Sutter Will Pay $30 Million to Settle Allegations that it Overcharged Medicare

Sacramento-based Sutter Health and four of its affiliates agreed to pay out $30 million to the federal government to settle allegations that it had overcharged for services provided patients covered by Medicare’s managed care plan, the U.S. Department of Justice announced Friday.

“With some one-third of people in Medicare now enrolled in managed care…plans, large health care systems such as Sutter can expect a thorough investigation of claimed enrollees’ health status,” said Steven J. Ryan, special agent in charge with the Office of Inspector General for the U.S. Department of Health and Human Services.

The managed care plan, known as Medicare Advantage, pays a per-person fee to health insurance plans to provide care to enrolled beneficiaries. The U.S. Centers for Medicare and Medicaid Services adjusts those capitation fees based on the health status and demographic information of each enrollee. Commonly referred to as risk scores, these adjustments pay more for patients who have a more severe diagnosis.

Sutter and its affiliates — Sutter East Bay Medical FoundationSutter Pacific Medical FoundationSutter Gould Medical Foundation, and the Sacramento region’s Sutter Medical Foundation — contract with the health insurance plans to care for Medicare Advantage beneficiaries. In exchange, the health plans paid Sutter a portion of the payments received from CMS.

The Department of Justice alleged that Sutter and its affiliates had submitted diagnosis codes that inflated the risk scores for certain beneficiaries in their care. The settlement resolves the claims but does not assign any liability to Sutter.

Lisa Page, vice president of communications and public relations, said the settlement reflects Sutter’s decision to put an end to the dispute with the federal government.

“As the Department of Justice noted in its press release, the claims being resolved are allegations only, and neither Sutter nor its affiliated medical foundations admit any liability,” Page said.

This settlement does not settle a whistleblower lawsuit brought by Kathleen Ormsby, a medical coder who worked for two years at the Palo Alto Medical Foundation, a Sutter affiliate. She alleged that Sutter and Palo Alto Medical intentionally submitted inaccurate diagnosis codes that inflated risk scores given to patients.

The U.S. Justice Department announced in December that it would take up Ormsby’s case, filed under the federal False Claims Act, against the nonprofit medical provider, and it is ongoing. As a whistleblower, Ormsby could receive as much as 25 percent of any settlement or judgment if DOJ comes out on top.

Page said: “With respect to the reimbursement claims at issue in the pending litigation, we look forward to the opportunity to explain why neither Sutter Health nor Palo Alto Medical Foundation violated the False Claims Act.”

Ormsby’s attorney, Jeffrey Keller, said his client has 20 years of experience in her field, and her job included doing selective audits to determine whether Medicare billings were accurate. She alleged in the court filing that she found numerous errors, Keller said, and when she reported them to her managers, her findings were ignored.

“This case has been under seal for two years,” Keller said. “She’s not been able to speak to anybody about this case. She’s carrying a heavy load. She’s having to travel, have meetings (with the DOJ), and you can’t tell anyone why you’re talking to certain people, why you’re talking to lawyers, why you’re meeting with government agents. It’s a heavy lift.”


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