Los Angeles Times - 07.09.2019

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economist at USC. If the
case is successful, he predic-
ted, healthcare prices could
drop significantly in North-
ern California. It also could
have a “chilling effect” na-
tionally for large health sys-
tems that have adopted sim-
ilar negotiating tactics, he
said.
The case already has
proved controversial: In No-
vember 2017, San Francisco
County Superior Court
Judge Curtis E.A. Karnow
sanctioned Sutter after find-
ing it had intentionally de-
stroyed 192 boxes of
documents sought by plain-
tiffs, “knowing that the evi-
dence was relevant to an-
titrust issues.” He wrote:
“There is no good explana-
tion for the specific and un-
usual 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 consoli-
dation] is that they’ve done
very little. Enforcement has
been very weak,” said Rich-
ard 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 plain-
tiffs. “Sutter has been able to
elevate their prices above
market to the tune of many
hundreds of millions of dol-
lars.”
Or, as 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 sys-
tem offers tangible benefits
for patients, including more

consistent high-quality care.

Sutter also disputes that its

prices are higher than those

of other major healthcare

providers in California, say-

ing its internal analyses tell a

different story.

“This lawsuit irresponsi-

bly targets Sutter’s inte-

grated system of hospitals,

clinics, urgent care centers

and affiliated doctors serv-

ing millions of patients

throughout Northern Cali-

fornia,” spokeswoman Amy

Thoma Tan wrote in an

emailed statement. “While

insurance companies want

to sell narrow networks to

employers, integrated net-

works like Sutter’s benefit

patient care and experience,

which leads to greater pa-

tient choice and reduces sur-

prise out-of-network bills to

our patients.”

There’s no dispute that

for years Sutter has worked

aggressively to buy up hospi-

tals and doctor practices in

communities throughout

Northern California. At is-

sue in the case is how it has

used that market domi-

nance.

According to the lawsuit,

Sutter has exploited its mar-

ket power by using an “all-

or-none” approach to con-

tracting with insurance

companies.

The tactic — known as

the Sutter Model — involves

sitting down at the negotiat-

ing table with a demand: If

an insurer wants to include

any one of the Sutter hospi-

tals 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 hospi-

tals that are more expensive

than a competitor. Those

higher prices trickle down to

consumers in the form of

higher premiums.

The California Hospital

Assn. contends such nego-

tiations are crucial for finan-

cially struggling hospitals.

“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 as-

sociation’s legal counsel.

Sutter also is accused of

preventing insurers and em-

ployers from tiering ben-

efits, a technique used to

steer patients to more cost-

effective options. For exam-

ple, an insurer might charge

$100 out of pocket for a pro-

cedure 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 com-

pare prices when selecting a

provider.

Altogether, the plaintiffs

allege, such tactics are anti-

competitive and have al-

lowed Sutter to drive up the

cost of care in Northern Cali-

fornia.

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, execu-

tive 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,” Wright

said. “You want them to

compete instead by provid-

ing better quality service at a

lower price, not just by who

can get bigger and thus lev-

erage a higher price.”

Along with damages, Be-

cerra’s complaint calls for

dismantling the Sutter Mod-

el. It asks that Sutter be re-

quired to negotiate prices

separately for each of its hos-

pitals — and prohibit offi-

cials at different hospitals

from sharing details of their

negotiations. While leaving

Sutter intact, the approach

would give insurers more ne-

gotiating room, particularly

in communities with com-

peting providers.

Consolidation in the

healthcare industry is prob-

ably here to stay: Two-thirds

of hospitals across the na-

tion are part of larger medi-

cal systems. “It’s very hard to

unscramble the egg,” USC’s

Melnick said.

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.

Gold writes for Kaiser

Health News, an editorially

independent publication of

the Kaiser Family

Foundation.

Antitrust case targets hospital chain

SUTTER HEALTHis accused of leveraging its market power to kill competition. Above is a 2017 protest at a facility in Berkeley.

Aric CrabbBay Area News Group

[Sutter,from C1]

the fewest since May.
Yet the monthly jobs re-
port provided some positive
signals: Average hourly pay,
for example, rose 11 cents in
August to $28.11, up 3.2%
from a year earlier. That eas-
ily outpaces inflation and in-
creases Americans’ spend-
ing power.
The slower pace of hiring
does suggest that Trump’s
trade war with China might
be discouraging some com-
panies from hiring. Still,
even with more moderate
job growth, rising employ-
ment and paychecks are ex-
pected to continue to fuel
consumer spending, the pri-
mary driver of the econo-
my’s growth. The current
U.S. economic expansion
has entered its 11th year,
making it the longest on
record.
And for now, Americans
are still spending. Consumer
spending rose in the April-
June quarter by the most in
five years. It also increased
at a healthy clip in July.
That is especially signifi-
cant now because many
businesses have cut their
spending and delayed ex-
pansion and investment giv-
en their uncertainty about
the duration and impact of
the trade war. In addition,
retaliatory tariffs from
China have cut into U.S. ex-
ports. “With slower but still
solid job gains and good
wage growth, households
will continue to spend,” said
Gus Faucher, chief econo-
mist at PNC. “The U.S. econ-
omy should avoid reces-
sion.”
Over the last six months,
employers have added an av-
erage of 150,000 jobs a
month, down from last
year’s average of 223,000 a
month. In its report Friday,
the government revised its
estimate of job growth for
June and July downward by
a combined 20,000. Down-
ward revisions can be a cau-
tionary sign that hiring will
continue slowing. For now,
though, job gains at the cur-
rent six-month pace are
enough to lower the unem-
ployment rate over time.
One reason hiring is slip-
ping is that, with the unem-
ployment rate so low, com-
panies are having a harder
time finding qualified work-
ers. The solid wage gain in
August suggests that more
businesses are deciding to
offer higher pay to attract
and keep employees.
“That’s a sign we’re in
pretty good shape here,”
said Drew Matus, an econo-
mist at Metlife Investment

Management.

A report by the Federal

Reserve this week based on

interviews with business

executives found that com-

panies and staffing firms

think a lack of available

workers is restraining

growth.

Mike Bitar, managing di-

rector of the recruiting firm

Protis Global, said the busi-

nesses he works with —

mostly beverage companies,

consumer goods makers

and restaurants — are still

pushing to hire more people.

“We have not seen any

slowdown at all,” he said.

Bitar tells clients that if

they want to hire managers

who don’t require any train-

ing, they’ll have to pay more

— up to 10% to 15% higher

than the typical salary for

that position, given the tight

labor market. If they’re will-

ing to train new managers,

he said, they can avoid pay-

ing the premium.

In Friday’s jobs report for

August, the unemployment

rate for African Americans

fell to 5.5%, a record low.

Trump has repeatedly high-

lighted that decline, which

has been steady since the

Great Recession ended in

2009.

In August, however, the

rate fell because more Afri-

can Americans stopped

looking for work and were no

longer counted as unem-

ployed.

There also was an in-

crease in the proportion of

Americans ages 25 through

54 with jobs. Economists

typically focus on that age

bracket because it filters out

students and older Ameri-

cans nearing retirement. Of

people in that bracket, 80%

now have jobs — the highest

level since January 2008, just

after the Great Recession

began.

Mark Fleming, chief

economist at First Ameri-

can Financial, said the in-

crease suggests that people

in their late 20s are stepping

up their job searches.

“We’re finally beginning

to see the heart of the millen-

nial generation finishing

their education and getting

jobs,” Fleming said.

Consumers generally feel

confident about the econo-

my despite some cautionary

signs, according to a survey

by the Conference Board.

But an index of senti-

ment compiled by the Uni-

versity of Michigan fell in Au-

gust by the most in nearly

seven years. In that survey,

Americans expressed rising

concern about the conse-

quences of tariffs.

U.S. and Chinese officials

plan to meet in early Octo-

ber in negotiations that are

intended to resolve their dis-

pute.

In the meantime, the ef-

fect of the trade war is evi-

dent in industry-specific hir-

ing figures. Manufacturers

added just 3,000 jobs in Au-

gust, the latest sign that

their hiring has tumbled

since last year.

Employment in shipping

and warehousing compa-

nies was essentially un-

changed last month, with

fewer factory and farm

goods to transport. Retail-

ers cut 11,000 jobs, the sev-

enth straight month of de-

cline, partly a reflection of

the effect of online shopping.

U.S. consumers still spending

RISINGemployment and paychecks are expected to drive consumer spending.

Above, visitors to a veterans job fair meet with recruiters in Pittsburgh in March.

Keith SrakocicAssociated Press

[Jobs,from C1]