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Antitrust Claims Against Sutter Health Move Forward in Consolidated State Actions

On March 14, 2019, a California state court denied Sutter Health’s motion for summary judgment on claims of alleged price tampering and combination to monopolize under California’s Cartwright Act, the state’s principal antitrust law, in two consolidated cases. UFCW & Employers Benefit Trust v. Sutter Health, case no. CGC-14-538451 (Cal. Supr., filed Apr. 7, 2014), and California v. Sutter Health, case no. CGC-18-565398 (Cal. Supr., filed Mar. 29, 2018).

In 2018, the state of California filed a complaint against Sutter alleging that its anticompetitive conduct was largely responsible for the increased cost of health care in Northern California. Sutter is the largest hospital system in Northern California. The state’s case followed on a putative class action filed in 2014 by UFCW & Employers Benefit Trust. Both complaints focused on three of Sutter’s contracting practices. Plaintiffs alleged that Sutter’s contracts with network vendors include all-or-nothing terms to require payors to accept all of Sutter’s sites, regardless of location, cost or attractiveness, leveraging its “must-have” hospitals that are required to create commercially viable networks. Plaintiffs also alleged that Sutter uses anti-incentive terms that prohibit payors from incentivizing patients to select lower-cost providers. Finally, according to Plaintiffs, Sutter employs price-secrecy terms that prohibit payors from informing patients about the cost of procedures and services. Our alert about the state’s complaint is available here.

Price Tampering

In Count I of both complaints, Plaintiffs alleged that Sutter’s contracts with network vendors unlawfully control and tamper with the price terms that self-funded payors may offer their health plan enrollees. In its motion for summary judgment, Sutter argued that, as a matter of law, the only “price tampering” prohibited by the Cartwright Act is price fixing. Sutter further argued that, as a matter of fact, it did not fix prices, and that Plaintiffs’ claim relies on vertical restraints that indirectly affected prices.

Sutter did not contest the fact that the Cartwright Act prohibits both horizontal and vertical price fixing. However, the parties disagree on whether it also prohibits agreements that “might in any manner” affect prices. The court rejected Sutter’s argument that vertical price tampering is lawful so long as it does not rise to the level of price fixing, holding instead that “price tampering” may be actionable under the Cartwright Act.

Combination to Monopolize

In Count III of both complaints, Plaintiffs alleged that Sutter compelled payors to agree to contract terms through which Sutter unlawfully restrained trade with the purpose and effect of obtaining or maintaining monopoly power and demanding supra-competitive prices. In its motion for summary judgment, Sutter argued that a combination to monopolize claim can only be maintained where there was a specific intent to monopolize shared by the members of the combination. Sutter further argued that payors did not have an intent to help Sutter monopolize the market. Noting that the Cartwright Act does not fully track Section 2 of the federal Sherman Act, the court held that an agreement to monopolize is prohibited by the Cartwright Act, but a shared specific intent among the co-conspirators is not an essential element of the offense.

This decision is just an early skirmish in what is likely to be a protracted battle. With the attention paid to high and increasing health care costs, contractual provisions imposed by providers with alleged “must have” status or market power are increasingly coming under attack, such as the recently resolved Department of Justice (“DOJ”) challenge to anti-steering provisions in North Carolina.[1] This case is particularly notable because it involves a challenge to a suite of contractual practices by Sutter, is brought in state court and under state law, and is brought by private plaintiffs and the State Attorney General, without any apparent involvement by the U.S. Federal Trade Commission or DOJ. It will continue to bear close watching.

[1] Bruce D. Sokler and Farrah Short, DOJ Antitrust Division Makes Filings in Civil Cases to Influence Development of Antitrust “No Poach” Law, Dec. 7, 2018, available here.
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About this Author

Bruce Sokler, Mintz Levin Law Firm, Washington DC, Health Care, Antitrust and Litigation Attorney

Bruce is Chair of the Antitrust Section and in his over 30 years in private practice, he has developed extensive experience in both antitrust and communications regulation, including associated First Amendment and copyright law matters

In the antitrust area, Bruce’s practice includes antitrust counseling and representation in connection with federal and state governmental matters, as well as private antitrust litigation. He counsels and has represented Fortune 100 companies, not-for-profits, start-up entities, and domestic and international joint ventures. Bruce has been involved in...

Farrah Short, Mintz Levin Law Firm, Washington DC, Health Care, Corporate Law Attorney
Special Counsel

Farrah advises on all aspects of antitrust and competition law, including merger review, competitor collaborations, government investigations, private class action litigation, and general antitrust compliance.

Farrah specializes in counseling clients through the Hart-Scott-Rodino (HSR) merger review process at the U.S. Federal Trade Commission and the U.S. Department of Justice, including responding to Second Requests and providing substantive antitrust risk analysis for strategic acquisitions. She has obtained antitrust clearance for major, multi-billion dollar transactions in a variety of industries.  Farrah also regularly advises on HSR reporting triggers for securities investors and provides strategic advice for non-reportable transactions with significant competitive implications.

She also has significant experience counseling clients on a wide range of other antitrust compliance issues, including information exchanges, competitor collaborations, joint ventures, licensing deals, exclusive dealings, and the creation of internal antitrust compliance programs.  In addition, Farrah represents clients in state antitrust investigations, and provides guidance on navigating ex-U.S. merger control requirements.

Outside of her antitrust practice, Farrah serves as chief outside counsel to the National Network to End Domestic Violence.  She also actively supports the firm’s pro bono program, representing indigent clients in immigration matters, including successful asylum and U visa applications. She previously served as chief outside counsel for a nonprofit that provides need-based education scholarships for the families of U.S. military personnel.