Sutter Health’s ‘all-or-nothing’ rule is unique, insurance executive testifies

During a trial day lasting more than seven hours, attorneys for 3 million insurance policyholders attempted to prove Sutter Health engages in unlawful antitrust activity by requiring expensive all-or-nothing deals with health plans.

Trial continued this week after Monday's marathon session before U.S. District Judge Laurel Beeler, which was marked by intense questioning, numerous objections and multiple procedural issues that needed to be handled in sidebars. Sidibe v. Sutter Health, 3:12-cv-04854, (N.D. Cal., filed Sept. 17, 2012).

The plaintiffs allege that Sutter's practice caused them to overpay $411 million for health services. "Sutter did this by forcing anti-competitive contracts and exorbitant hospital prices upon the health insurance companies that directly pay the medical costs for millions of Northern Californians," plaintiffs' lawyer Matthew L. Cantor of Constantine Cannon LLP told the jury during opening statements last week.

Jeffrey A. LeVee of Jones Day asserted that Sutter acts in the best interests of its patients and the conduct the plaintiffs take issue with actually lowers costs for patients. "Antitrust laws do not require Sutter to agree to every insurance company proposal. So Sutter isn't violating them," LeVee said in his opening.

Four plaintiffs' witnesses testified and were cross-examined Monday about the intricacies of health plans, calculations of medical costs and explanations of insurance industry jargon.

Half the day was focused on Kristen Miranda, former senior vice president of strategic partnerships and innovation for Blue Shield of California. She testified that Sutter required health plans to include all of Sutter's hospitals in their policies, driving up the costs of premiums.

Plaintiffs' attorney Allan Steyer of Steyer Lowenthal Boodrookas Alvarez & Smith LLP asked if Sutter pressured Blue Shield into an all-or-nothing deal and Miranda said yes. Asked if Blue Shield liked those terms, she replied, "Goodness, no."

Steyer also asked if Miranda negotiated with other hospital and medical practitioner networks that demanded similar contract clauses and she said no.

Less than a year ago Sutter settled a case in state court for $575 million against similar allegations. As part of that agreement, Sutter agreed to stop using all-or-nothing contracting. The company denies the plaintiffs' allegations that it used the same practice in this case.

Plaintiffs' counsel also asked Miranda questions to establish how prohibitively expensive Sutter's out-of-network fees were and jurors heard that health plans would pay 95% of Sutter's full billed charges if a health plan enrollee used a Sutter hospital that was out-of-network.

On cross-examination, David C. Kiernan of Jones Day asked questions to establish doubt about the inappropriateness of Sutter's conduct and bring into question Miranda's credibility.

Kiernan pointed out that Blue Shield had previously worked with Sutter's competitors, such as Dignity Health, and agreed to statewide contracts which included most, if not all, of their providers in the state. Kiernan asked why the plaintiffs did not take issue with Dignity but did so with Sutter.

He also said that at one point, Blue Shield had a product for the California Public Employees' Retirement System that did not have every Sutter hospital.

Miranda replied that after that contract, Sutter "made it clear that this was not something they would allow broadly," and that Blue Shield was "cherry-picking their system," she said.

He further called into question Miranda's assertion that Sutter's nonparticipation rate was unreasonably high.

"You personally have never compared Sutter's nonparticipation rate" to others in the customary rate filing with the state Department of Insurance, Kiernan pressed.

Miranda replied, "I think that's fair, correct."

However, she added, "I feel comfortable saying certainly 95% of charges would certainly be higher than anything on a reasonable and customary schedule."