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A split Ninth Circuit panel on Tuesday overturned Sutter Health's win in insurance plan purchasers' $400 million antitrust suit, ruling that the lower court wrongly excluded "highly relevant" evidence — including admissions by Sutter executives — that would've helped the purchasers potentially prove claims they overpaid thanks to Sutter's anticompetitive conduct.

The majority held that the California federal court abused its discretion when it excluded all evidence of Sutter's conduct before 2006, or five years before the purchasers' contracts were negotiated. That evidence would've refuted many of Sutter's arguments during the 2022 jury trial, according to the opinion penned by U.S. Circuit Judge Lucy H. Koh and joined by U.S. Circuit Judge Roopali H. Desai.

On top of that, the district court should've instructed the jury to consider Sutter's anticompetitive "purpose," the majority said. Instead, it adopted Sutter's proposed instructions, which omitted the word "purpose," and told the jury that the purchasers had to prove that the "effect of Sutter's conduct was to restrain competition," per the ruling.

"These errors were prejudicial, so we reverse," Judge Koh said.

However, U.S. Circuit Judge Patrick J. Bumatay said in a dissent that the jury's verdict should've been affirmed because it's up to the district court — not the appellate court — to determine the reasonable cutoff date for relevant evidence.

"So broad is the district court's discretion in this context that, to my knowledge, no federal circuit court has ordered a retrial based on the setting of a reasonable evidence cutoff date," he said. "We are now the first."

The class of roughly 3 million premium payors allege that Sutter used its market power to illegally force insurers to agree to contract terms blocking plans that steered patients to lower-cost hospitals. Sutter also forced insurers to contract for services at Sutter's more expensive hospitals in order to get access to the hospitals that members needed, the purchasers claimed. The suit was initially filed more than a decade ago.

The class is composed of those who purchased health insurance policies from Blue Shield, Anthem Blue Cross, Aetna, Health Net or United Healthcare, which accounts for the vast majority of all fully insured patients in California, according to an expert for the plaintiffs.

A nine-member jury sided with Sutter in March 2022, following a four-week trial. The purchasers' appeal landed in the Ninth Circuit later that year.

During oral arguments in August 2023, Judge Koh appeared to lean toward undoing Sutter's victory, questioning the various pieces of evidence omitted from the trial. Judge Koh said at the time that the exclusion "just seems contrary" to state precedent.

In Tuesday's majority opinion, Judge Koh said the purchasers' theory of antitrust injury is key to understanding the Ninth Circuit's findings. Before the early 2000s, each Sutter provider negotiated its own contracts with health plans, and that meant that the local market conditions determined which party had the upper hand, she said.

Because of Sutter's status as the largest healthcare system in Northern California, there are several markets in which Sutter faced little competition for inpatient hospital services, if any competition at all, according to the opinion. The purchasers thus claim that Sutter's providers had market power in those areas, allowing them to charge higher prices, the majority said. However, in other areas, the purchasers noted that Sutter's providers still competed.

Their main contention is that Sutter tried to use its market power in the uncompetitive areas to charge higher prices in the competitive regions as well, the majority said.

"To do so, around the turn of the millennium Sutter began contracting with health plans on a 'systemwide' basis, meaning that one contract governs the relationship and imposes common terms between a health plan and all Sutter providers," the opinion states.

That systemwide contracting ultimately gave Sutter more leverage in negotiations with health plans and became the way in which Sutter imposed the allegedly anticompetitive contract terms, the purchasers claim.

The district court determined 2006 to be the cutoff date for evidence, reasoning that Sutter's systemwide contracts were renegotiated regularly and the contracts they had alleged were negotiated around 2011, according to the majority. But that reasoning "conflated plaintiffs' theory of liability with any damages to which plaintiffs would be entitled if they prevailed at trial," the majority said.

"Indeed, pre-2006 evidence is highly relevant to both plaintiffs' tying claim and their unreasonable course of conduct claim," Judge Koh wrote.

Specifically, the purchasers were barred from presenting evidence regarding admissions by Sutter executives, Sutter's switch from the individual negotiating to the systemwide contracting system, Sutter's imposition of the allegedly anticompetitive contract terms during that transition, and the health plans' objections to those terms and the switch.

Among that excluded evidence were memos and testimony from Sutter executives in which they discussed the "increased leverage," potential gains and likely opposition from insurers when it came to systemwide contracting. At one point, Sutter's then-Chief Financial Officer Robert Reed gave a deposition in which he stated that the purpose of making the switch was to garner "vastly better results," results that he clarified meant "better pricing," according to the order. And in a 2006 memo, future CEO Sarah Krevans stated, "Related to the health plans, we force them to pay us more. They do pay us more, and they don't like us … Mainly we pushed them because we could," per the order.

"Because Sutter's systemwide contracting was the mechanism by which Sutter allegedly imposed its anticompetitive contract terms, these admissions are highly relevant to plaintiffs' theory of the case," Judge Koh wrote.

Those memos and testimony also could've "undermined Sutter's alternative explanations for its behavior at trial," she said.

The majority also agreed with the purchasers that omitting the word "purpose" from the jury instructions was a legal error that "was not harmless." The move was at odds with both the text of the Cartwright Act, as well as the California Supreme Court's "longstanding interpretation thereof," it said.

And Sutter hasn't demonstrated otherwise, the majority held.

"On harmless error review, Sutter has the burden to prove that it is 'more probable than not' that the jury would have reached the same result if properly instructed," Judge Koh wrote. "Sutter cannot do so."

Judge Koh also addressed Judge Bumatay's contention in his dissent that their finding is new.

"Our dissenting colleague is mistaken: our decision today announces no new legal rule but rather reflects the widespread consensus that consideration of anticompetitive purpose is an essential aspect of the rule of reason analysis under both the Cartwright Act and the Sherman Act," she said.

Judge Koh said Judge Bumatay "latches on" to decisions interpreting antitrust law finding that anticompetitive purpose "is but one factor that a trier of fact may consider, not that it is required to do so." But in doing so, Judge Bumatay "fundamentally mischaracterizes the district court's error," she said.

"The trier of fact is not required to rely on any one factor, but it must have the option of considering that factor, which is only possible if properly instructed that the factor exists," the judge wrote. "Here, the jury was not instructed that it could consider anticompetitive purpose."

In his dissent, Judge Bumatay opened by quoting the soap opera "Days of Our Lives."

"As sands in the hourglass, so are the days of our lives," he wrote, adding that in soaps "it can be difficult to keep up with the latest twists and turns in their characters' lives." Yet to catch up on characters' present lives, it would be "nearly impossible" to watch every episode over the last 10 years, he said.

"So to appreciate what's happening in the soap opera now, it's more practical to focus on the most recent episodes," Judge Bumatay said.

Likewise, in antitrust litigation like the Sutter case, "we rely on the district court's discretion to fashion reasonable limits for admissible historical evidence," he said.

"After all, trials can't last forever and jurors can't always process 5, 10 or 20 years of evidence," the judge wrote. He added that it "can become stale, cumulative, confusing and distracting for jurors."

With the majority's opinion, the Ninth Circuit limits "the discretion that district courts enjoy in managing trials and second guess their ability to set reasonable evidentiary limits," Judge Bumatay said. "We reverse the jury verdict because we don't like the district court's choice of five years. But we offer no other guiding principles."

Matthew Cantor, counsel for the purchasers, told Law360 on Tuesday that it's a "significant case in healthcare" that spurred numerous amici briefs.

Importantly, Cantor said the lower court made instructional errors and excluded significant pieces of evidence that "buttressed" his clients' case.

"Those admissions demonstrated that Sutter not only had an anticompetitive purpose, but it had market power over the health plans," Cantor said.

Thanks to the court's errors, the purchasers were "substantially handicapped" and the jury was "substantially deprived" at trial, he said.

"We now look forward to going back to trial, submitting all this evidence to our jury and getting justice," Cantor said.

Meanwhile, Sutter said in a statement that it is "disappointed by today's divided appellate ruling overturning a unanimous jury verdict in our favor finding Sutter did not violate antitrust laws."

"Sutter Health intends to pursue all avenues to overturn the erroneous decision, as guided by our commitment to caring for our patients and continuing to provide them with high-quality, connected and affordable care," the health network said.

Purchasers first filed suit in 2012, claiming that Sutter took advantage of its dominance in Northern California when contracting with insurers, leading to artificially inflated premiums for the class members, including the City and County of San Francisco.

During the trial, jurors filled out a nine-question verdict form that asked whether Sutter sold inpatient hospital services that were tied to the more expensive hospital facilities and whether Sutter forced the class health plans to agree to contracts that prevented the plans from steering patients to lower-cost options.

The jury answered no to both questions, and thus no damages were owed to the class.

Sutter has faced similar allegations in the past, and in 2019, it shelled out $575 million to resolve allegations from California's attorney general, the United Food and Commercial Workers, Employers Benefit Trust and others.

U.S. Circuit Court Judges Patrick J. Bumatay, Lucy H. Koh and Roopali H. Desai sat on the panel for the Ninth Circuit.

The purchasers are represented by Matthew L. Cantor, Jean Kim, James J. Kovacs and J. Wyatt Fore of Constantine Cannon LLP, Azra Z. Mehdi of The Mehdi Firm PC, David C. Brownstein and David M. Goldstein of Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP, Allan Steyer and D. Scott Macrae of Steyer Lowenthal Boodrookas Alvarez & Smith LLP and Jill Manning of Pearson Simon & Warshaw LLP.

Sutter is represented by Craig Stewart, David C. Kiernan, Matthew J. Silveira and Jeffrey A. LeVee of Jones Day and Robert H. Bunzel, Oliver Q. Dunlap and Patrick M. Ryan of Bartko LLP.

The case is Djeneba Sidibe et al. v. Sutter Health, case number 22-15634, in the U.S. Court of Appeals for the Ninth Circuit.