The health care provider that operates Palo Alto Medical Foundation has agreed to pay the federal government $30 million to settle a major lawsuit for allegedly submitting false information about the health status of Medicare Advantage Plan beneficiaries, the U.S. Department of Justice announced Friday.
Palo Alto Medical Foundation operates a family medical clinic in Mountain View and a robotic surgery center at El Camino Hospital's Mountain View campus.
Sutter Health LLC, a California-based health care services provider headquartered in Sacramento, and several of its affiliated entities were sued for allegedly violating the federal False Claims Act by submitting inaccurate billing codes related to the patients' health status. The false claims allegedly netted Sutter millions of dollars in overpayments.
The DOJ filed a separate federal complaint in March of this year in support of a whistleblower lawsuit filed in March 2015 against Sutter and Palo Alto Medical Foundation alleging the same practices. Kathleen Ormsby, a former employee of the foundation, filed the 2015 lawsuit under whistleblower provisions of the False Claims Act, which permits private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The act also allows the government to intervene or join in whistleblower lawsuits.
Medicare offers a program called Medicare Part C, which has managed health care insurance plans called Medicare Advantage Plans owned and operated by private Medicare Advantage Organizations or MAOs. The program provides benefits to as many as one-third of Medicare beneficiaries, DOJ officials said in a statement. The Centers for Medicare and Medicaid Services adjusts payments to these plans based on demographic information and the health status of each beneficiary. Patients with more serious conditions receive a higher "risk score," which gets higher reimbursement rates from Medicare.
Sutter contracted with Medicare Advantage organizations to provide health care services to California beneficiaries who were enrolled in the organizations' plans. Sutter received a share of the payments the organizations received from Medicare for those patients. It allegedly submitted diagnoses codes for the patients to the organizations for services such as office visits and hospital stays. But the codes were for more serious diagnoses than patients had and resulted in the patients having higher risk scores. Sutter's reimbursement from the federal government was higher for those purported serious illnesses, according to the Department of Justice.
Last December, during a discussion over the allegations related to Palo Alto Medical Foundation, Sutter company officials appeared to be banking on a September 2018 court ruling that found the standards in the Overpayment Rule under the Affordable Care Act were inconsistent between Medicare Advantage and other Medicare programs. Medicare Advantage plans contain more diagnosis codes than in traditional Medicare, which could lead to "overpayments" when compared to traditional Medicare costs for the same patient, the court noted. While the False Claims Act applies to willful false coding, the Overpayment Rule has a broader standard under which it penalizes the Medicare Advantage organizations.
But if the government proved that Sutter "knowingly" provided false information as defined under the False Claims Act, Sutter could be held liable for the overpayments.
On Friday, federal officials maintained that Sutter knowingly submitted the claims with the incorrect codes.
"Misrepresenting patients' risk results in higher payments and wasted Medicare funds," Steven J. Ryan, special agent in charge with the Office of Inspector General for the U.S. Department of Health and Human Services, said in a press release. "With some one-third of people in Medicare now enrolled in managed care Advantage plans, large health systems such as Sutter can expect a thorough investigation of claimed enrollees' health status."
The DOJ noted that claims resolved by the settlement are only allegations, and had no determination of liability.
Other Sutter entities involved in the settlement include Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation and Sutter Medical Foundation.
Sutter didn't respond to questions on how or if the $30 million cost might affect patient services at Sutter facilities, but did provide an email statement on the settlement as a whole.
"This settlement reflects our decision to resolve a dispute with the federal government over whether Sutter Health and certain affiliated medical foundations received overpayments after submitting claims for reimbursement through the Medicare Advantage program," said Lisa Page, vice president of communications and public relations for Sutter.
"As the Department of Justice noted in its press release, the claims being resolved are allegations only, and neither Sutter nor its affiliated medical foundations admit any liability. With respect to the reimbursement claims at issue in the pending litigation, we look forward to the opportunity to explain why neither Sutter Health nor Palo Alto Medical Foundation violated the False Claims Act," Page said.