Settlement Made San Francisco Medicare-Fraud Practice Lawsuit

Aug. 31—SAN FRANCISCO — A civil settlement Monday resolved a lawsuit that had alleged a major health care provider knowingly gave incorrect information about Medicare beneficiaries' health status, the U.S. Justice Department said.

The lawsuit, brought under whistleblower provisions of the False Claims Act against Sacramento-based Sutter Health and several affiliated medical foundations, alleged the company violated the act while handling information about Medicare beneficiaries, who would enroll in managed health-care insurance plans.

After Sutter provided services to enrollees in certain plans, it received part of the payments for treating them, with those payments based on beneficiaries' demographic information and health status, as well as generally increasing based on severity of diagnoses.

"The government alleged that Sutter Health knowingly submitted unsupported diagnosis codes for certain patient encounters for beneficiaries under its care. These unsupported diagnosis codes caused inflated payments to be made to the [p]lans and to Sutter Health," a Justice Department statement said in part.

"The lawsuit further alleged that, once Sutter Health became aware of these unsupported diagnosis codes, it failed to take sufficient corrective action to identify and delete additional unsupported diagnosis codes."

Federal officials weighed in on the settlement.

"Today's settlement exemplifies our commitment to fighting fraud in the Medicare program," Acting U.S. Attorney Stephanie M. Hinds for the Northern District of California said. "Health care providers who flout the law need to know that my office will hold accountable those who pad their bottom line at taxpayer expense."

As part of the settlement, Sutter and two of its medical foundations will enter a five-year corporate integrity agreement with the U.S. Department of Health and Human Services' Office of Inspector General, meant to ensure the company puts in place a risk-assessment program and hires an independent organization to review samples of its patients' medical records and diagnosis data.

The suit, filed initially in 2015 by Kathleen Ormsby, a former employee of Sutter-affiliated Palo Alto Medical Foundation, was partly resolved for $30 million in April 2019, with Sutter paying an additional $60 million for full resolution without admitting any liability, Sutter said in a statement Monday.

"Today's agreements bring closure to a long-running dispute, allowing Sutter to avoid the uncertainty and further expense of protracted litigation, and enabling a constructive relationship with the government as we work together under the [agreement]," Sutter said in part.

Kathleen Scanlan, who works for Keller Grover, a San Francisco-based law firm that represented Ormsby alongside whistleblower-specialist law teams from Constantine Cannon and Kleinam Rajaram, praised her actions in a statement.

"Today's settlement is a terrific victory for taxpayers. Kathy Ormsby was the catalyst behind the return of nearly a hundred million dollars to a program we all fund to provide cost-effective healthcare to the most vulnerable in our communities, the elderly," Scanlan said. "Her case also sends a powerful message to other healthcare providers in the Part C program: gaming a patient's RAF score is fraud, and you can be held responsible for it under the False Claims Act."

Ormsby is entitled to between 15 to 30 percent of the settlement amount under the act's whistleblower reward provision "for her vital role in bringing this matter forward and helping secure this record settlement for the government," according to a law firm statement Monday.

Anyone with tips or complaints about possible abuse, fraud, waste or mismanagement covered under the False Claims Act may call the Health and Human Services Department's tip line at 800-447-8477.

Contact George Kelly at 408-859-5180.

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