Legal, Hospitals, Payers

Sutter Health to pay $90M to resolve False Claims allegations

The California-based health system will pay a hefty price to resolve allegations that it knowingly submitted inflated diagnosis codes for certain Medicare Advantage beneficiaries to receive higher payments. Sutter Health does not admit any liability in the matter.

Sutter Health has agreed to pay $90 million to settle allegations that it committed Medicare Advantage fraud.

The settlement resolves claims brought under the whistleblower provisions of the False Claims Act by Kathy Ormsby, a former risk adjustment project manager at the Sacramento, California-based health system. This is the second-largest reported Medicare Advantage fraud settlement ever, according to Ormsby’s legal team.

The lawsuit, filed in 2015, alleged that Sutter Health knowingly submitted unsupported diagnosis codes for certain Medicare Advantage beneficiaries to the Centers for Medicare & Medicaid Services. As a result, the health system received inflated payments.

Further, even after Sutter Health became aware of these unsupported codes, it did not take sufficient action to correct them, according to the lawsuit, in which the government intervened.

CMS pays MA plans on a per-person basis to provide Medicare-covered services to beneficiaries. MA plans usually receive larger payments for beneficiaries with more severe diagnoses. Sutter Health, which is contracted to provide services to certain California-based MA beneficiaries, received a portion of the payments in exchange.

“The government relies on healthcare providers, including those furnishing services to Medicare Part C beneficiaries, to submit accurate information to ensure proper payment,” said Deputy Assistant Attorney General Sarah E. Harrington of the Justice Department’s Civil Division, in a news release posted on Monday. “Today’s result sends a clear message that we will hold healthcare providers responsible if they knowingly provide or fail to correct information that is untruthful.”

The fraud claims were partially resolved in April 2019 for $30 million, according to a statement posted on Sutter Health’s website. The settlement announced on Monday is a follow-on agreement, per which Sutter will pay an additional $60 million to fully resolve the litigation. The health system does not admit any liability.

But, as part of the resolution, the health system has concurrently entered into a corporate integrity agreement, or CIA, with the DOJ’s Office of Inspector General. One of the main requirements of the CIA is that Sutter Health implements a centralized risk assessment program and hires an independent organization to annually review a sample of its MA patients’ medical records and associated diagnoses data.

“Today’s agreements bring closure to a long-running dispute, allowing Sutter to avoid the uncertainty and further expense of protracted litigation, and enabling a constructive relationship with the government as we work together under the CIA,” Sutter said.

Under the whistleblower provisions of the False Claims Act — which state that a private party can file an action on behalf of the United States and receive a portion of any recovery — Ormsby is entitled to between 15% and 30% of the settlement amount, her legal team said in a statement.

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