Blue Shield accuses Sutter Health of price gouging

Sutter Health patients love their doctors. Blue Shield of California has created a small public relations nightmare with their members when they announced that they would be dropping Sutter Health from their network of providers in 2015. To combat the image that Blue Shield is the bad guy in this battle of corporate health care titans, Blue Shield has accused Sutter Health of price gouging.

Blue Shield targets Sutter Health on excessive pricing

On Blue Shield’s website Make Care Affordable the health insurance giant takes aim at Sutter Health’s growth in Northern California and suggests they are becoming a monopoly. The first public relations fast ball thrown by Blue Shield states –

Sutter controls 50-100% of the hospital market in nearly half of the counties in which it operates in Northern California.

When you click on the Learn More link the visitor is greeted with the headline “Sutter’s Pathway to Higher Rates”. The infographic associated with the page states that Sutter is amassing a larger market share by acquiring twenty-three different providers since 1999. These acquisitions include seventeen outpatient surgical centers, three medical groups, and two hospitals. Of course, Blue Shield just made their own large acquisition by purchasing Care 1^st of Los Angeles that is a Medi-Cal managed health plan.

Blue Shield targets Sutter Health

Blue Shield goes on to blast Sutter Health for-

• Demanding all-or-nothing contract language
• Charging abnormally high rates
• Attempting to limit customer’s rights
• Seeking to block public antitrust litigation

Sutter Prices are 30% higher

Blue Shields cites on their What You Need to Know About Sutter Health webpage in defense of their hard ball negotiating tactics of dropping Sutter,

Sutter continues to demand rates that place them significantly above the prices of other providers throughout California and that will protect their 57% profit margin on Blue Shield business. Sutter prices are 18% to 30% higher than other hospitals in Northern California and statewide.

Sutter double dips in the billing pool

In 2013 Sutter Health agreed to pay a $46 million settlement for the accidentally double billing for anesthesia services during surgeries. See Sutter Hospitals increase health care costs by double billing. However, Sutter Health may not care what Blue Shield thinks of them, or if they even contract with them, as they are working to expand their own fledging health plan called Sutter Health Plus. Regardless, it is kind of fun to watch a corporate cat fight spill over in to the public as massive companies posture for public relations good humor points.

Hospitals and Doctors driving up costs

Blue Shield is attempting to make the not so subtle case that increasing health insurance premiums are a direct result of out-of-control hospital and doctor charges. Sutter Health, in Blue Shield’s opinion, is just part of the problem. To a certain extent they have valid point. Health insurance companies can only negotiate prices so low and then providers find other ways to pad the bill. Extra charges might include the less than necessary CT scan, an extra therapeutic procedure in the office or charging for simple diagnostic exams that used to be part of a routine office visit. No one in the health care services delivery system wants to give up any of their revenue. Unfortunately, the Blue Shield – Sutter dispute along with higher premiums for individual and family plans with smaller provider networks shows that the patient is getting squeezed instead of the corporate health care bureaucracy.

Blue Shield willing to walk away

It’s obvious that Blue Shield is willing to walk away from Sutter Health as a provider regardless of their members love of Sutter physicians and facilities. One indicator of how important this is to Blue Shield is that they are dropping Sutter not just from their individual and family plans, but from virtually all of their products from small to large groups. Blue Shield is essentially saying on these web pages that Sutter Health is responsible for Sutter physicians and facilities no longer being in network. We’ll see how the public reacts to their arguments.

Blue Shield’s What You Need to Know About Sutter Health page

Sutter Health is a healthcare organization that consists of physicians, providers and medical centers in over 100 communities across Northern California. Sutter has a long history of driving up the cost of health care. For example, since 1999, Sutter has acquired 17 outpatient surgical centers, three medical groups, two hospitals, and one ancillary provider, with the acquisitions often followed by price increases often of as much as 100% in the first year.

Current Situation

Blue Shield of California has a mission to ensure that Californians have access to high-quality health care at an affordable price. We negotiate with providers across the state with the goal of obtaining rates that help us achieve this mission.

As of January 1, 2015, we have been unable to agree on acceptable contract terms with Sutter Health, so our contract with Sutter has expired.  Sutter is pressuring Blue Shield to accept new and unprecedented contractual provisions that are the very essence of the antitrust concerns already alleged against them.

Sutter continues to demand rates that place them significantly above the prices of other providers throughout California and that will protect their 57% profit margin on Blue Shield business. Sutter prices are 18% to 30% higher than other hospitals in Northern California and statewide. 

In addition, Sutter is insisting that Blue Shield agree to an expanded mandatory arbitration provision for the resolution of all disputes, which would block Blue Shield and our self-insured customers from suing Sutter for anticompetitive business practices in open court. The new provision created by Sutter appears driven by their desire to avoid public scrutiny of business practices that have been frequently criticized by industry participants and observers.

While we would like to renew our contract with Sutter, we also believe it is critical to achieve terms that protect the public interest and the overall integrity of the healthcare system. We cannot ask our customers to waive their legal rights to challenge Sutter’s practices in court if they believe them to be anticompetitive. We are continuing our discussions with Sutter with the goal of reaching a new contract that will allow us to provide our customers with affordable access to Sutter providers under fair and reasonable terms. 

In the meantime, Blue Shield has taken steps to ensure members will continue to have uninterrupted access to quality medical care in their area.

Key Facts About Sutter Health (PDF, 374KB)

Ongoing Litigation Against Sutter

In April 2014, Blue Shield customer UFCW & Employers Benefit Trust filed an antitrust and unfair competition suit against Sutter and affiliates in San Francisco Superior Court (UFCW & Employers Benefit Trust v. Sutter Health et al., No. CGC 14-538451). The suit alleged the following, among other charges:

• By mandating that plans include all Sutter hospitals in their networks, Sutter exploits its market power to tie all of its hospitals together for contracting. 
• Sutter prevents competition by effectively prohibiting plans from creating incentives for patients to encourage them to use lower-cost, non-Sutter facilities.
• Sutter restricts price competition through stringent limits in contracts on the disclosures of cost information to enrollees.