Sutter Health, Blue Shield Contract Conflict Ends

At least 280,000 Sutter Health patients could stop worrying Friday that they’d have to find a new health care provider partway through this year. Sutter and Blue Shield of California signed a new two-year contract that ended an especially long and rancorous negotiation.

While it’s over for now, industry analysts said one issue the conflict highlighted – the growing power of the few major players that now control much of the state’s health care industry – will certainly surface again.

Policymakers need to address this issue, and they should protect the right to sue giant health care networks for antitrust violations, said Anthony Wright, executive director of Sacramento-based consumer advocacy group Health Access California.

“It’s bad when any one part of the industry has so much of a market position that it can dictate unfair prices,” Wright said. “It’s something that merits further scrutiny.”

A union trust representing thousands of grocery workers sued Sutter last year, claiming the health care company engaged in anti-competitive practices that drove up costs, he noted. State Attorney General Kamala Harris has been investigating Sutter and other major health providers for possible antitrust violations, The Sacramento Bee and other news outlets have reported.

“In Northern California you have higher premiums than in other parts of the state, and that’s because you have the dominance of a few key hospital chains like Sutter,” Wright said.

During a monthlong campaign to sway public sentiment in its favor, insurer Blue Shield claimed Sutter is so powerful in its Northern California markets that it can dictate prices and push them higher. Blue Shield also took issue with an effort by Sutter to force antitrust complaints to be decided by private arbitrators rather than in public courtrooms.

Blue Shield vice president and spokesman Steve Shivinksy said the terms of the new agreement, which takes effect Sunday and runs through the end of 2016, are confidential. Asked whether the arbitration provision Sutter sought is part of the new contract, he said: “What I can say to that is we were able to make sure there were no new arbitration requirements.”

Negotiators were able to keep rates “affordable,” he added.

“HMO and PPO members with a Sutter provider can now rest assured they can remain with that provider,” he said.

In a news release announcing the settlement, Sutter apologized to its patients and took a parting shot at Blue Shield.

“We sincerely regret the frustration our patients experienced as the negotiations took longer than necessary – especially when the final agreement is extremely close to the reasonable offer we made to Blue Shield several months ago,” Stephen Lockhart, Sutter’s chief medical officer, said in an emailed statement.

During the month since the prior contract ended Dec. 31, the two multibillion-dollar companies sniped at each other on their websites and in letters sent to patients. Sutter claimed Blue Shield was trying to drive down prices, thereby eroding the quality of patient care, even while it raised its premiums to 23 percent.

Blue Shield said Sutter was trying to jack up prices and protect itself from antitrust suits in a take-it-or-leave-it way. The insurer said on its website that Sutter controls the majority of health care markets in half of the counties where it operates, and has been on a buying spree since 1999, snapping up hospitals and clinics.

Patients were caught in the middle. Many were frustrated and anxious over the dust-up, and uncertain if they would have to leave their longtime doctors come April for HMO patients, or July for PPO patients.

Debra Belt, 63, of Oakley said she was put on a liver transplant list in December and then had to worry whether she would lose her Sutter physicians. She got a phone call from her health care provider Friday morning telling her Blue Shield and Sutter had come to an agreement and extended the contract for another two years.

“It’s a big relief,” Belt said. “It was a big stress factor for me. I have about 12 doctors, and they’re all through Sutter.”

Experts said the battle between Sutter and Blue Shield is nothing new. Providers and insurers hammer out the terms of new contracts every couple of years, often fighting publicly.

Wright said it has been nearly a decade, however, since a contract negotiation in California was so acrimonious and potentially disruptive to such a large number of patients.

Joanne Spetz, an expert on health care policy at the University of California, San Francisco, said consolidation in the industry has been happening since the 1980s and has nearly reached its limit in many areas. Several studies have shown that consolidation tends to inflate prices, she said.

In the Sacramento region, she pointed out, just a handful of players – Sutter, Dignity Health, UC Davis and Kaiser Permanente – control virtually the entire market. In many parts of Northern California, Sutter is the dominant force.

“In areas where Sutter operates, everything is as consolidated as it possibly can be,” Spetz said. “There aren’t many hospitals left for them to buy.”

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