Sidibe v. Sutter Health

• Decision Date: 30 August 2019
• Docket Number: Case No. 12-cv-04854-LB
• Court: U.S. District Court — Northern District of California
• Parties: DJENEBA SIDIBE, et al., Plaintiffs, v. SUTTER HEALTH, Defendant.

DJENEBA SIDIBE, et al., Plaintiffs, v. SUTTER HEALTH, Defendant.

Case No. 12-cv-04854-LB

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA San Francisco Division

August 30, 2019

(REDACTED) ORDER GRANTING MOTION TO CERTIFY CLASS UNDER RULE 23(B)(2) AND DENYING WITHOUT PREJUDICE MOTION TO CERTIFY CLASS UNDER RULE 23(B)(3)

Re: ECF Nos. 348 (under seal) and 379 (redacted version)

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................. 3

STATEMENT ................................................................................................................................... 5

1. The Proposed Class ..................................................................................................................... 5

2. Background ................................................................................................................................. 5

3. The Plaintiffs' Antitrust Allegations Regarding Sutter's Anticompetitive Practices .................. 7

3.1 Sutter's Systemwide Contracting and Its "All-or-Nothing," "Anti-Steering," and "Penalty Rate" Provisions ................................................................................................. 7

3.2 The "But For" World ....................................................................................................... 12

4. The Plaintiffs' Calculations of Antitrust Injury and Damages to Class Members .................... 13

4.1 Calculating Sutter's Overcharges .................................................................................... 15 4.2 Assuming Health Plans "Pass On" 100 Percent of Any Sutter Overcharges They Have to Pay Through to the Premiums That They Charge Their Customers .................. 20

ANALYSIS ..................................................................................................................................... 27

1. Rule 23(a) Prerequisites ............................................................................................................ 28

1.1 Numerosity — Rule 23(a)(1) ........................................................................................... 28

1.2 Commonality — Rule 23(a)(2) ....................................................................................... 29

1.3 Typicality — Rule 23(a)(3) ............................................................................................. 30

1.4 Adequacy — Rule 23(a)(4) ............................................................................................. 32

1.4.1 Prosecuting the action vigorously on behalf of the class ....................................... 33

1.4.2 Conflicts of interest ............................................................................................... 33

2. Rule 23(b) Prerequisites ............................................................................................................ 38

2.1 Predominance — Rule 23(b)(3) ...................................................................................... 38

2.1.1 Antitrust violations ................................................................................................ 39

2.1.2 Antitrust injury and calculating damages .............................................................. 39

2.1.2.1 Calculating Sutter's overcharges ................................................................. 42

2.1.2.2 Assuming health plans "pass on" 100 percent of any Sutter overcharges they have to pay through to the premiums that they charge their customers ..................................................................................................... 44

2.2 Acting on Grounds That Apply Generally to the Class — Rule 23(b)(2) ....................... 50

CONCLUSION ............................................................................................................................... 53

INTRODUCTION

In this putative class action, six plaintiffs (four individuals who enrolled in health-insurance policies from the health plans Aetna, Anthem Blue Cross, and Blue Shield and two small companies that paid for health insurance for their employees) are suing Sutter Health, which owns and operates a network of hospitals and medical-service providers in Northern California, for violations of the federal Sherman Antitrust Act, the California Cartwright Act, and the California Unfair Competition Law.

The plaintiffs allege that Sutter has "market power" in seven specific "geographic markets" (the "Tying Markets") in Northern California, where Sutter's hospitals are either the only hospital (i.e., a monopoly) or the dominant hospital in the market.¹ Health plans like Anthem and Blue Shield must include those Sutter hospitals in their provider networks to be able to assemble health-insurance products that are commercially marketable.² Sutter allegedly uses that leverage to require that health plans enter into "systemwide contracts" that include "all-or-nothing" and "anti-steering" provisions. Those provisions (1) require health plans to accept as in-network providers all of Sutter's hospitals, at the prices Sutter dictates, and (2) prevent health plans from incentivizing their enrollees to go to lower-cost hospitals instead of Sutter's higher-cost hospitals.³

In particular, the plaintiffs allege that Sutter (1) requires health plans to include its hospitals in four other geographic markets (the "Tied Markets"), at the prices Sutter dictates, and (2) prevents health plans from incentivizing their enrollees to go to non-Sutter hospitals in the Tied Markets.⁴ Unlike in the Tying Markets, where Sutter has market power, in the Tied Markets, there are more hospitals and more hospital competition. This competition normally would drive Sutter's pricesdown.⁵ But by tying its hospitals in the Tied Markets to its "must have" hospitals in the Tying Markets, Sutter forecloses competition by other hospitals in the Tied Markets and thus is able to charge and maintain supra-competitive prices at its hospitals.⁶ The plaintiffs allege that the health plans have to pay Sutter supra-competitive prices and then, in turn, pass on those costs through to their customers in the form of higher premiums.⁷ Consequently, it is the health plans' customers — individuals and employers that buy health insurance — that ultimately bear the burden of paying Sutter's supra-competitive prices.⁸

The plaintiffs seek (1) treble damages and restitution from Sutter to compensate them for the overcharges they incurred from Sutter's alleged anticompetitive behavior and (2) a declaration that Sutter's practices are anticompetitive and an injunction barring Sutter from continuing to engage in anticompetitive behavior, including its "tying," "all-or-nothing," and "anti-steering" arrangements.⁹ They move to certify a class under Federal Rule of Civil Procedure 23(b)(2) and (b)(3) of all individuals and entities located in nine specific California Rating Areas ("RAs")¹⁰ that paid premiums for fully insured health-insurance policies from the health plans Blue Shield, Anthem, Aetna, Health Net, or UnitedHealthcare from September 28, 2008 to the present.¹¹

Sutter opposes the plaintiffs' motion. Sutter's main arguments are that (1) there are intraclass differences and conflicts that render the plaintiffs atypical and inadequate to represent the class and (2) individual issues about whether class members suffered antitrust injury, and how class members' damages would be calculated, predominate over common issues.

The court held a hearing and now rules as follows. The court finds that the plaintiffs have not made a showing that issues of antitrust injury and damages are subject to common proof such that certification of a damages class under Rule 23(b)(3) is appropriate. But the court also finds that the plaintiffs have met the requirements for certification of an injunctive- and declaratory-relief class under Rule 23(b)(2). The court thus grants the plaintiffs' motion to certify their proposed class under Rule 23(b)(2) and denies without prejudice their motion to certify their proposed class under Rule 23(b)(3).

STATEMENT

1. The Proposed Class

The plaintiffs seek to certify a proposed class of:

All entities in California Rating area 1, 2, 3, 4, 5, 6, 8, 9 or 10 (the "Nine RAs"), and all individuals that either live or work in one of the Nine RAs, that paid premiums for a fully-insured health insurance policy from Blue Shield, Anthem Blue Cross, Aetna, Health Net or United Healthcare from September 28, 2008 to the present. This class definition includes Class Members that paid premiums for individual health insurance policies that they purchased from these health plans and Class Members that paid premiums, in whole or in part, for health insurance policies provided to them as a benefit from an employer or other group purchaser located in one of the Nine RAs.¹²

2. Background

"'The market for hospital services and medical care is complex.'" Sidibe v. Sutter Health, No. 12-cv-04854-LB, 2019 WL 2078788, at *4 (N.D. Cal. Apr. 12, 2019) (quoting Cascade Health Sols. v. PeaceHealth, 515 F.3d 883, 891 (9th Cir. 2008)). "There are at least three transactions involved in providing hospital services and health care in connection with health insurance." Id.

"First, hospitals [such as Sutter] sell hospital services to health-insurance plans [such as Blue Shield, Anthem, Aetna, Health Net, or UnitedHealthcare]. Hospitals and health plans negotiate whether a given hospital will be included in the health plan's network and negotiate the rates thatthe health plan will pay the hospital for its hospital services." Id. (citing Saint Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke's Health Sys., Ltd., 778 F.3d 775, 784 & n.10 (9th Cir. 2015) (citing Gregory Vistnes, Hospitals, Mergers, and Two-Stage Competition, 67 Antitrust L.J. 671, 672, 674 (2000))). "These negotiations are highly price-sensitive." Id. (citing FTC v. ...