AAI Supports California Insurance Customers in Monopolization Case Against Dominant California Hospital System (Sidibe v. Sutter Health)

AAI has joined with the Committee to Support the Antitrust Laws (COSAL) to submit an amicus brief in the Ninth Circuit Court of Appeals arguing that a district court erred by refusing to permit a class of insurance customers who lost a monopolization case against a dominant hospital system to introduce contemporaneous evidence of the hospital system’s intent to restrain trade and by failing to account for well-established industry dynamics when defining health insurance markets.  

In Sidibe v. Sutter Health, a class of businesses and individuals claimed to have paid inflated health insurance premiums after a dominant hospital system in California, Sutter Health, began to insist on systemwide contracts with insurers. Until 2002, insurers negotiated with Sutter hospitals individually when they assembled their provider networks, but after 2002 Sutter began insisting on systemwide contracting, under which an insurer could not contract with Sutter hospitals in concentrated, “must-have” geographic markets unless they also contracted with Sutter hospitals in competitive markets. The plaintiffs alleged that the move to systemwide contracting, and certain provisions in the contracts, violated Section 1 of the Sherman Act as well as the State of California’s antitrust law, the Cartwright Act.

Although Sutter settled a similar case brought by a different class of plaintiffs and the California Attorney General, it litigated the Sidibe case to a jury verdict and won. On appeal, the plaintiffs argue, among other things, that the district court erred by prohibiting the plaintiffs from introducing contemporaneous evidence of Sutter Health’s intent when it developed and formed the challenged contracting practices in the late 1990s and early 2000s. The court prohibited the introduction of any evidence prior to 2006.

The plaintiffs also argue that the district court erred by allowing the jury to determine on its own whether to consider the likely response of insured patients to price increases, and the role of Kaiser Permanente, which provides services only to its own members and not to independent insurers, in assessing Sutter’s market power.

The COSAL/AAI amicus brief argues that the district court erred as a matter of law in refusing to permit the jury to hear or see any contemporaneous evidence about “the history of the restraint and the reasons for its adoption,” which the Supreme Court has recognized as relevant factors in determining whether a restraint is unreasonable under the Sherman Act. Moreover, such evidence carries even more weight under the Cartwright Act, because the Cartwright Act applies a different legal standard. It recognizes a contract as illegal if it “has as its purpose oreffect an unreasonable restraint of trade.” An anticompetitive purpose is a stand-alone basis for liability.

The brief also argues that applicable Circuit precedent, including the St. Luke’s case, recognizes a two-stage model of competition in the healthcare industry. First, providers such as Sutter Health compete for inclusion in health insurance plans. Second, providers seek to attract patients, primarily on a non-price basis because insured patients are largely insensitive to price. The district court therefore should have focused the market-definition inquiry on the likely response of insurers to a price increase by a hypothetical monopolist. The court should not have permitted the jury to consider evidence about the response of insured patients, nor hypothetical competition from Kaiser Permanente, which does not sell provider services to independent insurers.  

The brief was written by Kristen Marttila and Joseph Bourne of Lockridge Grindal Nauen PLLP, which served as counsel to COSAL. AAI Vice President of Legal Advocacy Randy Stutz and AAI Extern Mathew Simkovits assisted.