SACRAMENTO – An arbitration panel found that Blue Shield of California engaged in an unlawful business practice against the not-for-profit Sutter Health network and breached its contracts with Sutter.

The decision, handed down Oct. 4, found Blue Shield failed to obtain the agreement of one of its self-insured clients to be bound by the contract between Blue Shield and Sutter, which was required by the contract. News of the decision came from Sutter Health via a press release posted Oct. 21.

Blue Shield spokesman Steve Shivinsky told the Northern California Record that by releasing information about the settlement, Sutter Health breached the contract. He said Blue Shield immediately responded by filing a motion in Superior Court to Sutter’s breach of contract.

“Sutter can’t insist on confidentiality provisions in its contract and then decide the provisions apply to everyone else but not themselves,” Shivinsky told the Northern California Record. “If they could, only their side of the story would ever become public. That’s what happened.”

He said the company will not discuss the arbitration due to the confidentiality agreement.

Sutter Health spokesman Bill Gleeson told the Northern California Record he expects the two to meet in court in November to discuss the arbitration award further.

“Blue Shield went into court [on Oct. 25] and filed a motion to seal the arbitration award,” he said, declining to comment further.

In the Oct. 21 press release, Sutter Health officials said the panel concluded Blue Shield failed to obtain the self-insured client’s agreement to be bound by the contract and refused to provide the agreement to the client when it was requested.

The panel also concluded that the arbitration provisions in Sutter Health’s contract with Blue Shield covered all disputes, including allegations of antitrust.

The relationship between Sutter and Blue Shield has been contentious for many years, specifically because of arbitration clauses in Sutter’s contracts. In August, some companies said Sutter Health strong-armed them into agreeing to arbitration clauses in their contract. The health care provider said insurance administrators that didn’t get their self-insured clients to sign contracts waiving their right to sue would no longer have access to discounted in-network prices.

Many, including chief executive of Pacific Business Group Mark Lansky, worried the hefty cost of health care without the contracts would crush businesses and consumers.

“It’s not economically feasible for these members, self-funded payers of health care services in northern California, to have a network that does not include Sutter facilities,” he wrote in an affidavit. “Their choice is between two unacceptable alternatives: pay 95 percent out-of-network pricing for enrollees that access Sutter services or agree to give up their claims in this litigation.”

Glenn Melnick, a professor and health economist at the University of Southern California, said his research shows Sutter Health has a huge stake in the northern California health care system. In its network, Sutter has 24 hospitals, 34 surgery centers and more than 5,000 physicians with a reported $11 billion in revenue annually.

For insurers to offer services at any Sutter hospital, Melnick said, they need to agree to provide coverage for all the hospitals in the system regardless of the service area.

“They have a big share of the market,” Melnick told the Northern California Record. “There’s a couple areas here where Sutter is the only provider. They say, ‘OK, you want to sell insurance up here, then you’re going to need this hospital – but if you want one you need to take all the others.”

He said his research shows that for every patient admitted to a Sutter hospital, the health care network received an extra $4,000.

He said while he didn’t know the specifics of the arbitration agreement between Blue Shield and Sutter, the possibility that the network could force insurance providers to use them is bad for consumers.

“That’s a very powerful threat, because of Sutter’s footprint in the north,” he said. “It would make it impossible to sell insurance in California if they didn’t include Sutter in their plan."

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