Kaj Rozga, Counsel, Davis Wright Tremaine LLP, speaks with Michelle Yost Hale, Partner, Wilson Sonsini Goodrich & Rosati, and Paul Wong, Director, NERA Economic Consulting, about the key takeaways from the Sidibe v. Sutter case, which was a class-action lawsuit filed by consumers in Northern California alleging that Sutter Health engaged in anti-competitive contracting practices; the case ended in Sutter Health’s favor. They discuss the two main theories the plaintiffs used to allege Sutter Health’s monopolization of medical services, how those theories may have played with the jury, and practical advice for lawyers and economists who are advising health care providers on these issues. From AHLA’s Antitrust Practice Group.
Watch the conversation here. Watch Kaj Rozga's first video, where he provides more background on the case, here.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
This episode of HL, a speaking of health law is brought to you by HLA members and donors like you for more information, visit American health law.org.Speaker 2:
Hi everyone. Uh, thank you for joining us. Um, this video installment is put up by the a H L a antitrust practice group, and it's the second of two videos we've done on the, uh, Sutter trial in Northern California. So, um, the, the first video was a brief one, gave an overview of the case. Uh, if, if you want more backdrop, I suggest you check that out. Um, because today we're gonna talk about how the trial went, um, the results of the trial, and maybe some takeaways that practitioners or, um, companies in this space might want to keep in mind. So we're gonna take sort of a round table format to this today. Um, so I have, um, two really fantastic, um, um, professionals here from the healthcare antitrust space. Um, Michelle Hale, who's a partner of Wilson Cini and Paul Long. Who's a director at Nera and I'm gonna let them introduce themselves. And then we'll dive right in.Speaker 3:
Hi, um, Kai, thank you so much for, uh, asking us to join today. Looking forward to the discussion, um, as you noted, I am a partner at Wilson, Zini out of our JC office. Um, and prior to my, uh, my time in private practice, I spent a decade at the federal trade commission working, uh, with many, many, many, um, healthcare matter, including lots of hospital mergers. Um, so happy to be here today and kind of treading old and familiar ground.Speaker 4:
Thanks. Uh, Michelle and Kai, I, I'm also very happy to be here. Happy to talk with you. Um, I am an economist and an expert that really specializes in healthcare. Antitrust matters. I, um, like this case, uh, and I, you know, I do a lot of M and a work, um, with hospitals, insurance companies, physicians, um, and then a lot of also, you know, antitrust matters in healthcare mono cases, questions of foreclosure questions of conduct. Um, really interested to be able to talk about this a bit.Speaker 2:
Thank you both for being here. And again, my name is Kairos I'm from David Wright Tremaine and, um, quick disclaimer, none of us were involved in this case. We are just armchair quarterbacking here. Um, so, you know, um, please keep that in mind. Um, and I don't wanna bury the lead, so it was a five trial and, um, there was a complete victory for federal health. It was a jury trial and the jury, um, decided entirely in Sutter's favor. Um, so what is this case about brief overview again, go back to the previous video for more detail, but this is a class action lawsuit filed by, um, consumers. Um, and here consumers are health plan subscribers, uh, in Northern California and the defendants. Uh, the defendant is federal health, uh, large healthcare system in Northern California. And the plaintiffs essentially, uh, entered this case with two main theories of how, um, utter health, uh, monopolized, um, healthcare markets one was that they engage in tying, uh, um, unlawful tying by engaging in all or nothing contracting with, with, with payers, um, which means, um, requiring all hospitals being network in order for any of them to be in network. And the other allegation or main allegation was that they also, um, that the hospital system, uh, um, prevented payers from engaging in steering of patients, um, uh, within their network to different providers, uh, mainly, uh, to, uh, send patients to, or subscribers to lower cost hospitals. So the theory was that this inflated the cost, uh, to insurers, uh, and that that was passed on, um, to subscribers in the form of higher premiums or, or cost sharing. That was the plaintiff's theory. Um, the jury did not accept it, it, it ruled entirely, um, in favor of Sutter health. Uh, the verdict form had nine substantive questions. Uh, the jury answered the bare minimum, uh, the answer two, which was, uh, enough to throw the case out because those two questions were really fundamental threshold questions of one was there tying, um, and two was there and is steering provisions in the contracts utter health had with, with these payers. Um, and so, uh, what I thought we would start the discussion is, um, exactly there, which is, uh, this question of was there tying, was there anti steering in the contracts between Sutter health and payers, and, um, there, we actually saw a shift in the plaintiff's theory as the case proceeded, which may help explain the outcome. And so, uh, to, to sort of help us understand that shift. I thought, I'd start by asking Paul, what, what is all or nothing contracting and what is it, how do you compare it to systemwide contracting, which is what the case sort of morphed into over time.Speaker 4:
Yeah, thanks guy. That's a great place to start. Um, and let's start with, I guess, where we ended up, which is systemwide contracting, what does that mean? And I think that it's hard. It really just means there's a contract that covers multiple hospitals. Um, but that fact, I guess, as we saw here really isn't enough, right? You could have a master contract that applies to lots of things, but have lots of customization of different prices, different terms, different participation for each hospital. That's part of that master contract. So simply saying there's one contract really doesn't ultimately get to the conduct or to the economic question that was really an issue. Um, and I think what the plaintiffs had set out to prove was really there was something more, there was this sort of forced standardization or sort of suboptimal customization that wouldn't have occurred. And, um, I guess, a credit to the defendants here, you know, they successfully argued and convinced the jury that no, you know, yes, there was maybe asked contract, but there was actually a lot more variability, um, than I think plaintiffs set out to first prove.Speaker 2:
Yeah. Uh, that's a, that's a really good way of putting it, Paul. Um, and I guess Michelle, I, I, I was curious to hear your thoughts on, um, you know, what is the testimony that ended up coming out, uh, and, um, how does it explain the verdict on these sort of threshold questions of whether, um, there was, for example, all or nothing contracting and, and, and, and, you know, specifically sort of does that, how do you view that shift in the theory, um, as part explaining the outcome here?Speaker 3:
Yeah, so I, I mean, I think to, to pick up on Paul said last, um, you know, having there, there could be a layer of complexity, complexity below a system level, a system wide contract. Right. Um, and you saw kind of a, in a lot of the, uh, fact witnesses questions about whether they had examined the contract and whether they had looked at that complexity and whether, you know, that in and of itself was a problem. Right. And it didn't seem that there was, um, kind of a level that next level deeper to kind of really examine the prices. And I can understand, you know, I'm sympathetic a little bit to the plaintiffs here because I think what they were doing was really, really hard. It's hard to get class cert it's hard to get damages cert. Um, it's hard to establish a pass through from the insurers to the, the end consumer. Um, it, it's hard to face, uh, a case where the insurers are kind of your key witnesses and there's, there's a real kind of credibility problem. I think from, from a jury's perspective that insurers are not particularly sympathetic witnesses, right. And that's, that was like key and critical testimony that the plaintiffs needed to rely on. Um, so I think, you know, absent a really strong frame of how competition in these healthcare markets works. Um, it, it was hard for probably hard for the jury to figure out how to kind of put all the pieces together because you did have testimony and facts come across that, um, that, that the hospital was able to impose, um, you know, the, to leverage its its position in, in, um, negotiating with the hospitals. Uh, I'm sorry, negotiating with the insurers, um, whether to include more of its hospitals or the terms that it wanted, or resist steering mechanisms. Um, and, you know, the question then becomes, how are they able to do that? Um, I, I think it, it, it seems like, you know, in, of course we weren't there, but it seems like in reading through, um, all of the material about this matter, the defendant's themes were pretty strong. Um, and they come through in all of the press, whereas you don't really see the same, um, the same thing come across from the plaintiffs. And I think they just had a very, very hard, um, road to toe, uh, because the hospital pricing is incredibly complex and it's hard to, to deconstruct that, you know, when, when we were bringing hospital merger cases, we were lucky to not be in front of a jury, I would say, yeah.Speaker 2:
Bench trials. Right, right. Yeah. I mean, what, what struck me, um, is that, you know, it seems like ultimately there was not testimony indicating at the insurers were forced to include all of the hospitals, right. That there wasn't, uh, actually a forced sort of compelled tying of, of hospitals in one market to the other. And so, um, that seems to have caused the, the plaintiff's council to have, to sort of develop their theory and, and rely a little more on, for example, the anti steering part of their, of their, um, of their, of their case. Um, which, you know, um, as a trial lawyer, uh, you know, it, it's probably, I guess you could say, it's not surprising as a trial lawyer to see that, uh, a jury may not react well or positively to seeing a promise made at the start of the case about what it would be about, and then seeing even slight deviation from that, you know, um, by the time you get to closing. So, um, again, without speculating or, or pretending like we know exactly what the jury was thinking, um, I guess I would just say, I wasn't surprised that that's sort of inconsistency or evolution in the theory, although perfectly permissible. Right. I, as a matter of law, um, might have, um, you know, had some impact on, on the jurors. Um, and so, yeah, I guess my, my, my, the question, you know, this one's really for Paul, um, you know, so if, if you're in the plaintiff situation here and, and, and you're seeing that the fact evidence that witness evidence coming from the executives, um, from the insurers, if it's not really putting together that, that story of, of, of, um, of being compelled right. Of being coerced, I, I, I think that was the word you used. Um, if you're not seeing the fact evidence sort of giving that narrative very explicitly can economic evidence, or can, can expert testimony from economists help connect some of those dots and, and still push you across the finish line.Speaker 4:
Yes. Uh, definitely. And I think it's a good thought. Um, I guess that first say, you know, as a general a matter, um, this is true in a lot of tying cases, right. Um, where, you know, there's the notion of sort of literal tying, and then there's a notion of some sort of economic tying, which may be more nuanced, but still achieve a similar outcome. And so it's often the case that the economists has brought in to really kind of explain what might be happening under the surface in sort of a, in an economic sense that achieves tying. Um, and so sort of specific to this case, you know, there were multiple contract provisions that were really at issue and multiple practices at issue and kind of, uh, as the economist on the plaintiff side, how you connect those different things and sort of say, this is how they all work together can be a interesting and complicated economic question. Um, and yeah, I, I guess I'm sympathetic to, to that exercise, you know, it can be really complicated and there can be a lot of trade offs you need to take into account and trying to understand what was the effect of a certain behavior. Um, I'll also say, you know, on the, on the defendant side, there's equal complexity, cuz certainly there's a question or there's an allegation of coercion, but um, particularly ensure hospital contracting is a contentious negotiation. Um, there can be some difference between what one side strongly prefer versus true coercion and sort of teasing that out and saying, you know, is this really a coercion case or is this just at first glance? You know, somebody doing something they'd rather not do, but eventually negotiating an efficient outcome. You know, that's a tricky call and requires a lot of analysis. And, um, I think that really came, came down to one of the key issues in this case, you know? Okay. You saw insurers having a particular way of wanting to contract and you had Sutter having a particular way of wanting to run its, you know, where those had to compromise or have to meet, is that outcome, the results of kind of coercion in one side winning or was it really a give and take and was a very complicated negotiation process. Um, and I think that's a, you know, that's in a question where you really need an economic expert.Speaker 2:
Yeah. I mean, it seems like the co one of the main themes already coming out this discussion is complexity. Right. And, and really we, as, as, as lawyers or economists, we we're used to probably communicating with sophisticated inhouse council, uh, federal regulators who specialize in antitrust, um, you know, a, a bench trial, we have a judge, we spent months educating, uh, totally different situation to have a LA jury. Right. So, um, you know, sort of thinking about the complexity, this trial, obviously, even though it, ultimately by the verdict, it came down to these two simple question. Is there tying, is there anti steering? No doubt. And we can see in the record, significant time was spent on other elements of antitrust claims that, that would've had to been proven here. Right. Even if you had, um, a jury verdict that said, yes, there was tying, there was still additional questions they would've had to answer yes. To, in order to establish a violations. So there were, um, questions of market power, foreclosure, um, harm to competition, causation damages, all these things. We, we now we will never know what the jury would think about those issues. Um, but the evidence came out and the jury heard it right. They heard it through fact witness testimony. They heard it through expert testimony. So I'm wondering, and maybe Michelle, we can, we can kick this off. I'm wondering what you think the impact of all that testimony might have been, uh, you know, we, we, we can't really get in their heads, but you know, all we know is they voted no and no to these two questions of whether there was tying and whether there was steering. Um, but you know, we can still sort of maybe, uh, uh, have a bit of a thought experiment about what impact, uh, all that evidence might have had in influencing how they ultimately decided the case.Speaker 3:
Yeah. I mean, there, I think, you know, one, I guess the elephant in the room to use the defendant's lingo, um, is Kaiser and how you, how you think about Kaiser. Um, I, you know, I, I thought in thinking about this case, I wondered whether the outcome would be different if it were a hospital system, um, with 33 hospitals on the east coast without a, a strong vertically integrated provider constraining, um, the hospital, cuz it undoubtedly does. And I think, you know, it, it is the case that, um, that Kaiser can be a strong market participant and also not a competitor and that Sutter could have market power. Um, and those two things aren't, they're not binary. They, you know, they can coexist. Um, I, but I think it's hard when you're making an kind of an up or down decision on, on a, on a legal claim, how to factor in all of those different, those different components and, and the, the testimony that came. Some of the testimony that came out, you know, would've been testimony that I would've loved to see when I was at the FTC, um, that would've been incredibly useful to, to use, to block a deal, but that, um, you know, that this is a different context, it's a different, um, legal standard. And, you know, it also made me think as a practitioner who is, um, busy defending companies in front of the FTC and DOJ all the time. Um, you know, the chair of the FTC right now is, is out there saying the current laws don't, um, don't really allow for, uh, for damages. They don't really allow for us to, to, to fix the, the bad anti-competitive conduct that's out there. And that this could be, you know, I could see her using this as an example, you know, whether I agree with it or not. Um, and I, and I think, although Sutter one, you know, as a practitioner, I just, I, I worry about the level of exposure and the things that came out in this trial. Some of the party admissions that came out that are, that were just covered in the press. Um, there are some really kind of problematic things, uh, you know, not being a juror. I don't, I don't know how they reconciled all of those things, but, um, I do think that, uh, the, that the defendants played the Kaiser card really, really well. Um, and that probably complicated matters for the jury.Speaker 2:
Yeah. I mean, um, having grown up in California, I, I don't think you can drive very long on a highway without seeing a, a bill board, uh, that mentions Kaiser, permanent Permanente, you know, maybe that's not obvious to people in the other, um, half of the country or, or, or, but, but yeah, they're a huge fores out there. Right. And so, um, this question of, of sort of market power, um, I, I, I, I totally agree with that, Michelle, that the question of market power was sort of lurking in the background the whole time we, which is, which is, um, does Sutter have market power, even if it doesn't matter if they didn't tie, but, um, I have to imagine that the jury was thinking about, um, what's the nature of competition between Sutter and other providers, um, and what is the position that they have relative to the payers of negotiating with, and that, that must have somehow seeped in, um, to their sort of analysis of, of these sort of more fundamental questions. Um, Paul does, does that, does that jive with, with your sort of thinking about the case, or, or how do you see it as, as an economist? Like, how do you, you know, how do you make that leap from, okay. You have a big company, it's a big defendant. Okay. You tell the jury as a plane, big as bad. Okay. Now you have to say where, where, how does that link up to, to, to something that's in competi or harm to competition that coercion that you were talking about earlier? I mean, how, how, how do you see that playing out? Um, how would it potentially play out, um, in a case like this?Speaker 4:
Yeah. And I mean, I, I think this is where you have a, I, I guess a fun economic question and maybe my Doesn't word, the funds too. Perversed um, but I think you really, you have two theories of the way competition works, right. And you have, from the plaintiff's side, you had, well, yes, Kaiser's big, but they're different enough that they're really not a competitor in the way we might want to normally think of competitors. And on the defendant's side, you have really okay. At most, this is sort of clash of the Titans where you have this really, really fierce competitor in Kaiser that has an undeniable influence and kind of, I guess, where it's fun is the economist gets to come in and sort of explain, uh, the theme of the day complexity. You have this really complicated system, you have a complicated process of, of competition. How does it work and what really matters in the end? Um, I, I, I think it's an interesting and ongoing question, um, that, yeah, uh, I would also say, I think it can, you know, the debate can generalize other parts of the country. Um, and increasingly you do see more, um, if not integrated system sort of changing the way the healthcare delivery system works and sort of what that means for kind of the debate of competition is, is sort of an interesting one to watch going forward. Um, the other thing I'll say, just as sort of a, you know, an issue that it's hard to exactly how much weight it played, but it, it, you know, we can all think it probably influences to some degree is, you know, that in every healthcare antitrust case, there's a question of is healthcare different, you know, or motivation's different, or the players more altruistic, um, you know, what, what does it mean to have a nonprofit? Um, and, and I think that in some sense that's sort of a wild card, right? There's particularly on the economic side, there's models of how that might matter a lot, but there's also models where maybe it doesn't matter so much. Um, and I think, especially in sort of jury trials where you have of likely a variety of opinions on that question, it's kind of a wild card. What, you know, what does it matter? That's a healthcare case. And is that really something special is, is something you always have to kind of keep in the back of your mind.Speaker 2:
That's a great point, Paul. And I think I'm sure Michelle would agree with me that at the FTC, you know, we would hear the nonprofit argument a lot when we're investigating hospital mergers. And you know what, from, from the regular years, you get a, you get a, you get a shrug, you know, you get a well, uh, so what, you know, not for profit, you still have a dynamic of negotiations, um, to be in network. Um, whether you're not-profit or a profit doesn't really impact things. This is one of those rare situations where the audience isn't an expert audience, right. It's a lay jury. So, um, yeah, I think it's, it's, it's not a surprise that the defense pushed really hard on, uh, the nonprofit status, the charity care, um, the government care offsets that they have to do. Um, so yeah, but, but, um, we'll never know, I guess how much that influenced things, but, but I guess maybe, um, an interesting takeaway for people who might be defending such cases in the future.Speaker 4:
Yeah. And, and also, I mean, I think that's what makes healthcare a bit special is kind of, there is the question, there is more of a human dynamic, I guess, to some of it than it is if this was sort of a commodity case. And yeah. You know, it's hard sometimes to know just how much, you know, the, the various audiences, whether it's a jury, whether it's, um, regulators, whether it's a judge, you know, how much weight they'll put into the, a human aspect in a given setting. Um, but it's definitely something to kind of keep an eye on for future cases.Speaker 2:
Right? Yeah. And the human aspect, weight against the fact that you do have a clash of Titans, you have large insurers, you have large healthcare providers, they're engaged in tough negotiations. Um, you can almost imagine a, a juror throwing their hands up and saying, why, why, why am I gonna get in the middle of this? You know, um, you know, I mean, as sort of, as a, if you put yourself in the perspective of a jury, you could, you can imagine someone walking away from, from, from four weeks, you know, of, of hearing evidence on these issues and sort of maybe, maybe saying, you know, I, I'm not sure if I wanted to get involved. Um, but that takes us to the, the last topic, which, which I, Michelle, I'd love to have you, um, I'd love to hear your thoughts, um, representing clients, uh, in this space. Um, what, what, what are your takeaways sort of, you know, I guess there's two ways to think about the takeaways. One is substantively. What does this mean for, for providers who want to engage in, in, in system-wide contracting or, or have anti tiering, um, uh, uh, positions that they take in negotiations with payers, and then maybe more broadly, what does it mean for, um, assessing, uh, or approaching a trial or, or sort of, uh, uh, tactical decision making, um, for, for, for, uh, uh, healthcare trials.Speaker 3:
Right. So guess on, on the first, uh, you know, I don't think to your, to your point, Kai, I don't think that this, this case, um, provides a lot of direction, uh, for us, um, because while Sutter one, um, I still think that I, I don't think I change my counseling practices for my clients. I, I, I think, you know, the calculation has to be, these are risky strategies to employ. Um, you need to consider the features of the market, um, where you're operating when you're considering these, these features, these contracting features, um, and you need to really have a, a robust calculus of what your risk is. Um, once you do those two first pieces of analysis, um, to figure out whether this is something that you would be kind of willing to take to the bank, um, the way that Sutter did, and, you know, then from a litigator's perspective, uh, you know, again, I, I commend the plaintiffs because I think they had a really, really difficult road to ho and the fact that they got all the way through it is remarkable. Um, but, you know, and from a defendant's perspective, there's a lot of exposure. There is, there is a lot of really ugly stuff that came out of this case for the defendants, um, you know, to, to the point that Paul was just making about the human element and the, the nonprofit perspective and, and the do gooder, uh, arguments that come out of, um, defending healthcare clients. You know, you have an opportunity there where the plaintiffs are gonna try to poke holes in it, and they did, you know, they, they successfully did. And the hospital system's quality was, was, um, called to question a number of times there was a, um, a, a big sideshow about how it's nerve and staff are treated, um, and paid. Um, they're, you know, these are kinds of ugly things that have, you know, exposure and risk for the client in, you know, in a non antitrust setting that will continue for years. Um, and, and you might really not want your, you know, your business, it's gonna be disruptive to the business and kind of on an ongoing basis. So I think, you know, takeaways are really, really analyze those, your, your risk tolerance and the ne necessity of having these kinds of, um, creative contracting practices. And then also have a really robust comp do your antitrust training, focus on document hygiene, do the things that you need to do to make sure that if this underbelly does get exposed through litigation, that you you're on, um, your PS and QS.Speaker 2:
Yeah. That's great. Michelle, thank you. Yeah, I mean, I mean, on the point about the gray area, I think you need to point nowhere other than the fact that we have, uh, uh, a ju a jury, a verdict that has dissolved federal health for the exact same conduct. I mean, literally, I mean, I, I think you line it up, it's very similar, uh, that, that a California ag led case led to a massive settle and, and, and, and, and required, um, ceasing some of this very conduct. So, uh, definitely, um, a gray area for us as, as, as, as lawyers, but Paul, um, I guess for the final word, um, as an economist, what's, what, what, what are your takeaways, um, what kind of advice would you, how would you approach advising a client in this area maybe differently, or maybe not based on, um, on following this trial?Speaker 4:
Well, I'll say, I mean, I think it goes to that gray area, and I think economists certainly have a role to play in navigating that gray area. Right. And I think, you know, you have Sutter multiple cases as sort of potentially some guidance there, you have other cases around the country where there are instances and in which sort of restrictions on steering or restrictions on behavior or pricing, they do occur, and they're, they're allowed, they're actually, you know, justify. Um, and I, I don't think there is clear general guidance at the moment as to when to pick one scenario versus the other. Certainly, you know, we can dive deep into a case and figure it out. Um, but I think, you know, the whole profession, be it attorneys be it economists have gonna have some work to do. And, you know, trying to set out some general guidelines about when is it good to have some restrictions, when might it facilitate a lower price or, um, better quality. And when is it harmful? When does it impede competition? Um, and I, I, I think at the moment we're left with, you know, you, you really have to dig deep, but obviously that's time consuming, that's resource intensive. Um, and I, I think we, as collectively, as a profession can sort of think hard about what are some rules and sort of general guidance we can follow, um, to make the process more efficient.Speaker 2:
Yeah. I mean, I guess I have one concrete piece of advice for folks out there. You know, you gotta call Michelle call Paul, I guess if you, you know, run into these things. Um, so, uh, thank you, Paul. Thank you, Michelle. I really appreciate, uh, this discussion. Um, everyone out there, I hope, hope you enjoyed it as well. That's us signing up. Thanks again.Speaker 1:
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