Feds Join Lawsuit Alleging Sutter Health Padded Revenue With False Patient Data


The U.S. Justice Department said Tuesday it was joining a lawsuit accusing Sutter Health of submitting falsehoods concerning the health of certain Medicare patients to be able to inflate payments from the government.

The Sacramento-based hospital chain, one of the largest in the united states, can also be fighting an antitrust lawsuit brought earlier this year by California Attorney General Xavier Becerra.

“Federal healthcare programs depend on the precision of information submitted by healthcare providers to make sure that people are afforded the right level of care which managed care plans receive appropriate compensation,” Assistant U.S. Attorney General Jody Hunt said in a news release.

This civil lawsuit, Hunt said, “sends a definite message that we will seek to hold healthcare providers responsible when they neglect to be sure that the information they submit is truthful.”

At issue is how Sutter Health and its affiliate Palo Alto Medical Foundation diagnosed patients signed up for Medicare Advantage, which covers about one-third of Medicare beneficiaries nationwide. This program is funded through the government but offers health plans through private insurers.

The lawsuit says Sutter, which has about 48,000 Medicare Advantage enrollees, is liable for at least “hundreds of countless dollars” in restitution, damages and penalties.

The complaint alleges that Sutter submitted unsupported diagnoses, which overstated the medical chance of patients and led to inflated payments.

Sutter spokeswoman Liz Madison said within an emailed statement the company takes the lawsuit seriously and promises to “vigorously defend ourselves from the allegations.”

Madison also noted the lawsuit involves a place of unsettled law that is the subject of ongoing litigation in multiple jurisdictions. A September ruling by a federal judge within the District of Columbia has put into question how the government handles Medicare overpayments.

Sutter isn't first to be scrutinized for its billing practices.

Earlier this season, DaVita, one of the nation's largest dialysis providers, decided to pay $270 million to stay charges that one of their affiliates submitted improper medical codes to Medicare, allowing health plans to receive higher payments. And at least a half-dozen whistleblowers have sued health plans alleging they tampered with the billing formula to improperly boost profits.

The Sutter case comes from a sealed whistleblower complaint filed three years ago by Kathleen Ormsby, an old employee from the Palo Alto Medical Foundation. The Justice Department chose to occupy the situation after conducting its own investigation.

“This intervention illustrates our resolve for protecting the integrity from the Medicare Advantage program,” said U.S. Attorney Alex G. Tse for the Northern District of California. “We will continue to protect government health programs from firms that improperly maximize their bottom line at taxpayer expense.”

Sutter owns 24 hospitals and 36 surgery centers and contracts with more than 5,500 physicians across its network. The health system reported an operating revenue of $12.4 billion in 2021 and posted net income of $893 million this past year.

The company's dominance in Northern California has drawn concern among patient advocates and lawmakers within the rising cost of care in the region. Critics say consolidation has given Sutter a lopsided competitive advantage, allowing it to increase prices.

Whether the alleged “upcoding” through the Palo Alto Medical Foundation increased out-of-pocket costs for patients is unclear, because different Medicare Advantage plans have different cost-sharing and coverage options, said Tatiana Fassieux, a consultant for California Health Advocates.

In addition to lawsuits in the state and federal government, Sutter faces two other major suits – from employers and consumers – alleging anticompetitive conduct and inflated pricing. Sutter denies the charges, as well as in court papers it has accused Becerra of the “sweeping and unprecedented effort to intrude into private contracting.”