A large Northern California hospital system used its size and influence to achieve a "domination of the market," says the state's attorney general, Xavier Becerra. The attorney general sued the Sutter Health network in a lawsuit claiming its practices led to some of the highest prices for hospital care in California. This week, President-elect Joe Biden nominated Becerra to serve as his secretary of Health and Human Services. Stahl spoke to Becerra about his suit against Sutter for a 60 Minutes report to be broadcast Sunday, December 13, at 7 p.m. ET/PT on CBS.
Sutter tentatively agreed to settle the civil suit, filed in 2018, on the eve of trial in late 2019. The suit is considered a landmark case because it documents how and why health care prices spiked in his state. It alleges Sutter grew into a behemoth hospital system and then, like a classic monopoly, used its dominance in Northern California to raise hospital prices -- a phenomenon that Becerra says is spreading across the country and driving health care costs through the roof. The lawsuit states Sutter embarked on "an intentional, and successful, strategy" of making itself indispensable. "Sutter got big enough that it could use its market power to dominate, to dictate. It was abusing of its power," says Becerra in the interview conducted earlier this year, before the pandemic. "They were gobbling up hospitals. They were gobbling up physicians through these physician practices. They were just munching away, getting bigger and bigger," he tells Stahl.
The suit claims Sutter used its "windfall" from "excessive pricing" to acquire more entities and grew into a conglomerate of 24 hospitals, 12,000 doctors and several cancer, cardiac and other specialty centers. In some counties, Sutter was the sole hospital for a thousand square miles. Sutter began raising its prices, but without justification, according to the lawsuit. The attorney general says the quality of Sutter's hospital care – while well-regarded – was only comparable to the other hospitals in the region. This is something he says his office thoroughly investigated. "That's why this investigation took years, because you have to eliminate all the other reasons [for Sutter's higher prices] that might be out there. And you can't explain it away by the cost of living, cost of labor… It's domination of the market," says Becerra.
Sacramento, for example, became one of the costliest places in the country to deliver a baby. "Why Sacramento should be the most expensive place to have a baby—there's no way to explain it," says Becerra. "You live in Sacramento, you can expect to pay twice as much to deliver that baby here than in… New York City."
Other hospitals began to follow Sutter's lead and raise their rates, too, says Glenn Melnick, a health care economist at the University of Southern California who consulted on the lawsuit against Sutter. He calls this "The Sutter Effect," telling Stahl, "Where if you have a large, dominant system like this, they raise their prices high, all their competitors can raise their prices higher. So, there's kind of this second-order effect, that this type of behavior leads to much higher prices across the board."
Sutter declined to be interviewed for the story, instead providing a statement that said in part that it's committed "…to high-quality, affordable care…" and that its coordinated health care network "delivers healthier patient outcomes at a lower total cost of care," something that "…has proven even more critical during the COVID-19 pandemic."
If a judge approves the tentative out-of-court settlement Sutter reached with California, the hospital system will admit no wrongdoing but pay a fine of $575 million and agree to stop blocking patients' access to less costly hospitals and stop requiring health insurance plans to agree to what are called "all-or-nothing" contracts.
Becerra says the lawsuit will result in lower health care costs, not just in his state, but in others that also have large, dominant hospital systems like Sutter. "This settlement is going to change the life for hundreds of thousands of Californians. And I'd say millions of Americans," he tells Stahl.