A Sutter Health hospital in Berkeley, Calif. Photo: Smith Collection/Gado/Getty Images

Sutter Health, a not-for-profit system of hospitals and physician groups in California, has agreed to pay employer health plans $575 million as part of a settlement to clear allegations that it illegally hiked prices and stymied competition by abusing its market power.

Why it matters: This case has lingered for years, and when combined with the settlement's other conditions, it is one of the most aggressive instances of law enforcement cracking down on the negotiation practices and competitive structure of dominant hospital systems.

Details: The terms of the deal were not released when a settlement was first announced in October. Overall, the employer and union plaintiffs in this class-action lawsuit aimed for almost $1 billion in damages, instead settling for $575 million. But they are also getting other stipulations.

  • Sutter can no longer force health insurers into "all-or-nothing" contracts, which require insurers and employers to include all Sutter facilities and providers in their networks regardless of whether Sutter's providers had higher prices or poorer quality.
  • There will be caps on Sutter's out-of-network rates, and Sutter's list price hikes will be "limited" for the next five years.
  • A court-appointed monitor will make sure Sutter complies with all settlement terms for the next 10 years, and possibly another three years thereafter.

The big picture: Hospital systems like Sutter have grown over the years due to heavy consolidation, which has turned many hospital markets into monopolies or oligopolies.

  • In turn, hospitals have had the power to dictate contract terms that heavily favor them and often result in higher prices and insurance premiums.

What they're saying: Sutter submitted a statement to Axios that said the system did not admit to any wrongdoing, and the settlement "enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care."

Go deeper: California hospital system destroyed antitrust evidence

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