Healthy Choices

Sutter Health agrees to $46 million settlement for billing practices

Sutter Health announced Monday it will pay $46 million to settle a whistle-blower lawsuit that state Insurance Commissioner Dave Jones says exposed a practice of double-billing for anesthesia services.

By agreeing to the out-of-court settlement, which Jones says is a record for his office, Sutter Health, one of the largest hospital chains in California, avoids a costly trial that was scheduled to take place in Sacramento Superior Court later this month.

While they did not admit to any wrongdoing, Sutter officials did not dispute details of the case, which became public when a billing auditor, Rockville Recovery Associates, filed a lawsuit in 2009. The Department of Insurance joined the suit in 2011.

Sutter Health spokesman Bill Gleeson said its anesthesia billing methods follow industry standards and are used by some 90 percent of California hospitals, in accordance with federal and state rules.

“It’s a very common method by which most of California hospitals deliver and bill anesthesia,” Gleeson said. “But the insurance commissioner believes that the new method we embrace will be clearer and more predictable to payers and consumers – and we agree.”

At issue is a method of billing that’s termed chronometric, meaning it’s based on the amount of time it takes to complete a procedure. Jones said Sutter layered this charge on top of another charge for use of the operating room, a separate bill from the anesthesiologist, and, sometimes, a fourth bill for the medication.

“In our view, there was double-billing – and a lack of transparency,” said Jones. “This will result in significant reforms that move Sutter away from duplicative billing and ultimately give payers and consumers better information so they can better negotiate their bills.”

The whistle-blower lawsuit alleged that Sutter included a false and misleading charge in its surgery bills. Using the time-based billing method, Sutter often added thousands of dollars for each operation, yet the services covered were allegedly already captured in the separate operating room charge, Jones said.

Starting as early as January, Sutter will discard the controversial time-based billing system and rely on flat fees. Sutter officials also said they will post explanations of their charges online to inform patients about what’s included in the fees.

Jones said he hopes this will usher in a new era of transparency, ultimately allowing consumers to compare prices at hospital websites and also compare profit margins. “Sutter will have to disclose a flat fee and also the actual cost of the services so consumers can see the difference in markups of the prices,” he said.

Another significant reform, Jones said, is the agreed-upon elimination of any language between Sutter and its auditors that limit the payers’ – or insurance companies’ – ability to challenge charges as erroneous or false.

The settlement affects Sutter Health, which operates about 20 hospitals in Northern California, and Marin General Hospital, a member of Sutter Health during the period of alleged misconduct but independent since 2010.

The settlement payment will be divided between the whistle-blower, Rockville Recovery Associates, and the state. The state’s portion includes $20 million for investigation and prevention of insurance fraud.

In addition, two other defendants, MultiPlan Inc. and Private Healthcare Systems Inc. agreed to pay a combined settlement of $925,000 for allegedly restricting payers’ ability to challenge Sutter’s charges, the Insurance Department said.

Jones said it’s up to other hospital systems to follow Sutter’s example and change their billing practices, saying he believes the terms of the settlement “provide a particular path for how to move forward.” Jones said he commends Sutter for making the right choice in agreeing to the settlement and its terms.

Meanwhile, the California Hospital Association, which said it was initially “surprised and disappointed” by the whistle-blower lawsuit, said a large majority of California hospitals bill for anesthesia in the same manner as Sutter.

C. Duane Dauner, the president and CEO of the state hospital association, joined Sutter officials in contending that Sutter’s billing practices were legal under state and federal guidelines.

Still, he said, “In an era when health care providers are working diligently to improve quality and reduce costs, lawsuits such as these are an unfortunate diversion of resources better spent on patient care, needed equipment and wages and benefits for employees.”

Dauner predicted that Sutter’s decision to bill a flat-rate fee rather than a time-based charge could lead to changes throughout the industry.

“To the extent this approach serves to simplify or provide more transparency and predictability for patients, hospitals will likely evaluate the benefits of following a similar methodology,” he said.