Motion,Ex Parte: UFCW & EMPLOYERS BENEFIT TRUST ON BEHALF OF VS. SUTTER HEALTH et al

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Preview
                                San Francisco County Superior Court

MAY 6 - 2019

CLERK-OF COURT
BY:

Deputy Clerk

SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO

DEPARTMENT 304

UFCW & EMPLOYERS BENEFIT TRUST, ET
AL.,

Plaintiffs,

SUTTER HEALTH, ET AL.,

Defendants.

PEOPLE OF THE STATE OF CALIFORNIA, ex
rel, XAVIER BECERRA,

Plaintiff,
ve
SUTTER HEALTH,

Defendant.

Case No. CGC-14-538451
Consolidated with
Case No. CGC-18-565398

ORDER RE (1) DEFENDANTS’ MOTION
TO EXCLUDE TESTIMONY OF DR.
GREGORY VISTNES; (2) PLAINTIFFS’
MOTION TO EXCLUDE CERTAIN
EXPERT TESTIMONY OF DR. ROBERT
WILLIG; AND (3) PLAINTIFFS’ MOTION
TO EXCLUDE EXPERT OPINION OF DR.
GOWRISANKARAN THAT KAISER
COMPETES IN THE SAME ANTITRUST
MARKET

INTRODUCTION

The above entitled matter came on regularly for hearing on Tuesday, April 30, 2019. A tentative

tuling was issued by the court before oral argument. The appearances are as stated in the record. Having
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reviewed and considered the argument and written submissions of all parties and being fully advised, the
court (1) grants, in limited part, Sutter’s motion to exclude Dr. Vistnes’ opinions;! (2) grants, in limited
part, Plaintiffs’ motion to exclude Dr. Willig’s opinions, and (3) Plaintiffs’ motion to exclude Dr.
Gowrisankaran’s opinions is denied.
BACKGROUND
The parties noticed a combined total of nine motions to exclude expert testimony for hearing on
April 30, 2019. By agreement of the parties, six of the hearings were continued until mid-May. (See
Case Management Order No. 17 5.) The motions directed to the testimony of Dr. Vistnes, Dr. Willig,
and Dr. Gowrisankaran were argued on April 30, 2019.
LEGAL STANDARD

“[U]nder Evidence Code sections 801, subdivision (b), and 802, the trial court acts as a gatekeeper
to exclude expert opinion testimony that is (1) based on matter of a type on which an expert may not
reasonably rely, (2) based on reasons unsupported by the material on which the expert relies, or 3)
speculative. Other provisions of law, including decisional law, may also provide reasons for excluding
expert opinion testimony.” (Sargon Enters. Inc. v. University of Southern Cal. (2012) 55 Cal.4th 747,
771-72.)

“But courts must also be cautious in excluding expert testimony. The trial court’s gatekeeping role
does not involve choosing between competing expert opinions.” (Id. at 772.) The trial court’s focus
“must be solely on principles and methodology, not on the conclusions that they generate.” (Ibid.
{quoting Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993) 509 U.S. 579, 595}.) “The trial court’s
preliminary determination whether the expert opinion is founded on sound logic is not a decision on its
persuasiveness. The court must not weigh an opinion’s probative value or substitute its own opinion for
the expert’s opinion. Rather, the court must simply determine whether the matter relied on can provide a
reasonable basis for the opinion or whether that opinion is based on a leap of logic or conjecture.” (Ibid.)
Hf
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' Sutter’s alternative request to disregard everything after page 15 of Plaintiffs’ oversized opposition to
the motion to exclude Dr. Vistnes’ testimony is granted. Accordingly, the appendix to Sutter’s reply is
also disregarded.

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DISCUSSION AND ANALYSIS
I. Dr. Vistnes”

A. Summary of Dr. Vistnes’ Opinions

Dr. Vistnes’ Report spans 124 pages, excluding appendices. Dr. Vistnes’ Rebuttal accounts for an
additional 56 pages, excluding appendices.

Dr. Vistnes summarizes his opinions in his report. There, Dr. Vistnes begins with the premise that
Sutter has substantial market power in several relevant markets because Sutter competes with few or no
significant rivals. (Report, 3.)° Dr. Vistnes opines that Sutter uses that market power to impose
restrictions in its contractual relationships with health plans that apply both to markets in which Sutter
does, and does not, have pre-existing market power. (Jbid.) The contractual restrictions limit a health
plan’s ability to encourage enrollees to shift from high-priced Sutter providers to lower-priced providers.
(Ibid.) Based on analyses of empirical evidence, Dr. Vistnes concluded that Sutter’s conduct increased
inpatient prices by over 10%, hospital-based outpatient prices by over 20%, and prices at Sutter’s
freestanding ambulatory surgery centers (“ASCs”) by more than 50%. (Ibid.)

Dr. Vistnes elaborates that ordinarily health plans will use, inter alia, three techniques to create
incentives for their enrollees to choose lower-priced providers: (1) Health plans use selective contracting
and offer narrow networks in which health plans exclude high-priced providers from their provider
network; (2) Health plans offer tiered networks through which a health plan creates financial incentives
for a patient to select one network provider over another network provider; and (3) Health plans provide
price-related information to individuals and employers that helps them identify and choose lower priced
products. (Id. at 4.)

Dr. Vistnes explains that Sutter imposes three interrelated restrictions in its contractual

? The parties refer to Dr. Vistnes’ August 31, 2018 Report as the “Report” and Dr. Vistnes’ January 31,
2019 Rebuttal Report as the “Rebuttal.” These were attached as Exhibits 55 and 56 to the Declaration of
Christopher K. Spiers in Support of Defendants’ Motion for Summary Judgment or, in the Alternative,
Summary Adjudication filed in redacted form and lodged conditionally under seal in unredacted form on
March 8, 2019. This section of the order adopts the parties’ usage of the terms Report and Rebuttal. In
addition, the record citations in this section are to the record developed in connection with the motion
directed at Dr. Vistnes’ opinions.

These include the San Francisco market for general acute care inpatient hospital services, the Inner East
Bay market for general acute care inpatient hospital services, and several rural markets for general acute
care inpatient hospital services. (Report, 5-6.)

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relationships with health plans: (1) Sutter enforced either an explicit or implicit “all or nothing”
requirement by imposing requirement by imposing a 95% non-participation (“non-par”) rate for out of
network services, such that Sutter providers do not have to compete on price to ensure their inclusion in a
health plan’s provider network; (2) Sutter imposed anti-tiering restrictions to limit a health plan’s ability
to steer patients away from high-priced in-network Sutter providers to lower-priced in-network
providers; and (3) Sutter’s imposed confidentiality or price secrecy provisions that limited a health plan’s
ability to share price information with individuals or employers. (Jd. at 4-5.)

Dr. Vistnes opines that these contractual restrictions cause competitive harm throughout Northern
California in areas where Sutter operates hospitals and outpatient facilities. (Jd. at 6.) Dr. Vistnes states
that this can be seen by analyzing the differences between Sutter’s prices and those at comparable
providers. (Ibid.)

B. Opinions Regarding Anticompetitive Impact of Non-Par Rate

Sutter asks the court to exclude Dr. Vistnes’ opinion regarding the non-par rate. (Motion, 11
{citing Report, 16, 18-20, 82-83, 117-119; Rebuttal, 55; Zeng Decl., Ex. 1(r) at 414:7-415:11, 425:24-
426:9], 16-18 [citing Report, 87].) To that end, Sutter makes two arguments. First, Sutter argues that Dr.
Vistnes’ opinion depends on a misplaced assumption that Sutter’s non-par rate increases the maximum
allowable amount (“MAA”) for which a health plan is responsible. (Jd. at 11-16.) Second, Sutter
contends that Dr. Vistnes’ opinion relies on a financial impact analysis that, in turn, uses a variable that is
based on unreliable evidence. (Jd. at 16-18.) For the reasons discussed below, Sutter’s motion to
exclude these opinions is denied.

1. Maximum Allowable Amounts
a. The Parties’ Positions

Sutter explains its position as follows. SFPs self-insure, paying a portion of their members’
healthcare costs. (Motion, 7.) SFPs contract with companies like Blue Shield so their members can
access provider networks assembled by those companies. (Id. at 8.) Providers in the network will offer
heavily discounted negotiated rates. (Ibid.) SFPs offer financial incentives to their members to use in-
network providers to utilize the discounts. (Ibid.) The SFPs’ benefit design will dictate what an SFP
pays to a provider by controlling the respective percentages the SFP and its member will pay and the

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MAA. (ibid.) SFPs may pay a lower percentage of the out-of-network costs and may cap their payment
as a percentage of the MAA, permitting the out-of-network provider to balance bill a member for the
remainder. (Ibid.)

Sutter’s non-par rate entered the picture in 2005, at which time Sutter began negotiating a rate that
covered the situation when a member received services at a Sutter provider that was not in-network. (Id.
at 9.) The non-par rate is a contractual rate that governs the cost of such services. (Ibid.)

Sutter argues that Dr. Vistnes’ opinion that the non-par rate forces carriers to include all Sutter
providers in network is based on the speculative, and incorrect, assumption that the institution of the non-
par rate increased the MAA for non-participating Sutter providers as follows. (See id. at 7, 10.)
Assuming an SFP has a benefit plan that includes a $600 MAA and a 60% contribution from the SFP for
out-of-network care, the SFP’s share of a $1,000 bill from an out-of-network Sutter provider, in the
absence of the non-par provision, would be 60% of $600, whereas the SFP’s share of a $1,000 bill from a
non-participating Sutter provider, pursuant to the operation of a non-par provision setting a 95% non-par
rate, would be 60% of $950, because the non-par rate would effectively supersede the MAA. (See id. at
10.)

First, Sutter contends that Dr. Vistnes’ opinion is unsupported because Sutter’s contractual non-
par provisions do not require SFPs to increase their MAAs. (See id. at 11-14.) Second, Sutter asserts
that Dr. Vistnes did not review SFPs’ MAA provisions and could not identify instances in which an SFP
increased its MAA as a result of Sutter’s non-par rate. (/d. at 14-15.) Third, Sutter argues that Dr.
Vistnes did not review claims data to assess whether SFPs MAAs and payments increased after Sutter
instituted its non-par rate. (/d. at 15.) Fourth, Sutter asserts that Dr. Vistnes made the unsupported
assertion, in his Rebuttal and at deposition, that some non-Sutter providers set the same rates for in-
network and out-of-network services and do not balance bill. (Id. at 15-16.)

Plaintiffs state that Dr. Vistnes opined that Sutter’s non-par rate functioned as a penalty that
restricted offerings of tiered and narrow products. (Opposition, 8.) Plaintiffs argue that this opinion does
not depend on whether the penalty was paid, in whole or in part, by SFPs. (Jbid.) To that end, Plaintiffs
assert that whether or not the non-par rate affects payments made by SFPs, the non-par rate affects the
prices health plans pay for their fully-insured products. (Jd: at 9.) For example, health plans must pay

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the entire non-par rate when an enrollee uses an out-of-network Sutter hospital, recouping only the
reasonable and customary value of the charges, a smaller amount. (Jbid.) This causes the health plans to
negotiate fewer plans with narrow or tiered products, which in turn restricts the availability of such plans
to SFPs, because health plans generally only offer SFPs access to the same narrow networks that they
have already created for their fully-insured products. (bid.)

In addition, Plaintiffs argue that even if SFPs could shift costs to their membership, as Sutter
asserts, such benefit plans would not be commercially viable. (/bid.) To the extent such costs are passed
along in this manner, Plaintiffs assert that the non-par rate could be considered punitive in an indirect
sense. (See id. at 10-11.)

Moreover, Plaintiffs contend that Sutter is incorrect when it asserts that SFPs could evade “all
responsibility” for paying “any portion” of the penalty. (/d. at 9.) Plaintiffs assert that the MAA is
generally set based on the usual, customary, and reasonable (“UCR”) rates, which are much lower than
Sutter’s non-par rate. (/d. at 10.) Plaintiffs argue that the MAA generally operates to control a SFPs
liability for medical services offered by an out-of-network provider with which there is no contract price.
(bid.) Plaintiffs contend that a MAA cannot operate in the same way with a non-participating Sutter
provider because in such a situation there is a contract price that the SFP is obligated to pay. (Id. at 10-
11.) Plaintiffs assert that health plans have confirmed that when a member goes to a non-participating
Sutter provider, member cost sharing is applied to the contract price — i.e., the price at the non-par rate —
and not to the MAA. (Jd. at 11.) Plaintiffs argue that this operation is confirmed by the language of the
non-par provisions themselves. (Id. at 11-12.)

Plaintiffs conclude by arguing that Dr. Vistnes’ non-par opinions have four separate independent
bases: (1) Sutter’s non-par rate sets Sutter’s rates at 34% above what non-Sutter providers receive when
they are out-of-network; (2) Sutter’s non-par rate weakens health plans’ “walk away” position; (3) Sutter
is the only provider that chooses which health plan products it “participates” in, then charges a non-par
rate if it is excluded or elects not to “participate;” and (4) the non-par rate erodes or eliminates the cost
savings that could otherwise be secured by excluding overpriced Sutter providers. (Id. at 12-13.)

Sutter replies that Dr. Vistnes’ opinion is based, and depends, on the incorrect premise that the
non-par provision automatically increased the MAAs. (Reply, 5.) Sutter contends that arguments about

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the penalties paid by health plans or SFP enrollees are beyond the scope of Dr. Vistnes’ opinion. (Jd. at
5-6.) Further, Sutter argues that any impact on health plans not shared by SFPs is irrelevant. (bid.) In
addition, Sutter asserts that Plaintiffs’ cannot rely on the effect the non-par rate would have on members
because Plaintiffs’ claims rest on the theory that Sutter’s steering mechanisms prevent SFPs from placing
the financial burden of choosing a higher-priced provider to enrollees. (Id. at 6-7.) Sutter also contends
that Plaintiffs’ argument that Dr. Vistnes correctly understood the effect of the non-par provision is based
on inapposite deposition testimony and a mischaracterization of contractual terms. (Id. at 7-8.)

Turning to the four independent analyses identified in by Plaintiffs in the opposition, Sutter argues
that none of them supports Dr. Vistnes’ opinion. (/d. at 9-10.) Taking each separately, Sutter argues:

(1) Dr. Vistnes compared Sutter’s non-par rate to what SFPs pay other out-of-network providers,
omitting member contributions from the analysis and therefore inflating the difference in prices; (2) Dr.
Vistnes’ opinion about the weakened “walk-away” position is premised on the existence of a non-par
penalty; (3) other providers pick and choose what networks to participate in and charge higher out-of-
network prices if they do not participate; and (4) Dr. Vistnes’ model assumes that SFPs will not be able
to pass along the costs arising from the non-par rate — if the costs can be passed along then cost saving
will not be eliminated by the non-par rate. (Ibid.)

b. Application

As summarized above, Dr. Vistnes’ opinions are to the effect that Sutter imposed contractual
terms that prevented health plans from constraining Sutter’s prices. (See, e.g., Report, 2-7; Zeng Decl.,
Ex. 1(r) at 21:1-9, 58:17-59:6.) As Plaintiffs note, Sutter’s argument shifts the focus from the costs
Sutter imposed on health plans through the non-par rate to the costs Sutter imposed on SFPs. (Compare
Motion, 11:11-13, Reply, 6:2-9; with Opposition, 9:3-16; Report, 19.)

Sutter cites page 19 of the Report for the proposition that Plaintiffs are foreclosed from arguing
that “SFPs might be indirectly affected by the non-par provisions because insurance companies offer the
same networks to insureds and SFPs. But that is not the mechanism of impact posited by Dr. Vistnes—he
relied solely on the non-par provisions’ direct effects on SFPs.” (Reply, 6.) But the Report is to the
contrary. In the Report, Dr. Vistnes explains the direct effect that the non-par provisions have on health
plans, not SFPs. (See Report, 7, 19.) The result of the direct effect on health plans is to disable their

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activity as a check on Sutter’s prices. (See id. at 18-20.)

Sutter has not shown, or even argued, that health plans could pass along costs to their enrollees in
the same manner that Sutter argues SFPs can pass along their costs. (Compare Report, 19; Opposition, 9;
with Reply, 5-6.)* Accordingly, the question of whether the non-par rate affects the MAA in such a way
that drives up SFPs’ share of the cost of care relative to their members is not tied to the chain of
reasoning that underpins Dr. Vistnes’ opinion that the non-par rate creates an effective bundling
requirement. (See Report, 16, 18-20.)

In the course of his Report, Dr. Vistnes did state that the non-par rate will increase the MAA in a
way that increases the cost share borne by health plans. (See Report, 117-19, Ex. CC.)> As described
above, the parties dispute whether the non-par rate has such an effect on SFPs. That particular dispute is:
not reached here, as it is not germane to the opinion that Sutter moves to exclude. (See Report, Ex. CC
{referting to health plans, not SFPs].)

2. Financial Impact Analysis

Dr. Vistnes used a model to demonstrate that Sutter’s non-par rate reduces or eliminates the cost
savings that would otherwise be achieved by excluding non-par providers. (See Report, 88-89, Ex. AA.)
Dr. Vistnes modeled the impact using three variables: (1) the percentage difference between Sutter
contract and non-contract prices; (2) the percentage difference between Sutter’s participating and non-par
tates; and (3) the percentage of patients who will still end up at Sutter even if it is non-participating. (See
ibid.) The model uses four different values for third variable, 20%, 30%, 40%, and 50%. (See id. at Ex.
AA.)

In his report, Dr. Vistnes posited that assuming a specific value for each variable, a provider
would increase its costs by excluding Sutter. (See id. at 87-88.) Thus, Dr. Vistnes opined that Sutter’s

non-par rate meant that dropping Sutter would increase health plan costs. (See ibid.)

* Sutter responds to Plaintiffs’ argument that health plans cannot pass along costs to their enrollees in two
ways. First, Sutter notes that Dr. Vistnes was unaware of differences between self-insured and fully-
insured. (Reply, 5-6.) Whether or not Dr. Vistnes is correct, this has no bearing on his opinion as to
health plans. Second, Sutter asserts that impacts on health plans are irrelevant if they are not shared by
SFPs. (See ibid.) But the Report is premised on a causal chain — conduct directed at the health plans is
anticompetitive in a way that drives up the prices paid by SFPs for Sutter’s healthcare services.

Dr Vises understood that health plans would not pay: the full amount of the non-par rate. (See Report,
Ex. CC.) i

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Sutter does not presently challenge Dr. Vistnes’ model. Rather, Sutter argues that Dr. Vistnes’
ultimate conclusion relies on the value assigned to the third variable — the percentage of patients who will
end up at Sutter even if it is non-participating. (See Motion, 17-18.) Dr. Vistnes assigned a value of
42%, which he calculated by: (1) assuming that 47% of Sutter’s patients are emergent; (2) assuming that
up to 10% of emergent patients can be redirected; and (3) assuming the all of Sutter’s other patients can
be redirected. (See Report, 88.) To support the first two assumptions, Dr. Vistnes relies on a 2015 Blue
Shield redirection analysis. (See ibid.)® Sutter argues that this reliance was misplaced because (1) the
redirection analysis is not the type of material that is reasonably relied upon by experts in the field and
(2) Dr. Vistnes did not account for the depositions of Blue Shield personnel who were involved in the
preparation of the redirection analysis and described its limitations, as well as other evidence calling the
reliability of the redirection analysis into question. (Motion, 17-18.) Sutter’s argument relies primarily
on the opinion of its expert, Patrick Travis. (See Motion, 17-18.)’ Travis opines that the Blue Shield
redirection analysis is unreliable. (Travis Report {{ 69, 129.) He discusses the redirection analysis at
length. (See id. at §§ 67-111.)

Plaintiffs respond in three ways. First, Plaintiffs argue that Sutter’s challenge cannot render the
model itself inadmissible. (Opposition, 7.) Second, Plaintiffs contend that the redirection analysis is a
reliable basis for an expert opinion. (/d. at 7-8.) Third, Plaintiffs assert that Sutter may cross-examine
Dr. Vistnes about his assumptions regarding the disputed.42% figure. (Jd. at 8.)

For the reasons that follow, Sutter’s motion to exclude these opinions is denied.

First, Sutter’s challenge does not reach the reliability of Dr. Vistnes’ model.* Accordingly, the
model will not be excluded here. Second, Sutter’s challenge, if accepted, could reach one predicate
conclusion that supports Dr. Vistnes’ other conclusions. Specifically, Dr. Vistnes supported his
conclusion that the non-par rate discourages health plans from dropping Sutter by using Blue Shield’s

redirection analysis as a basis to estimate one factor in his model.

6 7 abe third assumption is intended to make the estimate conservative.

7 The Travis Report is attached as Exhibit 60 to the Declaration of Christopher K. Spiers in Support of
Defendants’ Motion for Summary Judgment or, in the Alternative, Summary Adjudication filed in
redacted form and lodged conditionally under seal in unredacted form on March 8, 2019.

§ Sutter’s challenge, if accepted, could modify the impact of the model in terms of relevance and undue
prejudice. A model that considers unsupportable values for key variables may be unduly prejudicial.
However, this line of argument is not considered on the present motion.

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The application of Dr. Vistnes’ model will, at some point, depend on the admission of evidence to
support a calculation of the rate at which Sutter would retain patients if it were removed from a health
plan’s network. On the present record, the Blue Shield’s redirection analysis is information on which a
professional in the relevant field could reasonably rely and Sutter has not shown that Dr. Vistnes failed to
consider evidence cutting against reliance on the Blue Shield redirection analysis. (See Olive v. General
Nutrition Centers, Inc. (2018) 30 Cal.App.Sth 804, 821-22 [expert testimony may be based on
information furnished to the expert as long as the information is of the type reasonably relied on by
professionals in the relevant field; excluding expert opinion that hinged on another’s speculative
assumptions without any independent evidentiary value]; Maatuk v. Guttman (2009) 173 Cal.App.4th
1191, 1198 [expert opinion inadmissible where expert relied on opinions of others without any showing
that they had expertise].)°

c. Recitation of the Contents of Documents

In a footnote, Sutter argues that much of Dr. Vistnes’ report is devoted to a “recitation of
documents” that “does not require any expertise and does nothing to aid the jury.” (Motion, 13-14 n.21.)
Accordingly, Sutter seeks an order that would exclude Dr. Vistnes’ “lists reciting the contents of
documents,” including those found at numerous pages of the Report. (Sutter Proposed Order, 2.)

Plaintiffs respond that the challenged portion of Dr. Vistnes’ report demonstrate that Dr. Vistnes
reviewed the factual record, which was necessary to formulate his opinions. (Opposition, 5-6.) In reply,
Sutter agrees that Dr. Vistnes is permitted to rely on the factual record. (Reply, 13.) Nevertheless, Sutter
argues that Dr. Vistnes goes too far when he (1) recites the contents of Plaintiffs’ preferred documents at

length; (2) invades the province of the jury by opining about what insurers actually believed or thought

° On the present record, Blue Shield’s redirection analysis is an analysis on which professionals in the
field would rely. (See Taylor Decl., Exs. 18-19, 20 at 426:1-427:5, 440:6-441:4.) While Sutter argues
that Blue Shield created the analysis using assumptions for which there are no set criteria, Sutter’s expert
agreed that there are no industry standard criteria to perform that type of analysis. (Compare Reply 9 n.7;
Travis Report {J 70, 99, 105; with Taylor Decl., Ex. 26 at 93:13-25; see also Zeng Decl., Ex. 1(a) at
730:21-731:20; Taylor Decl., Ex. 21 at 729:23-731:20.) While Travis has levied extensive criticisms of
the analysis, including criticisms based on material appearing on the face of Blue Shield’s analysis, the
present record does not support the conclusion that Dr. Vistnes failed to consider those criticisms in
deriving his estimate of a 42% retention rate for use in the specification of his model provided in the
report. (See Zeng Decl., Ex. 1(r) at 538:8-542:19 [discussing basis for Dr. Vistnes’ application of a 42%
estimated retention rate], 649:1-13 [stating only that Dr. Vistnes’ rebuttal report does not contain any
opinions that directly respond to the Travis Report].)

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about Sutter’s conduct; or (3) presents case-specific hearsay as fact. (Jbid. [citing Kotla v. Regents of
University of California (2004) 115 Cal.App.4th 283, 291; People v. Sanchez (2016) 63 Cal.4th 665,
686; Prembro Liability Litigation (E.D. Ark. 2008) 554 F.Supp.2d 871, 887; Report, 55-57, 62-64, 84-
86].)

An expert cannot relate as true case-specific facts asserted in hearsay statements, unless they are
independently proven by competent evidence or are covered by a hearsay exception. (Sanchez, 63
Cal.4th at 686.) Similarly, an expert opinion should be excluded when the subject of inquiry is one of
such common knowledge that men of ordinary education could reach a conclusion as intelligently as the
witness. (Kotla, 115 Cal.App.4th at 291.)

Nevertheless, the court declines to rule on the admissibility of Dr. Vistnes’ discussion of
documents through this motion. Dr. Vistnes may identify evidence in the factual record on which he
relied. The extent of the admissible factual record at trial — including facts that may be hearsay in the
documents Dr. Vistnes reviewed but may be supported by live testimony at trial — is not yet known.
Moreover, the extent to which Plaintiffs will elicit testimony from Dr. Vistnes recounting the contents of
documents on which he relied is not yet known. The present motion is denied, however, this does not
constitute a ruling that Dr. Vistnes’ discussion of the documentary record will necessarily be admissible.

D. Opinions Regarding Bundling, Tying, and Economic Ties

In a footnote, Sutter argues that Dr. Vistnes should not be permitted to offer opinions about, or
refer to, bundling, tying and economic ties because he did not apply the applicable legal tests, rendering
any reference irrelevant and confusing. (Motion, 11 n.13; see also Reply, 12-13.)'° Plaintiffs respond
that Dr. Vistnes is discussing standard economic concepts in his role as an expert in economics.
(Opposition, 13.)!

Sutter’s request to preclude Dr. Vistnes from using the terms “bundling,” “tying,” and “economic

ties” is denied. Sutter has not persuasively argued’? that the use of the foregoing terms will categorically

10 The proposed order is arguably framed to encompass any opinion in which Dr. Vistnes used one of the

terms “bundling,” “tying,” or “economic ties.” (Proposed Order, 2.)

" Sutter also contends that these opinions depend on the assumption that the non-par rate punitively

increases SFPs’ costs. (/d. at 18.) This argument is rejected for the reasons discussed in Section (B),

above.

"2 The lone case Sutter cited, People v. Brown (2016) 245 Cal.App.4th 140, 162, does not address an

analogous situation. Moreover, Sutter failed to provide context for the quote it excerpted from Brown,
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render Dr. Vistnes’ opinions unduly prejudicial, particularly where jury instructions may mitigate any
potential confusion or prejudice. To the extent Sutter wishes to address additional limitations regarding
use of these terms for trial, it should do so through a motion in limine.

E. Legal Opinions

Dr. Vistnes stated that he understands there are “legal reasons” why Sutter “cannot necessarily set
prices equal to charges (or 95% of charges)” and why “Sutter’s price, when based on billed charges, [is]
not legitimate.” (Report, 117 nn. 531-532.) In a footnote, Sutter argues that these statements are
recitations of legal opinions that are both beyond Dr. Vistnes’ expertise and immaterial to his opinions.
(Motion, 14-15 n.23.) In a footnote of their own, Plaintiffs respond that Dr. Vistnes is not offering any
opinion “regarding the legality of Sutter’s prices.” (Opposition, 13-14 n.30.) Plaintiffs elaborate that Dr.
Vistnes may base his opinions on stated assumptions, including legal assumptions. (Jbid.) Sutter does
not disagree with Plaintiffs’ statement of the law, instead arguing that it has no bearing as to the opinion
Sutter seeks to exclude because the opinion is a legal opinion that is not offered as a basis for Dr.
Vistnes’ opinions. (Reply, 12.)

Sutter’s motion to exclude this opinion is granted to the extent described in this paragraph. The
footnotes that have attracted Sutter’s attention come in a section of the Report explaining Dr. Vistnes’
opinion that Sutter’s 95% non-par requirement does not reflect fair market prices. (Report, 117.) As
framed in the report, Dr. Vistnes is noting the existence of other arguments, which Dr. Vistnes does not
describe, about the legality of Sutter’s rates. (Jd. at 117 nn.531-532.) Dr. Vistnes may not, on direct
examination, offer the opinion disclosed in the cited footnotes that there are other reasons why Sutter’s
rates are illegal. Dr. Vistnes may, on direct examination, state that in conducting the underlying analysis
he is not assuming that Sutter can set or collect prices equal to charges. (See ibid.) Any further disputes
regarding this opinion can be addressed at trial.

F. Regression Analyses

Sutter argues that Dr. Vistnes’ regression analyses offered to show the combined effect of all of
Sutter’s challenged practices must be excluded because: (1) Dr. Vistnes’ opinions about the non-par rate
must be excluded; and (2) the regression analyses do not address the effect of other challenged practices

which was drawn from the Brown Court’s summary of a holding in a federal case.
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UFCW & Employers Benefit Trust, et al. v. Sutter Health, et al. CGC-14-538451 Order re Three Motions to Excludeindependent from the effect of the non-par rate. (Motion, 18-19.) Sutter asserts that the regression
analyses cannot stand if any of the theories of impact included in the model fail. (See id. at 19 [citing
Comcast Corp. v. Behrend (2013) 569 U.S. 27, 36-37].) Plaintiffs respond that (1) “[A] mountain of
evidence shows the anticompetitive effects of the non-par rate[;]” and (2) Comcast is distinguishable
because Comcast involved four different theories of liability, three were rejected, and the effects of the
fourth could not be isolated, whereas here Plaintiffs have one theory of a single combined practice and
their model measures the impact of the combined practices. (Opposition, 14.)

Because the motion is denied as to Dr. Vistnes’ non-par rate opinions, it is also denied as to his
regression model. The court need not address whether Dr. Vistnes’ regression analysis would be viable
if the anticompetitive effect of the non-par rate cannot be proven.

G. Market Power

Sutter asks the court to exclude Dr. Vistnes’ opinions regarding Sutter’s market power for two
reasons. (Motion, 19-21.) First, Sutter asserts that Dr. Vistnes’ market power opinion is categorically
flawed because he excluded Kaiser from his definition of the market. (Jbid.) Sutter argues that Dr.
Vistnes’ approach was flawed because: (1) Dr. Vistnes excluded Kaiser from his SSNIP test; (2) Dr.
Vistnes improperly relies on Kaiser’s vertical integration in spite of Kaiser’s significant competitive
constraint on Sutter; and (3) Dr. Vistnes did not address record evidence demonstrating competition
between Kaiser and Sutter. (Jd. at 20-21.) Second, Sutter contends that Dr. Vistnes’ opinion about
Sutter’s market power in San Francisco is unreliable both because Kaiser was excluded and because
health plans can exclude Sutter’s San Francisco provider from their networks. (See id. at 21.)

Plaintiffs respond that Dr. Vistnes properly excluded Kaiser from the product market for two
reasons. First, Kaiser and Sutter are not in direct competition because Kaiser sells a different product — a
fully integrated package that includes insurance, physicians, and hospitals. (Opposition, 14.) Second,
Dr. Vistnes analyzed indirect competition between Kaiser and Sutter by applying a small but significant
non-transitory increase in price (“SSNIP”) test and found that indirect competition was insignificant. (/d.
at 14-15 [citing Report, 69-71].) Turning to Sutter’s arguments, Plaintiffs assert that: (1) Dr. Vistnes
considered Kaiser in defining the product market; (2) Dr. Vistnes was not required to note that some
employers offer a Kaiser option when there is no evidence that SFPs would reconfigure their benefits

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design to steer members to Kaiser in response to a small or slight price increase; (3) Dr. Vistnes
considered documents regarding alleged competition between Kaiser and Sutter but appropriately gave
them little weight; and (4) Kaiser’s potential impact on Sutter’s share of the San Francisco market does
not impact Dr. Vistnes’ market definition. (Jbid.)

In reply, Sutter contends, first, that Dr. Vistnes’ SSNIP test analyzed the wrong impact (on
enrollees instead of SFPs) in the wrong regions and ignores record evidence showing that SFPs can and
do incentivize their enrollees to select Kaiser plans. (Reply, 11 [citing Gowrisankaran Report ff 29, 33-
38, 92; Sutter’s Opposition to Motion to Exclude Gowrisankaran, 8-9, 16-17].) Sutter argues that the
opinion is inadmissible because it was based on an incomplete universe of information. (/bid. [citing
Sanchez v. Kern Emergency Med. Transp. Corp. (2017) 8 Cal.App.5th 146, 163-64.) Second, Sutter
asserts that the record has strong evidence that Sutter, non-Sutter providers, and insurers all considered
Kaiser as a significant competitor with Sutter that influenced Sutter’s pricing practices and offerings. (Id.
at 11-12 [citing Gowrisankaran Report { 30, 33, 46-56; Sutter’s Opposition to Motion to Exclude
Gowrisankaran, 5-7].) Third, Sutter argues that because Dr. Vistnes excluded Kaiser from the market
definition his market power definitions are unreliable, as Dr. Vistnes did not account for the lower
market share that Sutter would have if Kaiser were included. (Jd. at 12.)

For the reasons discussed below, Sutter’s motion to exclude Dr. Vistnes’ market power opinions is
denied.

1. Background Law

The relevant antitrust market is determined by considering commodities reasonably
interchangeable by consumers for the same purposes. (Exxon Corp. v. Superior Court (1997) 51
Cal.App.4th 1672, 1682.) In other words, “the relevant market is composed of products that have
reasonable interchangeability for the purpose for which they are produced.” (Ibid. [“reasonable
interchangeability for the purpose for which gasoline is produced (use in consumers’ motor vehicles)
mandates the relevant market be all gasoline, not the wholesale market for one brand of gasoline”].)

“The outer boundaries of a product market are determined by the reasonable interchangeability of
use or the cross-elasticity of demand between the product itself and substitutes for it.” (Queen City
Pizza, Inc. v. Domino’s Pizza, Inc. (3d Cir. 1997) 124 F.3d 430, [quoting Brown Shoe Co. v. U.S. (1962)

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370 U.S. 294, 325.) Interchangeability implies that one product is roughly equivalent to another for the
use to which it is put, while cross-elasticity of demand is a measure of substitutability of products from
the point of view of buyers. (Stubhub, Inc. v. Golden State Warriors, LLC (N.D. Cal. Nov. 5, 2015) 2015
WL 6755594, at *3.) When demand for the commodity of one producer shows no relation to the price
for the commodity of another producer, it supports the claim that the two commodities are not in the
relevant market. (Theme Promotions, Inc. v. News America Marketing FSI (9th Cir. 2008) 546 F.3d 991,
1002.)

“TA] SSNIP analysis asks whether a monopolist in the proposed market could profitably impose a
small but significant and nontransitory price increase. [Citation.] Ifa significant number of customers
would respond to a SSNIP by purchasing substitute products, the SSNIP would not be profitable for the
hypothetical monopolist. [Citation.] If a monopolist could not profitably impose a SSNIP, the market
definition should be expanded to include those substitute products that constrain the monopolist’s
pricing.” (Jbid.) The product market must be expanded until the hypothetical monopolist could
profitable impose a SSNIP. (U.S. v. Oracle Corp. (N.D. Cal. 2004) 331 F.Supp.2d 1098, 1112
[discussing the test in the context of a horizontal merger].)

2. Opinion that Kaiser does not Compete in the Same Market as Sutter

Dr. Vistnes opined that Kaiser is not a market participant that competes with Sutter providers.
(Report, 68-71.) Dr. Vistnes observed that Kaiser operates “one of the largest health plans in Northern
California.” (/d. at 68.) Dr. Vistnes explained that Kaiser’s system is a “‘closed system’ — Kaiser
providers are the only providers that Kaiser health plan members can use, and those providers are
unavailable to non-Kaiser members. Thus, health plans do not contract with Kaiser providers and those
Kaiser providers are never part of those health plans’ provider networks.” (See ibid.; see also
Gowrisankaran Report { 34 [“it is true that health plans do not substitute Kaiser hospitals for Sutter when
assembling a provider network”].) Accordingly, Dr. Vistnes concludes that Kaiser and Sutter do not
compete “in the same market” “for health plan contracts in Northern California.” (Report, 69; but see
Gowrisankaran Report { 34 [“employer groups and patients clearly do substitute between Kaiser and

non-Kaiser hospitals”].)"> To underscore that conclusion, Dr. Vistnes states that a Sutter price increase

3 Plaintiffs defined the product market as “the cluster of general acute care hospitals services, and the
. 15 -

UFCW & Employers Benefit Trust, et al. v. Sutter Health, et al. CGC-14-538451 Order re Three Motions to Excludewill never cause, and has never caused, a health plan to substitute from a Sutter provider to a Kaiser
provider because Kaiser providers are for the exclusive use of Kaiser enrollees, such that health plans
such as Anthem, Blue Shield, or Cigna cannot include Kaiser providers as part of the provider network
they make available to their own enrollees. (Report, 69.)

Dr. Vistnes acknowledged that individuals and plan employers “sometimes have the option of
choosing between a Kaiser health plan and other (non-Kaiser) health plans, and that if an individual
enrolls in a Kaiser health plan they will use Kaiser providers, while if the individual enrolls in a non-
Kaiser health plan they may be able to use a Sutter provider. Thus, in principle, there is an indirect
mechanism—choosing between a Kaiser health plan and non-Kaiser health plan—through which
individuals can choose between Kaiser and Sutter providers.” (Jd. at 70.) Nevertheless, Dr. Vistnes
concludes that “this indirect competition is so weak that it is proper to exclude Kaiser providers as
market participants that compete with Sutter providers.” (Jbid.)

To support that conclusion, Dr. Vistnes states that the “market definition test for whether Kaiser
should be included as a market participant involves asking whether a small (e.g., 5%) price increase by a
hypothetical monopolist would result in sufficient switching to Kaiser (through this indirect route
involving consumers switching health plans) that the price increase would be unprofitable. As shown
below, the magnitude by which a Sutter (or market) price increase would affect premiums is sufficiently
small that any switching to Kaiser would likely be extremely limited.” (Jbid.) Dr. Vistnes goes on to
explain why a 5% increase in hospital prices will cause a substantially smaller increase in a health plan’s
total costs, which will be unlikely to spur substitution considering both the magnitude of the transferred
increase in costs and the consequences of substituting from a traditional health plan to Kaiser. (Id. at 70-
71.)

Dr. Vistnes also acknowledges that his opinions are in “ostensible tension” with “references in
several documents to competition between Sutter and Kaiser.” (Id. at 69.) Dr. Vistnes opines that
“documents discussing how Kaiser ‘competes’ with Sutter do not necessarily mean, in a competitive

effects analysis, that Kaiser competes as a market participant in the same relevant antitrust market as

ancillary products provided in connection with those services, that are made available for purchase, in
whole or in part, out of the funds of Self-Funded Payors.” (See UEBT Complaint 71.)
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Sutter.” (Jd. at 69-70.)

Dr. Vistnes’ opinion is not susceptible to the three challenges Sutter made in its moving papers.
First, while Dr. Vistnes’ opinion that Kaiser and Sutter are not in competition for contracts with health
plans is predicated on Kaiser’s vertical integration, Dr. Vistnes addressed whether there was “indirect”
competition flowing from the fact that “individuals (and plan employers)” could choose between a Kaiser
health plan and other health plans. (Motion, 20.) Dr. Vistnes did not fail to consider the issue. Second,
the record does not demonstrate that Dr. Vistnes failed to consider evidence in conducting his analysis.
To be sure, Dr. Vistnes declined to be swayed by evidence that industry participants viewed Kaiser and
Sutter to be competitors. But the record does not show that he failed to consider evidence. (Compare
Sanchez v. Kern County Emergency Medical Transportation Corp. (2017) 8 Cal.App.5th 146, 163-64
[listing specific pieces of evidence expert failed to consider and identifying unsupported factual
assumptions]; Shiffer v. CBS Corp. (2015) 240 Cal.App.4th 246, 253-54 [proper to exclude causation
experts who did not review specific deposition testimony of “manifest import” on causation]; Property
California SCJLW Corp. v. Leamy (2018) 25 Cal.App.5th 1155, 1163-65 [expert opinion properly
excluded where, among other things, expert declaration had two “startling gaps” as a result of the failure
to review one specific group of documents and to secure information on one other issue].)'* Third, Dr.
Vistnes’ conclusion to exclude Kaiser from his SSNIP analysis applicable to the San Francisco market
flows from his foregoing opinions — he did not exclude Kaiser without analysis. (Compare Motion, 20
[citing Report, Appendix 3 at 3 n.10]; Report, 33, 69-71.)

Dr. Vistnes’ opinion will not be excluded based on the new argument in the reply brief, as those
arguments also are not persuasive. In the moving papers, Sutter did not address Dr. Vistnes’ discussion.
addressing whether there would be substitution to Kaiser in response to an increase in Sutter’s prices,
notwithstanding the fact that this opinion was disclosed in the same section of the Report at issue and
implicated by Sutter’s arguments. (Compare Motion, 19-21; Reply, 11, 11 n.9; with Report, 68-71.) In
their opposition, Plaintiffs described the analysis as a SSNIP analysis and asserted that Sutter had

'4 The moving papers cite to the Report, the relevant portion of which is described above, and an excerpt
of deposition testimony that was not filed with the moving papers. (Compare Motion, 20 [citing “Vistnes
257:1-259:2”; with Zeng Decl., Ex. 1(r).)

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“simply ignored” it. (Opposition, 14-15.)'5 In reply, Sutter asserted that the analysis is flawed and fails
to consider record evidence. (Reply, 11.) This assertion is based in turn on the Gowrisankaran Report,
which includes a sequence of four paragraphs that directly respond to Dr. Vistnes’ relevant analysis.
(See ibid.; Gowrisankaran Report ff 35-38].) :

Dr. Gowrisankaran asserted that Dr. Vistnes erred by: (1) describing the effect of the price
increase in terms of the individual plan member, rather than the SFP; and (2) calculating the price
increase applying an assumption that premiums would increase across the region. (Gowrisankaran
Report §{ 35-38.) First, although Dr. Vistnes described the impact of increased premiums in terms of
individual premium amounts, the record does not persuasively support the conclusion that Dr. Vistnes
failed to consider the aggregate impact of the price increase on an employer. (See Report, 70
[acknowledging that “individuals (and plan employers) sometimes have the option of choosing between a
Kaiser health plan and other (non-Kaiser) health plans], 71 [discussing “employers’ premiums”], 71
n.310 [noting impact of scale].) Second, Dr. Vistnes’ opinion does not rely on baseless assumptions
about geographic markets. Dr. Vistnes stated that the impact on price for an employer with members |
throughout the Bay Area would be smaller if Sutter increased prices in only one market.. (See Vistnes
Report, 71.) Dr. Gowrisankaran opined, effectively, that such employers would be able to substitute as to
only impacted employees. (Gowrisankaran Report J 37.) Which expert’s argument is better supported is
not presently clear and underscores why this is a disputed issue of fact to be resolved by the jury, not by
way of this motion. In any event, the record does not show that the assumption identified by Sutter is
one on which Dr. Vistnes’ ultimate conclusion relies. ,

3. San Francisco

Sutter argues that Dr. Vistnes’ opinion about Sutter’s market power in San Francisco is erroneous
because Dr. Vistnes failed to consider Kaiser. (Motion, 21.) This.argument is one application of the
argument addressed above. (Ibid.) Accordingly, it is rejected for the same reason. (Ibid.)'®

1/5 Sutter takes issue with describing the analysis as a SSNIP test. (See Reply, 11, 11 n.9; compare Repott,

70-71; with Report, Appendix 3.)

Sutter may also contend that Dr. Vistnes’ opinion regarding Sutter’s market power in San Francisco is
flawed as a result of UCSF’s market share. (/bid.) To the extent such an argument was intended, it was
not addressed in either the opposition or the reply. (Opposition, 15; Reply, 12 [suggesting that Sutter’s
argument was predicated on the effect of the inclusion of