Sutter Health, WYD?

Who’s ready for an exciting adventure through the seedy back end of health insurance contracting?

Sutter Health, a large healthcare provider in Northern California, is trying to get self-insured companies to agree to Never Ever sue them for any reason, even though there’s no connection between Sutter and the self-insured companies.

The whole thing is a weird SNAFU, and the context is really tough to understand, even with the knowledge I’ve amassed over the past few years. So, here we go, let’s break it down.

Context part 1: Self-insurance

A health insurance company handles two categories of responsibilities: plan administration and risk management. Plan administration is the logistics of being billed by healthcare providers, determining if the bills are covered in the plan, and paying the bills; risk management is, well, handling the risk that they’ll have to pay out more than the money they take in.

Many companies buy health insurance plans. They pay the insurance company, and in exchange the insurance company handles both plan administration and risk management. Other companies would rather handle the risk themselves, and opt for self-insurance. An insurance company still does the plan administration, but instead of sending a bill for the same amount each time period, the insurance company bills the employer for however much they paid out to healthcare providers. The insurance company is still the only one dealing with the healthcare providers, but the employer ends up paying the bills. This is cheaper on average, but the employer’s the one who’ll end up having to pay six-figure hospital bills when they come up as opposed to a relatively low premium.

Context part 2: Sutter Health

Sutter has 30% medical provider market share overall, and another large chain of providers holds a similar market share as well. Each of them has huge leverage when it comes to contracting with insurance companies, since it’s entirely possible that all providers that give a certain kind of care will be in one of the systems, so the insurance companies will basically be forced to contract in order to cover that type of care in-network. Because of the this dynamic, Blue Shield of California pays hospitals in these large systems about $4k more per inpatient stay than hospitals outside those systems in the same area.

A self-insured union trust, UEBT, sued Sutter Health in 2014 for anti-competitive contracting behavior. Sutter lost. Sutter health appealed, trying to get them to arbitrate instead of taking it to court; Sutter lost, because UEBT hadn’t previously agreed to arbitration.

So, now what?

Now, Blue Shield of California — aka Anthem — mailed letters to self-insured employers saying that Sutter’s making them put language waiving the right to lawsuits in all renewed contracts with self-insured customers.

A copy of the letter sent to self-insured providers (without a contract, but with confidentiality agreement and certification of agreement page) was posted online by NPR.

Because the UEBT decision hinged on whether the self-insured employers had known and agreed to this, all self-insured plans must sign a statement that they’re agreeing to the “applicable terms” of the Sutter contract with Anthem Blue Shield. If they don’t sign, all Sutter providers will be considered out of network for their plan — even if that’s 100% of the hospitals in the area.

All this information has a pretty strong potential to be biased. All of it is from either Anthem BCBS of CA or the affected self-insured employers. Even the research linked in the NPR article was done in cooperation with BC of CA, using their state-wide data.

Let’s see what Sutter Health has to say for themselves.

“We’ve taken a very proactive, very transparent approach, to making sure that the health plans provide these important clients of theirs with all the key terms of their agreements,” says Gleeson. “And that includes rates.”

The only thing that begins to pass for transparency here is how they’re sending self-insured companies a copy of the contract they’re agreeing to — and making them sign a confidentiality agreement stating they won’t discuss the contract with anyone and settle things in arbitration and out of court. That’s a very limited definition of transparency.

It will be interesting to see where this goes. I know contract law is, in fact, pretty messed up (thanks for nothing, Scalia) but I still have trouble seeing how this whole bizarre situation is legal. I’m sure it won’t go unchallenged, so I’m planning to keep an eye out these next couple years for resulting changes to the healthcare landscape.