Did CA officials leak probe of hospital giant Sutter Health?

Alonzo Osche

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Sutter Medical Center, the flagship hospital of Sutter health in downtown Sacramento. A judge is preparing to finalize Sutter’s $575 million antitrust settlement.

AP

State officials figured they were going to finalize a landmark $575 million legal settlement Thursday designed to overhaul the way hospital giant Sutter Health deals with employers and health insurers.

Instead, officials with the California attorney general’s office were forced to defend themselves against suggestions that their staff had leaked confidential information years ago about their investigation of Sacramento-based Sutter. The investigation began under the leadership of then-Attorney General Kamala Harris, who is now vice president.

At a lengthy and sometimes contentious hearing in San Francisco Superior Court, Judge Anne-Christine Massullo indicated she was prepared to finalize the antitrust settlement with Sutter, which was announced in late 2019. Sutter agreed to pay damages to health plans and employers and to abandon contract terms that critics say were unfairly boosting healthcare costs.

But before she wraps up the case, Massullo said she first has to resolve an increasingly bitter dispute over how much the lawyers get paid. The fight sparked suggestions in court that, nearly a decade ago, top officials in Harris’ office at the California Department of Justice confirmed to Richard Grossman, a lawyer contemplating a lawsuit against Sutter, that the Sacramento healthcare organization was under investigation.

“Honestly, it’s troubling,” Massullo said.

The state denied it. “We did not disclose the facts or the contents of our investigation to anyone,” a clearly agitated Emilio Varanini, supervising deputy attorney general, told the judge. “This isn’t what we do.”

In 2014, Grossman and other lawyers filed a class-action lawsuit against Sutter on behalf of a group of employers and health plans, claiming Sutter used monopoly power to pressure them into lopsided contract terms that bloated costs. The employers agreed to pay the lawyers 30{20335960d828ac45ef5fde98a5aa7f4c1fb21de0715bafc997f46433d5bf3454} in contingency fees if they won or secured a settlement.

But now the lead health plan in the case, a plan run by the United Food and Commercial Workers union, wants the lawyers’ payout cut to 20{20335960d828ac45ef5fde98a5aa7f4c1fb21de0715bafc997f46433d5bf3454}. That would leave another $57 million for the UFCW plan and other plaintiffs.

The UFCW’s lawyer Stephen Siegel argued that the state’s lawyers, not the private attorneys, were the ones largely responsible for forcing Sutter to settle. He added that the private lawyers knew all along that the state was likely to jump into the case, bringing more legal firepower against Sutter. The state joined in the suit in 2018, and the case was settled 18 months later.

Grossman said top officials in the attorney general’s office confirmed to him in 2012 — two years before he filed suit — that Sutter was being investigated. But Grossman, a lawyer in the Pillsbury & Coleman firm in San Francisco, denied having inside information that the state was planning to sue Sutter.

The state joined in the suit in 2018, and the case was settled 18 months later.

Sutter case closely watched in health industry

Among other things, the lawsuit accused Sutter of forcing employers into “all-or-nothing” arrangements that forced them to cover patient expenses at Sutter hospitals that the employers didn’t necessarily want.

The case was closely watched in the health industry, especially after “60 Minutes” ran an unflattering story on Sutter last December. The state and the union said Sutter’s dominance raised costs for the entire region; a consultant found that delivering a baby in Sacramento cost an average of $15,000 in 2016, more than any other big city in America.

Sutter, which serves 3 million patients and employs 55,000 workers, denies having done anything wrong. “Had the case not settled, Sutter was fully prepared to prove that it had not violated the antitrust laws or otherwise acted anti-competitively and that competition has not been harmed,” its lawyers wrote in court papers in May.

In any event, the settlement would come at a difficult time for Sutter. The healthcare nonprofit says it has been wrestling with financial problems for several years, caused in part by rising caseloads of unprofitable Medicare and Medi-Cal patients.

Then the COVID-19 pandemic struck, inflating its costs while dramatically reducing hospital traffic. Since January 2020, Sutter has posted operating losses totaling $370 million. The losses would have been more than $1 billion if not $800 million Sutter received in the first pandemic relief bill passed by Congress, the CARES Act, which earmarked billions for hospitals across the country.

Against that backdrop, Sutter has launched a “sweeping review” of its cost structure. More than 1,400 workers have been let go in the past year, either through layoffs or voluntary buyouts. That includes a mix of 400 clinical and non-clinical jobs eliminated in early June. (Clinical jobs are directly tied to patient care).

The completion of the antitrust settlement won’t add to Sutter’s operating losses; the hospital chain already recorded the $575 million payout on its books in 2019.

A separate class-action lawsuit filed by several Bay Area Sutter patients, raising the same allegations as the state’s case, is scheduled to go to trial in October in federal court in San Francisco.

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Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.

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