Sutter Health Agrees to Pay $90 Million in Settlement for False Claims Violation Case

Sutter Health Agrees to Pay $90 Million in Settlement for False Claims Violation Case

The United States Department of Justice (DOJ) has marked yet another milestone in its mission to curb financial crime and fraud, especially in the country’s healthcare sector.

Recently, the agency announced that it had reached a fraud case settlement with Sutter Health - a major medical service provider in the country.

Changing Patient Records to Profit

Sutter Health is based out of Sacramento. It is the largest hospital system in northern California, with hundreds of millions in annual revenues. In an official statement, the Justice Department confirmed that it had settled with the healthcare company after it was found to have violated the False Claims Act.

As the release explained, Sutter Health had made significant false statements, misrepresenting the severity of its patients’ medical conditions. The crime appeared to have been all-encompassing, with several subsidiaries of Sutter Health also engaging in the activity. These include Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, and Sutter Valley Medical Foundation.

Sutter Health had capitalized on Medicare Advantage - an amendment to the Medicare program where Medicare beneficiaries would be allowed to enroll in managed health care insurance plans. These plans - known as Medicare Advantage Plans - are paid a one-person amount to cover their beneficiaries’ Medicare-covered benefits. The payments are usually based on available demographic information, as well as the health status of the beneficiary in question. But, the rule of thumb is that patients with more severe healthcare issues get more payments.

In its case, Sutter Health was under contract to onboard some of these patients. In exchange, the company will get a portion of the payments for treating its beneficiaries.

Looking to capitalize on this, Setter Health and its subsidiaries had submitted unsupported diagnosis codes for several patients. These codes caused payment discrepancies for Sutter Health, with the company getting much higher payments than it was due. In addition, the Justice Department claimed that most of these false diagnoses were made by Sutter Health’s subsidiaries. However, when the company was made aware of the subsidiaries’ activities, it refrained from doing anything to rectify the situation.

Kathleen Ormsby Takes Sutter Health to Task

As expected, these criminal enterprises never last. Sutter Health was eventually done following a complaint filed by Kathleen Ormsby - a former employee at the Palo Alto Medical Foundation. Kathleen Ormsby and her attorneys claimed that Sutter Health had engaged in the activity between 2015 and 2016.

According to reports, Ormsby was hired by Sutter Health in 2013, with her primary job being to compile benefit codes with patient records. However, she found that there were significant discrepancies in these records. These showed that Sutter Health was getting much more than it should have been. She pointed the discrepancies out to her superiors, but they instead shut her audit program down. But, after she found that several of Sutter Health’s affiliates had been engaging in the same wrong acts, she determined to raise the alarm.

Kathleen Ormsby eventually filed a complaint under the False Claims Act. The Act, which the Abraham Lincoln administration initiated, posits that any private institution can file an action on behalf of the U.S. government against a company that is actively degrading the government. Ormsby had sued Sutter Health, but the federal government eventually intervened in the case.

Under the False Claims Act, private individuals who offer vital information to the government will be able to get between 15 and 30 percent of the proceeds gotten from criminal organizations. In the event of any additional discovery, they will also be able to get any funds recovered.

Sutter Faces the Music

As for Sutter Health, the company and all its involved subsidiaries have agreed to pay $90 million. This would make Katheleen Ormsby eligible for more than $10 million as a result.

Speaking on the case, Sarah E. Harrington, the Deputy Assistant Attorney-General of the Justice Department’s Civil Division, said,

“The government relies on health care providers, including those furnishing services to Medicare Part C beneficiaries, to submit accurate information to ensure proper payment. Today’s result sends a clear message that we will hold health care providers responsible if they knowingly provide or fail to correct information that is untruthful.”

Besides the financial penalty, Sutter Health - as well as the Sutter Bay Medical Foundation and the Sutter Valley Medical Foundation - will be placed under supervision as part of a five-year Corporate Integrity Agreement (CIA) with the Office of the Inspector-General at the Department of Health and Human Services (HHS-OIG).

Sutter Health will implement a centralized risk assessment program as part of the compliance measures, and it will hire an Independent Review Organization to assess its Medicare Advantage patients’ medical records.


David Kani

David Kani is a Southern California based trial lawyer with a focus on class actions and whistleblower (False Claims Act, SEC and others) cases.

To connect with David: [hidden email] or 714-907-0697.
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