Feds back lawsuit accusing Sutter Health of bilking Medicare for higher payments

The U.S. attorney general announced Tuesday that the Justice Department will take up a whistleblower lawsuit against Sacramento-based Sutter Health, alleging that the nonprofit medical provider manipulated diagnosis codes to get inflated payments from Medicare.

“Federal healthcare programs rely on the accuracy of information submitted by healthcare providers to ensure that patients are afforded the appropriate level of care and that managed care plans receive appropriate compensation,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “Today’s action sends a clear message that we will seek to hold healthcare providers responsible if they fail to ensure that the information they submit is truthful.”

Here’s what the U.S. Attorney General and whistleblower Kathleen Ormsby, a former employee of Palo Alto Medical Foundation, alleged in their legal complaint: Sutter and Palo Alto Medical intentionally submitted inaccurate diagnosis codes that inflated so-called risk scores given to each patients. Within Medicare, a patient’s risk score is determined by each beneficiary’s demographic information and health status. The more severe a diagnosis is, the higher a patient’s risk score will be.

Sutter released the following statement: “Sutter Health and PAMF are aware of the matter and take the issues raised in the complaint seriously. The lawsuit involves an area of law that is currently unsettled and the subject of ongoing lawsuits in multiple jurisdictions. We intend to vigorously defend ourselves against the allegations in the complaint.”

According to the news release from the Justice Department, both Sutter and Palo Alto Medical Foundation were apprised of what was happening, but executives did not take action to correct and delete the unsupported codes. The complaint relates to patients in the managed care insurance plan known as Medicare Advantage, or Medicare Part C. Medicare pays a set fee for treatment of each beneficiary, adjusting for the risk score.

“The share of Medicare beneficiaries enrolled in Medicare Advantage has steadily grown over the past decade, with 19 million beneficiaries enrolled in 2017,” U.S. Attorney Alex G. Tse said. “It is critically important that the data submitted to the Medicare Advantage program is truthful, because the government relies on this information to set payment levels. We will continue to guard government health programs from companies that improperly maximize their bottom line at taxpayer expense.”

Because the lawsuit was filed under seal, no contact information was available for Ormsby. As an employee of the Palo Alto Medical Foundation, she would have worked with the hundreds of physicians contracted to work in Sutter’s medical offices, clinics and hospitals.

The case, United States ex rel. Ormsby v. Sutter Health, et al, was filed under provisions of the False Claims Act in federal court in San Francisco. Under that law, private parties can sue on behalf of the government and receive a portion of any funds recovered, and it allows the government to intervene in such cases. That is what the DOJ did here.

This story was originally published December 11, 2018 at 3:22 PM.