How can states control insane health care costs? Here's one suggestion.

In 2018, the State of California filed major litigation against Sutter Health, alleging causes of action for price-fixing, price-tampering, unreasonable restraint of trade, and combination to monopolize.  Sixty Minutes recently had a segment entitled "The High Cost of Healing" describing the allegations against Sutter.

The video and the court-filed complaint made some of the following allegations against Sutter:

1. The Sacramento-based health care company made a conscious decision to expand and grew from two hospitals to twenty-four through planned acquisitions in northern California.  It is a powerful multi-county organization and the largest acute care provider in northern California.  The number of physicians in the system also grew from several thousand to over 12,000.

2. Sutter specifically tried to secure some "must have" health care facilities.  Sutter is alleged to have created a monopoly for maternity care, which all vendors needed to have.  Sutter is also alleged to have created "must have" components through geographical location: in eleven northern California counties, Sutter is the only hospital or the only one of two hospitals.

3. As Sutter's power grew, its contract terms with network vendors became increasingly onerous and anti-competitive.  To wit:

a. There was no price disclosure of how much a medical procedure would cost.  The cost was revealed only after the procedure had been performed and billed.

b. All of the Sutter health care facilities had to be included in the network, even when those facilities were not easily accessible or even when a competitor's facility was less expensive.

c. There was a prohibition or a severe penalty against giving a patient a financial incentive to seek a lower-cost treatment or to increase a deductible for higher-priced items from a Sutter competitor (no steering or tiering).

d. Network vendors were prohibited from including non-Sutter hospitals in a network even if the competitor was cheaper or offered better-quality care.

e. The agreements between Sutter and network vendors contained nondisclosure agreements that concealed the anti-competitive portions of the agreement.

f. Punitively high out-of-network pricing made it impracticable to go out of network, even when those services were cheaper or of better quality.

4. As a result of its great economic power in northern California, Sutter was able to charge substantially higher fees than its competitors.  It is alleged that Sutter's fees for in-patient care are 70% higher than those in southern California.

5. The litigation between the State of California and Sutter apparently settled on the eve of trial.

I suspect that the State of California wished that it had taken on Sutter before it had become such a goliath.  Many states simply do not have the financial and legal resources that California has to take on such a powerful opponent.  Is there a simpler, less costly way to tame out-of-control health care costs?  I think so.

All states have for decades had unfair trade practices laws.  New Mexico's are fairly typical.  The state defines what is an "unfair or deceptive" trade practice and gives representative examples.  The same statute goes on to define a second class of prohibited conduct, an "unconscionable trade practice."

E. "unconscionable trade practice" means an act or practice in connection with the sale, lease, rental or loan, or in connection with the offering for sale, lease, rental or loan, of any goods or services, including services provided by licensed professionals, or in the extension of credit or in the collection of debts that to a person's detriment:

(1) takes advantage of the lack of knowledge, ability, experience or capacity of a person to a grossly unfair degree; or

(2) results in a gross disparity between the value received by a person and the price paid.

When a health care provider charges multiples of Medicare-approved charges for the same procedure, does that constitute an unconscionable trade practice?  When a health care provider charges $10 for an aspirin, does that constitute an unconscionable trade practice?  I suspect that some juries might think so.

New Mexico's version of the statute provides that if the fact-finder concludes that there has been an unfair, deceptive, or unconscionable trade practice, the injured consumer may be awarded up to triple actual damages and attorney's fees.

Few consumers will have the deep pockets necessary to wage war against well heeled health care–providers regarding billing disputes — but states do.  Significantly, New Mexico's statute gives the attorney general jurisdiction to bring suits enforcing violations of the act.

A recent Rand Corporation report found that private insurance paid average rates 247% greater than Medicare-approved rates for the same services in 2018.  At some level, health care charges that vastly exceed Medicare-approved rates for the same services are probably unconscionable.  State unfair trade practices statutes give states' attorneys general a convenient forum to litigate the issue at a reasonable expense.  Such litigation will also send a powerful message to health care–providers in those states that there is a good conscience limit to what they can charge for their services.

Image via Max Pixel.