Sutter Health settles Medicare overcharge claims for $90 million

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Doctors and nurses staff their stations at the Sutter Health Valley Area eICU, amid the coronavirus outbreak in Sacramento, California, September 3, 2020. Nathan Frandino/Reuters

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  • Deal believed to be largest in FCA case against hospital system over Medicare Advantage
  • Resolves 2015 whistleblower suit alleging Sutter used unsupported diagnosis codes

(Reuters) - California-based hospital operator Sutter Health has agreed to pay $90 million to settle claims that it overcharged the federal government by misrepresenting the health of patients enrolled in privately administered Medicare Advantage plans.

The settlement, announced Monday by the U.S. Department of Justice, resolves a 2015 whistleblower lawsuit brought under the federal False Claims Act by Kathy Ormsby, a former employee of Sutter affiliate Palo Alto Medical Foundation, in San Francisco federal court.

According to Ormsby's attorneys, it is the largest settlement of an FCA case against a hospital system over alleged Medicare Advantage fraud, and the second-largest Medicare Advantage fraud settlement ever reported overall.

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"This case is an important example of whistleblowers and their lawyers partnering with the government to bring extra expertise and legal firepower to the fight against fraud," Mark Kleiman of Kleiman Rajaram, one of the lawyers, said in a statement.

"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," Deputy Assistant Attorney General Sarah Harrington, of the Justice Department's Civil Division, said in a statement.

Sutter, which is represented by Katherine Lauer and Amy Hargreaves of Latham & Watkins, said the deal brings "closure to a long-running dispute, allowing Sutter to avoid the uncertainty and further expense of protracted litigation."

Medicare Advantage, also known as Medicare Part C, is a program under which patients enroll in privately run managed-care plans to receive benefits.

The federal Centers for Medicare and Medicaid Services pays those plans a fixed amount per patient adjusted for the patients' individual risk factors, which is determined based on diagnosis codes submitted by providers. For example, diagnoses of diabetes or congestive heart failure would result in higher payments.

Ormsby and the government alleged that, beginning around 2010, Sutter knowingly submitted unsupported diagnosis codes for some patients, leading to inflated payments, and did not take sufficient corrective action after becoming aware of the unsupported codes.

In addition to the payment, the settlement includes a five-year corporate integrity agreement under which Sutter must institute a centralized risk assessment program and hire an outside organization to review a sample of its patient diagnostic data each year.

Ormsby is expected to get 15% to 30% of the settlement under the FCA, though the exact share has not yet been determined.

The deal comes a month after the federal government joined a similar Medicare Advantage overbilling lawsuit against hospital giant Kaiser Permanente.

The case is United States ex rel. Ormsby, U.S. District Court, Northern District of California, No. 15-cv-01062.

For Ormsby: Kathleen Scanlan and Jeffrey Keller of Keller Grover, Gordon Schnell of Constantine Cannon and Mark Kleiman of Kleiman Rajaram

For the government: Olga Yevtukhova, Jennifer Koh, Thomas Morris and Lyle Gruby of the U.S. Department of Justice Civil Division; and Assistant U.S. Attorney Benjamin Wolinsky of the Northern District of California

For Sutter: Katherine Lauer and Amy Hargreaves of Latham & Watkins

Read more:

Federal government joins overbilling lawsuits against Kaiser Permanente

(CORRECTION: The spelling of Amy Hargreaves' name has been corrected.)

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Brendan Pierson reports on product liability litigation and on all areas of health care law. He can be reached at brendan.pierson@thomsonreuters.com.