

Enforce antitrust laws. Federal and state governments should scrutinize proposed mergers and acquisitions to evaluate whether the net result is procompetitive or anticompetitive.

Restrict anticompetitive behaviors. Anticompetitive behaviors, such as all-or-nothing and anti-incentive contract terms, should be addressed through legislation or the courts in markets where providers are highly concentrated.

Revise anticompetitive reimbursement incentives. Reimbursement policies that reduce competition, such as Medicare rules that implicitly reward hospital-owned physician groups, should be adjusted.

Reduce barriers to market entry. Policies that restrict who can participate in the health care market, such as laws prohibiting nurse practitioners from practicing independently from a physician, should be changed when markets are concentrated.

Regulate provider and insurer rates. If antitrust enforcement is not successful and significant barriers to market entry exist — including those in small markets unable to support a competitive number of hospitals and specialists — regulating provider and insurer rates should be considered.

Encouraging meaningful competition in health care markets is an exceedingly difficult task for policymakers. It is no easier to promote the benefits of clinical integration while restraining the inflationary aspects of economic consolidation through public policy. Despite these challenges, the rapid rise in health care premiums and prices in the state require a fresh look at the consequences of widespread horizontal and vertical consolidation in California.

 

 

 

Sutter Antitrust Class Action Could Upend Industry Consolidation

https://news.bloomberglaw.com/health-law-and-business/sutter-antitrust-class-action-could-upend-industry-consolidation

Health-care consolidation and antitrust allegations are the focus of litigation that alleges Sutter Health Systems uses its Northern California dominance to force higher fees out of employer-funded health plans and consumers.

Jury selection begins Sept. 23 in San Francisco in a case that could translate into more than a billion-dollar liability for California’s third-largest hospital system. Sutter denies the allegations.

Employers, payors, and the health-care industry are closely watching the case. Success in California could spill into other states and undermine consolidation efforts by other health-care providers, observers said.

“If I’m a system somewhere else and these guys lose, these class-action lawyers I assume are going to start putting pins in the map around the country and say, ‘OK let’s go look at Utah, Florida, other parts of California’” that have dominant players, said Glenn Melnick, a health-care economist at the University of Southern California. “They have a template now.”

Total Revenue Hit $13 Billion in 2018

Sutter Health is a California behemoth, consisting of 24 acute care hospital facilities, 36 ambulatory surgery centers, nine cancer centers, six specialty care centers, nine major physician organizations, with 12,000 physicians and 53,000 employees located in 19 counties in Northern California. The system reported $13 billion in revenue in 2018.

“There is no evidence that Sutter has hurt competition, as demonstrated by the fact that new hospitals continue to open and existing facilities continue to expand in markets that Sutter Health serves, including in the San Francisco Bay Area and the greater Sacramento region,” Sutter said in a statement.

Northern California has experienced more rapid consolidation of hospital, physician, and insurance markets from 2010 to 2016 than Southern California, University of California Berkeley researchers found. And inpatient prices were 70% higher, outpatient prices 17%-55% higher depending on physician specialty, and Affordable Care Act premiums 35% higher in the northern part of the state.

Sutter inflated prices by an average 15.5% between 2003 and 2016, a United Food & Commercial Workers & Employers Benefit Trust expert analysis said. The UFCW trust sued Sutter first, followed by the state. For trial purposes, the court joined California’s lawsuit with the UFCW class action.

The inflated prices translated into $756 million in overcharges, the state and class members allege. More than 90% of class members for which measurements were available paid higher average prices at Sutter than class members paid for services at other California hospitals, they said.

Patients Protected, Sutter Says

The hospital system says its offerings shield patients from unforeseen expenses.

“Our broad provider network gives patients greater choice and predictability and protects patients from surprise billing. It also prevents patients from paying more in co-pays and deductibles for out-of-network doctor and hospital visits,” Sutter’s statement said.

Treble damages and attorneys’ fees are available if the UFCW and state win under the Cartwright Act, California’s antitrust law. The union trust fund, representing a class of large California employers who self insure their health-care costs, seeks damages from the jury while the California Attorney General wants to stop the practices alleged.

Jury selection is set for Sept. 23-24 with a two-week break while the parties argue over issues including sealing contracts negotiated with third parties including Anthem Inc., Blue Shield of California Inc., United Healthcare Services Inc., Teamsters Benefit Trust, Apple Inc., and HealthNet of California Inc. The trial is expected to last 60-90 days.

Consolidation Concerns

Health-care costs are one of the most important concerns in the U.S., said Jaime King, associate dean of the University of California Hastings School of Law and director of the Concentration on Law and Health Sciences.

“I know that attorneys general in other states are paying very close attention to what’s happening because concentration is not something that is just happening in California—it’s happening all over the country. If successful we will start to see a rollout of lots of similar cases across country,” King said.

“I think we will see ripple effects that go well into the future,” she said.

The case has implications especially in Northern California and could have legs elsewhere, Attorney General Xavier Becerra (D) said.

“Does this have an impact outside California? I would say that most everything that California does has an impact on this country and dare say the world. We hope that in our effort to pursue lower costs and higher quality of care in health care that the beneficiaries are not just Californians but people throughout the country,” Becerra said.

 

 

 

Hospital Giant Sutter Health Faces Legal Reckoning Over Medical Pricing

Hospital Giant Sutter Health Faces Legal Reckoning Over Medical Pricing

Economists and researchers long have blamed the high cost of health care in Northern California on the giant medical systems that have gobbled up hospitals and physician practices — most notably Sutter Health, a nonprofit chain with 24 hospitals, 34 surgery centers and 5,000 physicians across the region.

Now, those arguments will have their day in court: A long-awaited class-action lawsuit against Sutter is set to open Sept. 23 in San Francisco Superior Court.

The hospital giant, with $13 billion in operating revenue in 2018, stands accused of violating California’s antitrust laws by leveraging its market power to drive out competition and overcharge patients. Health care costs in Northern California, where Sutter is dominant, are 20% to 30% higher than in Southern California, even after adjusting for cost of living, according to a 2018 study from the Nicholas C. Petris Center at the University of California-Berkeley cited in the complaint.

The case was initiated in 2014 by self-funded employers and union trusts that pay for worker health care. It since has been joined with a similar case brought last year by California Attorney General Xavier Becerra. The plaintiffs seek up to $900 million in damages for overpayments that they attribute to Sutter; under California’s antitrust law, the award can be tripled, leaving Sutter liable for up to $2.7 billion.

The case is being followed closely by industry leaders and academics alike.

“This case could be huge. It could be existential,” said Glenn Melnick, a health care economist at the University of Southern California. If the case is successful, he predicted, health care prices could drop significantly in Northern California. It also could have a “chilling effect” nationally for large health systems that have adopted similar negotiating tactics, he said.

The case already has proved controversial: In November 2017, San Francisco County Superior Court Judge Curtis E.A. Karnow sanctioned Sutter after finding it had intentionally destroyed 192 boxes of documents sought by plaintiffs, “knowing that the evidence was relevant to antitrust issues.” He wrote: “There is no good explanation for the specific and unusual destruction here.”

Antitrust enforcement is more commonly within the purview of the Federal Trade Commission and U.S. Department of Justice. “One of the reasons we have such a big problem [with consolidation] is that they’ve done very little. Enforcement has been very weak,” said Richard Scheffler, director of the Nicholas C. Petris Center. From 2010 to 2017, there were more than 800 hospital mergers, and the federal government has challenged just a handful.

“We feel very confident,” said Richard Grossman, lead counsel for the plaintiffs. “Sutter has been able to elevate their prices above market to the tune of many hundreds of millions of dollars.”

Or, as Attorney General Becerra put it at a news conference unveiling his 2018 lawsuit: “This is a big ‘F’ deal.”

Sutter vigorously denies the allegations, saying its large, integrated health system offers tangible benefits for patients, including more consistent high-quality care. Sutter also disputes that its prices are higher than other major health care providers in California, saying its internal analyses tell a different story.

“This lawsuit irresponsibly targets Sutter’s integrated system of hospitals, clinics, urgent care centers and affiliated doctors serving millions of patients throughout Northern California,” spokeswoman Amy Thoma Tan wrote in an emailed statement. “While insurance companies want to sell narrow networks to employers, integrated networks like Sutter’s benefit patient care and experience, which leads to greater patient choice and reduces surprise out-of-network bills to our patients.”

There’s no dispute that for years Sutter has worked aggressively to buy up hospitals and doctor practices in communities throughout Northern California. At issue in the case is how it has used that market dominance.

According to the lawsuit, Sutter has exploited its market power by using an “all-or-none” approach to contracting with insurance companies. The tactic — known as the “Sutter Model” — involves sitting down at the negotiating table with a demand: If an insurer wants to include any one of the Sutter hospitals or clinics in its network, it must include all of them. In Sutter’s case, several of its 24 hospitals are “must-haves,” meaning it would be almost impossible for an insurer to sell an insurance plan in a given community without including those facilities in the network.

“All-or-none” contracting allows hospital systems to demand higher prices from an insurer with little choice but to acquiesce, even if it might be cheaper to exclude some of the system’s hospitals that are more expensive than a competitor’s. Those higher prices trickle down to consumers in the form of higher premiums.

The California Hospital Association contends such negotiations are crucial for hospitals struggling financially. “It can be a great benefit to small hospitals and rural hospitals that don’t have a lot of bargaining power to have a larger group that can negotiate on their behalf,” said Jackie Garman, the CHA’s legal counsel.

Sutter also is accused of preventing insurers and employers from tiering benefits, a technique used to steer patients to more cost-effective options. For example, an insurer might charge $100 out-of-pocket for a procedure at a preferred surgery center, but $200 at a more expensive facility. In addition, the lawsuit alleges that for years Sutter restricted insurers from sharing information about its prices with employers and workers, making it nearly impossible to compare prices when selecting a provider.

Altogether, the plaintiffs allege, such tactics are anti-competitive and have allowed Sutter to drive up the cost of care in Northern California.

Hospitals in California and other regions across the country have watched the success of such tactics and taken note. “All the other hospitals want to emulate [Sutter] to get those rates,” said Anthony Wright, executive director of the advocacy group Health Access.

A verdict that finds such tactics illegal would “send a signal to the market that the way to compete is not to be the next Sutter,” said Wright. “You want them to compete instead by providing better quality service at a lower price, not just by who can get bigger and thus leverage a higher price.”

Along with damages, Becerra’s complaint calls for dismantling the Sutter Model. It asks that Sutter be required to negotiate prices separately for each of its hospitals — and prohibit officials at different hospitals from sharing details of their negotiations. While leaving Sutter intact, the approach would give insurers more negotiating room, particularly in communities with competing providers.

Consolidation in the health care industry is likely here to stay: Two-thirds of hospitals across the nation are part of larger medical systems. “It’s very hard to unscramble the egg,” said Melnick.

California legislators have attempted to limit the “all or nothing” contracting terms several times, but the legislation has stalled amid opposition from the hospital industry.

Now the courts will weigh in.

 

 

 

Trial approaching in Sutter Health antitrust case

https://www.modernhealthcare.com/legal/trial-approaching-sutter-health-antitrust-case?utm_source=modern-healthcare-daily-finance&utm_medium=email&utm_campaign=20190923&utm_content=article1-readmore

Spurred in part by the Affordable Care Act, hospitals across the country have merged to form massive medical systems in the belief it would simplify the process for patients.

But a simpler bill doesn’t always guarantee a cheaper bill.

That’s a key issue in an antitrust lawsuit against one of California’s largest hospital systems set to begin Monday.

About 1,500 self-funded health plans have sued Sutter Health, a system that includes 24 hospitals across Northern California. The case has dragged on since 2014, but it picked up steam last year when Attorney General Xavier Becerra filed a similar lawsuit. The cases have been combined and jury selection begins Monday. Opening arguments are scheduled for October.

The lawsuit alleges Sutter Health gobbled up competing medical providers in the region and used its market dominance to set higher prices for insurance plans, which means more expensive insurance premiums for consumers.

Becerra points to a 2018 study that found unadjusted inpatient procedure prices are 70% higher in Northern California than Southern California. The lawsuit notes Sutter Health’s assets were $15.6 billion at the end of 2016, up from $6.4 billion in 2005.

“We never meant for folks to use integration to boost their profits at the expense of consumers,” Becerra said.

It’s rare for antitrust lawsuits of this size to go to trial because the law allows for triple damages — a prospect that often spooks companies into settling outside of court to avoid an unpredictable jury. Health plans in this case are asking for $900 million in damages, meaning Sutter Health could take a nearly $3 billion hit.

Atrium Health, a North Carolina-based hospital system, settled a similar anti-trust lawsuit with the federal government last year. And CHI Franciscan, a health system based in Washington state, also settled similar claims in March that had been brought by the state.

But Sutter Health is fighting the case. The company says the lawsuit is not about its prices, but about insurance companies who want to maximize their own profits. Sutter Health officials insist the company faces fierce competition, vowing to detail in court the expansion of other health systems in the San Francisco Bay Area and the Sacramento Valley.

Four Sutter Health hospitals had operating losses in 2018, totaling $49 million.

“The bottom line is that this lawsuit is designed to skew the healthcare system to the advantage of large insurance companies so they can market inadequate insurance plans to Californians,” said Sutter Health Director of Public Affairs Amy Thoma Tan.

At issue are several of Sutter Health’s contracting policies that Becerra says have allowed the company to “thoroughly immunize itself from price competition.”

One way insurance companies keep costs down is to steer patients to cheaper health care providers through a variety of incentives. Becerra says Sutter Health bans insurance companies from using these incentives, making it harder for patients to use their lower-priced competitors.

Becerra also says Sutter has an “all or nothing” approach to negotiating with insurance companies, requiring them to include all of the company’s hospitals in their provider networks even if it doesn’t make financial sense to do so.

The case was originally filed by a trust of Northern California’s largest unionized grocery companies in 2014. A representative for the trust said it was “unknowingly forced to pay Sutter’s artificially high prices.”

But the company says these contracting practices are designed to protect patients. People often are unable to pick which hospital they go to in a medical emergency, which can lead to surprise bills when they learn a hospital or doctor was not in their network.

Jackie Garman, lawyer for the California Hospital Association, said these contracting practices are standard at a lot of hospitals. If the lawsuit is successful, she said it could “disrupt contracting practices at a lot of other systems.”

But the consequences of not bringing the lawsuit could be greater, Becerra said.

“We are paying every time we allow an anti-competitive behavior to drive the market,” he said.