Sutter Health Settles Lawsuit Over Prices Charged to Uninsured; Reaffirms its Charity Care and Discount Policies

4 August 2006

Sutter Health announced that it has reached a settlement agreement in a class-action lawsuit related to Sutter's billing of uninsured patients. The settlement agreement puts another stamp of approval on Sutter Health's model charity care and discount policies, some of which have been in place for years. The Sacramento Superior Court gave its approval to the settlement on August 3.

The lawsuit was initiated in September 2004 by a proposed class of uninsured persons who had received treatment at Sutter-affiliated hospitals dating back to September 2000 and who alleged in their complaint that they were charged unreasonably high prices compared to prices paid by the commercially insured. The case is one of a national series of lawsuits against hospitals alleging unfair billing and collection practices for the uninsured.

"This settlement is further evidence of Sutter's leadership in caring for the indigent and uninsured," said Patrick Fry, Sutter Health President and CEO. "The policies that Sutter has adopted over the past few years, which we have agreed to continue under the terms of the settlement, offer substantial assistance to those patients who are least able to afford medical care. We are proud to have these policies in place and pleased to put an end to the litigation."

In March 2006, Sutter Health adopted a new policy for all of its affiliated hospitals that provides for those facilities to offer automatic discounts to uninsured patients that are comparable to the negotiated discounts that the hospitals provide to private insurance companies. Under the terms of the settlement, Sutter's hospitals will continue to abide by this new policy for at least three more years. Sutter Health plans to maintain the policy indefinitely.

In addition, under the terms of the agreement, uninsured patients who were treated at a Sutter-affiliated hospital dating back to September 2000 will receive notices letting them know they may be eligible to have their bills recalculated and may be eligible for a refund, depending on whether or how much they may have paid toward their hospital bills. Recalculated bills are expected to reflect average discounts of approximately 35 percent. As a result, those who have paid 65 percent or more of their bills on average may be eligible for a refund. The amount of potential refunds cannot be estimated at this time, although Sutter Health officials say the vast majority of uninsured patients treated at its hospitals have not paid their bills.

For many years, Sutter Health affiliated hospitals have maintained generous charity care policies to assist low-income patients. In February 2004, Sutter Health affiliates adopted a common, systemwide charity care policy; under the terms of the settlement, Sutter will continue this policy. As part of this policy, uninsured patients with annual incomes below 200 percent of the Federal Poverty Income Guidelines ($40,000 a year for a family of four) may qualify to receive free care. Uninsured patients with annual incomes between 200 and 400 percent of the FPIG ($40,000-$80,000 a year for a family of four) are billed at rates well below those charged to private insurance companies. No uninsured patient, regardless of their financial status, will receive a bill for full-billed charges at a Sutter hospital.

Sutter Health also provides catastrophic protection to low-income uninsured patients by limiting their payment liability to 30 percent of their annual household income. Sutter Health's standardized collection practices policy, formalized more than two years ago, prohibits wage garnishments and bench warrants, prohibits property foreclosures and limits the cases in which liens can be filed. The settlement requires Sutter to continue these policies.

As a result of the systemwide charity care policy implemented throughout the Sutter Health system in early 2004, Sutter's annual charity care write-offs alone have more than doubled, growing from $109 million in 2003 to $226 million in 2005. Sutter Health's total 2005 investment in charity care and community benefit activities was $929 million.

Sutter Health's Charity Care and Discount Policies at a Glance

Policy and Date of Creation Patient's Annual Payment

Income Level

(family of four)

Charity Care (2/04) Below $40,000 Full charity

(Less than 200% of care (free

Federal Poverty care

Income Guidelines - FPIG)

Partial Charity Care $40,000 to $80,000 Partial

(2/04) (200% to 400% of FPIG) charity care

(discount

equal to