Sutter Health Reaches Largest FCA Settlement Against Hospital System for Alleged MA Fraud

Major California hospital system Sutter Health is settling whistleblower allegations of risk adjustment fraud for $90 million, the largest False Claims Act settlement against a hospital system for alleged fraud in the Medicare Advantage program. The payment, announced by the Department of Justice on Monday to settle allegations of MA fraud over six years, is also the second-largest reported MA fraud settlement ever, according to the whistleblower’s legal team.

Lawsuit

The lawsuit, which was originally filed in 2015 by a former employee whistleblower, alleged that Sutter Health knowingly submitted diagnosis codes to its contracted MA Plans that were unsupported by the patients’ medical record in order to increase its reimbursement for services provided by Sutter Health to its MA Plan enrollees. In announcing the settlement, the U.S. Department of Justice continues to highlight its ongoing efforts to address fraud within the MA program – including upcoding by submission of unsupported diagnoses codes to enhance MA Plan and provider reimbursement under the MA risk adjustment program.

The suit alleges that by making beneficiaries appear sicker than they actually were, Sutter Health’s contracted MA Plans received larger – and improperly inflated – MA payments and, in turn, Sutter Health received inflated payments through its MA Plan contracts.  The DOJ – which intervened on behalf of the whistleblower – further alleged that, once Sutter Health became aware of these unsupported diagnosis codes, Sutter Health failed to take sufficient corrective action to identify and delete additional unsupported diagnosis codes.

In addition to the $90 million payment, as part of the settlement, Sutter Health and several related entities entered into a Corporate Integrity Agreement with the Department of Health and Human Services. CIAs are a common feature of FCA settlements and permit the settling entities to continue participation in federal health care programs, but only under certain conditions.  The Sutter Health CIA, which has a five-year term, requires, among other things, that Sutter Health implement a centralized risk assessment program and hire an Independent Review Organization to annually review a sample of Sutter Health’s MA patients’ medical records and associated diagnosis codes.

Last December, Deputy Assistant Attorney General Michael Granston specifically singled out MA fraud as an important priority for the Department, particularly in cases like Sutter Health, where the allegations concern unsupported diagnosis codes designed to make patients appear sicker.