SACRAMENTO, Calif. (AP) -- One of Northern California's largest health systems will pay $575 million to settle claims that it used anti-competitive practices to bump up costs for patients, the state's attorney general said Friday, though that falls short of damages sought in a related private lawsuit that could have exceeded $1 billion.
California Attorney General Xavier Becerra had sought an injunction to stop the alleged anti-trust practices by Sutter Health, but no monetary damages. The settlement imposes a new court-approved monitor on the health system for 10 years to ensure it is not using anti-competitive practices with insurance companies to increase patients' costs.
Becerra called it "one of the largest actions against anti-competitive conduct in the health care marketplace across the country, with unprecedented levels of injunctive relief to restore competition in the market." It is larger than recent similar settlements with other providers in North Carolina and Washington state, his office said.
The settlement immediately set off a debate between hospitals and consumer advocates over whether it will limit or increase health care costs.
About 1,400 self-funded employers separately obtained the $575 million in damages from Sutter and will have claims paid through an independent administrator, minus attorneys fees. It's not clear if consumers will get a share of the settlement, Becerra said, but he said patients should benefit from increased competition.
Under previous market conditions a typical inpatient procedure might cost $90,000 more in Northern California than in the southern part of the state, he said citing a university study. The state had said Sutter was largely to blame.
The Sacramento-based nonprofit did not admit wrongdoing and denied the allegations, arguing that there is plenty of competition and that insurance companies were the ones boosting costs.
"There were no claims that Sutter's contracting practices with insurance companies affected patient care or quality," Sutter Health Senior Vice President and General Counsel Flo Di Benedetto said in a statement hailing the agreement.
Sutter and Becerra announced in October that they had settled the class-action lawsuit just in time to avoid a trial. But they did not provide details until Friday, after it was submitted to a San Francisco Superior Court judge for approval. The suit was first filed by employers and unions in 2014, but Becerra filed a similar lawsuit last year after a six-year investigation.
Among other things, the settlement limits what Sutter can charge for out-of-network procedures and increases pricing transparency.
It bars Sutter from blocking insurance companies from using incentives to direct patients to cheaper health care providers, a practice that critics said made it harder for patients to use Sutter's lower-priced competitors. And it prohibits what Becerra called Sutter's "all or nothing" approach with insurance companies, which required insurers to include all the company's hospitals in their provider networks even if it didn't make financial sense.
American Hospital Association general counsel Melinda Hatton said commercial health insurance companies will benefit most because it will let them "cherry-pick" hospitals and eliminate incentives for them to work with hospitals to provide lower cost care. She predicted it will increase health care costs, warning that patients in rural or vulnerable communities could be harmed most by the settlement.
Anthony Wright, executive director of the health care consumer advocacy coalition Health Access California, countered that Sutter's pricing is one reason that patients in Northern California typically pay $3,000 more in health insurance premiums than in Southern California.
"We want hospitals to compete on lower costs and higher quality, and not on whether they can get bundled in with bigger and bigger hospital systems," he said. "This settlement takes a first step to changing the incentives to the market and competition we want. That benefits consumers."
Wright was hopeful the settlement would set a national precedent and reignite stalled proposals in Congress and California to limit "surprise medical bills" for out of network procedures.