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Press Release

Government Intervenes In False Claims Act Lawsuit Against Sutter Health And Palo Alto Medical Foundation For Mischarging The Medicare Advantage Program

For Immediate Release
U.S. Attorney's Office, Northern District of California

SAN FRANCISCO – The United States has intervened in a complaint against Sutter Health LLC, a California-based healthcare services provider, and an affiliated entity, Palo Alto Medical Foundation, (collectively “Sutter”) that alleges that Sutter violated the False Claims Act by submitting inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage Plans, the Justice Department announced today.  Sutter Health is headquartered in Sacramento, California. 

“This intervention illustrates our commitment to protecting the integrity of the Medicare Advantage program,” said U.S. Attorney Alex G. Tse.  “The share of Medicare beneficiaries enrolled in Medicare Advantage has steadily grown over the past decade, with 19 million beneficiaries enrolled in 2017.  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.”

“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.” 

Under Medicare Advantage, also known as the Medicare Part C program, Medicare beneficiaries have the option of enrolling in managed healthcare insurance plans called Medicare Advantage Plans (MA Plans) that are owned and operated by private Medicare Advantage Organizations (MAOs).  MA Plans are paid a capitated, or per-person, amount to provide Medicare-covered benefits to beneficiaries who enroll in one of their plans.  The Centers for Medicare and Medicaid Services (CMS), which oversees the Medicare program, adjusts the payments to MA Plans based on demographic information and the health status of each plan beneficiary.  The adjustments are commonly referred to as “risk scores.”  In general, a beneficiary with more severe diagnoses will have a higher risk score, and CMS will make a larger risk-adjusted payment to the MA Plan for that beneficiary.

Sutter Health, a non-profit public benefit corporation that provides healthcare services through affiliated entities, including hospitals and medical foundations, contracted with certain MAOs to provide healthcare services to California beneficiaries enrolled in the MAOs’ MA Plans.  In exchange, Sutter received a share of the payments that the MAOs received from CMS for the beneficiaries under Sutter’s care.  

Sutter submitted diagnoses to the MAOs for the MA Plan enrollees that they treated.  The MAOs, in turn, submitted the diagnosis codes to CMS from the beneficiaries’ medical encounters, such as office visits and hospital stays, and these diagnosis codes were used by CMS to calculate a risk score for each beneficiary. 

The lawsuit alleges that Sutter Health and Palo Alto Medical Foundation knowingly submitted unsupported diagnosis codes for certain patient encounters for beneficiaries under their care.  These unsupported diagnosis scores allegedly inflated the risk scores of these beneficiaries, resulting in inflated payments to Sutter.   The lawsuit further alleges that once the Sutter entities became aware of these unsupported diagnosis codes, they failed to take sufficient corrective action to identify and delete additional potentially unsupported diagnosis codes. 

The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery.  The False Claims Act also permits the government to intervene in such lawsuits, as it has done in this case.  The whistleblower, Kathleen Ormsby, was a former employee of Palo Alto Medical Foundation. 

This matter was investigated by the Civil Division’s Commercial Litigation Branch, the United States Attorney’s Office for the Northern District of California, and HHS-OIG.     

The claims in which the United States has intervened are allegations only, and there has been no determination of liability. 

Updated December 11, 2018