Sutter Health to pay $30 million to settle secret kickback lawsuit; whistleblower to get slice

Sutter Health has agreed to pay more than $30 million to the federal government after an executive at the Sacramento-based health care giant accused Sutter of paying out millions of dollars in kickbacks to doctors in exchange for patient referrals, one of the lawyers in the case said Thursday.

UPDATE: Another Sutter kickback settlement announced Friday brings total payout to $46 million

The agreement settles a secret lawsuit filed against Sutter Health in September 2014 by the federal government and Laurie Hanvey, the whistleblower who once worked for Sutter as its compliance officer.

The lawsuit, which was filed in federal court in San Francisco and remained sealed until Thursday, claims Sutter paid out millions to doctors in Sacramento and elsewhere in California to induce them to refer patients to Sutter hospitals in violation of federal and state anti-kickback statutes.

Sutter “knowingly submitted thousands of false claims to the United States and state of California which resulted in millions of dollars of government reimbursement that would not have been paid but for defendant’s misconduct,” the 71-page lawsuit states.

“Treatment decisions should be based on the interests of patients and not the interests of doctors or hospitals,” Hanvey’s Davis-based attorney, Michael Hirst, said. “When kickbacks are paid and received, patients are right to worry whether recommended procedures at recommended hospitals are reasonable and necessary.”

Hirst, who specializes in whistleblower cases, added that “Hanvey wouldn’t accept what she knew was wrong.”

Whistleblower was compliance officer

Hirst said that under terms of the agreement, the government will pay $5.795 million to Hanvey and her attorneys from the money recovered from Sutter as a result of her bringing her claims to government officials’ attention. Hirst filed the suit with Atlanta attorneys Marlan Wilbanks and Scott Withrow.

In a statement issued Thursday evening, Sutter officials said the settlement resolves overpayments that Sutter had received from the federal Centers for Medicare & Medicaid Services. The company has not conceded any wrongdoing as part of the settlement, Sutter leaders noted in the statement.

The lawsuit alleges a pattern of wrongdoing involving Sutter and a number of medical practices in Sacramento, Modesto, the Bay Area and elsewhere.

Hanvey, who spent 25 years working as a compliance officer for various hospitals, started working for Sutter in September 2012, and within 13 months began to question payments and time sheets that were brought to her attention by a specialist in accounts payable, the lawsuit says.

Hanvey discovered one medical group – Sacramento Cardiovascular Surgeons Medical Group Inc. – had billed Sutter for more than 40 hours a week for five full weeks every month, the suit says.

She also discovered that “the time sheets had falsely recorded non-work items such as vacations as being time spent at work,” the suit says.

Feds: Surgeons’ group double-dipped

According to the lawsuit, Sacramento Cardiovascular, a group of three surgeons, cut a deal with Sutter starting in 2006 that provided free physician assistants to the group in exchange for the surgeons referring patients to Sutter hospitals.

Sutter agreed to pay each of the assistant’s salaries of $170,000 annually, while Sac Cardio “did in fact bill third party payers, including Medicare,” for some of the assistants’ services.

Sutter also agreed to make payments to the surgeons “for services allegedly performed by each,” the suit says.

The health care non-profit also agreed to pay more than $900,000 to the group for “call coverage agreements” that were “ostensibly to assure the availability of cardiovascular surgeons to provide emergency services on a 24-hour basis.”

The result of that agreement was the exclusion of all other cardiovascular surgeons on staff at Sutter Medical Center in Sacramento, the suit says.

By June 2014, Hanvey had become suspicious enough to order a halt to payments under the agreements “pending further investigation,” a move that prompted a call from one of the Sac Cardio surgeons, Dr. James Longoria, to the assistant for Sutter’s president and CEO, the suit says.

“Dr. Longoria threatened to shut down the operating rooms if the payment stop was not lifted,” the lawsuit says, and “Sutter Health gave in to Dr. Longoria’s threat,” immediately sending the payments by Federal Express.

Sac Cardio and Longoria did not immediately respond to a request for comment, but the medical group also entered into a settlement agreement – without admitting liability – that calls for it to pay the government $506,000, with $96,140 of that to go to Hanvey, Hirst said.

Recent settlements by Sutter, others

The lawsuit against Sacramento-based Sutter, which employs 5,000 doctors and 48,000 employees and operates 24 hospitals, spells out similar allegations of payments to other doctors through the capital region and elsewhere in Northern and Central California. Allegations regarding those defendants are pending.

The “fraud scheme,” as the suit calls it, accuses Sutter of “paying or providing unlawful kickbacks, excessive compensation, free employees and other illegal incentives to physicians who refer patients to Sutter Health in violation of federal law” by submitting phony bills to Medicare and Medicaid.

The case is the second whistleblower lawsuit Sutter has agreed to settle in recent months.

In April, Sutter announced it would pay out $30 million in a separate whistleblower lawsuit filed by one of its former medical coders, Kathleen Ormsby, who alleged that Sutter had overcharged for services provided to patients covered by Medicare’s managed care plan.

Sutter did not admit any liability in that case but settled the suit on behalf of itself and its affiliates: Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation, and Sacramento’s Sutter Medical Foundation.

The latest case is the second major one in Sacramento involving allegations of kickback schemes at area medical offices.

In October, a Sacramento nurse who worked at Dignity Health’s Mercy General Hospital pleaded guilty in a huge Medicare kickback investigation and agreed to cooperate with authorities.

John Eby, 46, pleaded guilty to two counts charging him with receiving kickbacks in a plot that prosecutors say involved more than 8,000 Medicare claims totaling $31 million.

In April, Sutter announced it would pay out $30 million in a separate whistleblower lawsuit filed by one of its former medical coders, Kathleen Ormsby, who alleged that Sutter had overcharged for services provided to patients covered by Medicare’s managed care plan.

Sutter did not admit any liability in that case but settled the suit on behalf of itself and its affiliates: Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation, and Sacramento’s Sutter Medical Foundation.

Also last month, state Attorney General Xavier Becerra reached a settlement for an undisclosed amount with Sutter over alleged antitrust practices, abruptly halting a widely-monitored trial set to ramp up in San Francisco. A final approve on the case, which was filed in March 2018, was still months away, the Department of Justice said.

This story was originally published November 14, 2019 at 3:53 PM.