Whistleblower Lawsuit Yields Second Largest Medicare Advantage Settlement – $90 Million

Takeaway: This recovery makes it very clear that the federal government and whistleblowers continue to aggressively pursue fraud allegations involving the Medicare Advantage Program. We can expect to see robust enforcement and sizable recoveries to continue.

On August 30, 2021, the United States Department of Justice announced a $90 million settlement with Sutter Health and certain of its affiliates (collectively Sutter Health) relating to allegations that Sutter Health had defrauded the federal government’s huge Medicare Advantage (Part C) Program.  The settlement was the result of a False Claims Act lawsuit filed by whistleblower Kathleen Ormsby in 2015.  Ms. Ormsby was previously employed by a Sutter Health entity.  The government intervened, in part, in 2019 and Ms. Ormsby, pursuant to her statutory prerogative, continued to litigate the non-intervened claims on behalf of the United States.  Defendants moved to dismiss both the government’s and whistleblower’s complaints but, last year, the District Court denied Defendants’ motion in its entirety and the case proceeded. 

The Sutter Health allegations follow a familiar fact pattern.  For approximately six years, Sutter Health purportedly submitted inflated diagnosis codes for patients under Sutter Health’s care and later failed to delete the improper diagnosis codes despite knowing of their falsity.  For example, the pleadings alleged that Sutter Health had engaged in a sophisticated campaign to pressure healthcare providers to document dubious, high-paying diagnosis codes through chart reviews and the electronic medical record system.  Meanwhile, when Sutter Health was put on notice via audits that certain unsupported diagnosis codes were being submitted, Defendants failed to take sufficient corrective action to delete unsupported diagnosis codes.

In contrast to traditional, fee-for-service Medicare, under the Medicare Advantage Program, health plans are paid a capitated sum based on certain factors, including the health of the plan’s beneficiaries.  Providers are often, as was the case here, then paid by the Medicare Advantage plan in a similar way.  Thus, both the plan and provider may financially benefit if a patient’s diagnosis codes indicate that the patient is “sicker,” creating a palpable incentive for providers and MA plans alike to submit inflated diagnosis codes. 

The $90 million settlement amounts to the second largest Medicare Advantage FCA settlement to date.  The government’s 2018 $270 million settlement against HealthCare Partners Holdings LLC remains the high-water mark.  This was not Sutter Health’s first Medicare Part C dustup either.  In 2019, numerous Sutter Health companies entered into a $30 million settlement with the federal government to resolve claims under common law theories of payment by mistake and unjust enrichment (not the FCA), concerning related allegations that the entities had received Part C overpayments connected to improper diagnosis codes.  The FCA settlement here includes a $30 million offset to the $90 million settlement sum to reflect the earlier common law settlement.

This recovery makes clear that the federal government and whistleblowers continue to aggressively pursue fraud allegations involving the Medicare Advantage Program.  The Medicare Advantage Program now provides coverage to over 40% of Medicare beneficiaries (a decade ago that number was 25%) and the program’s growth has shown no sign of abating.  Neither has the government’s increasing scrutiny of Medicare Advantage fraud.  Indeed, just last month the United States intervened in six whistleblower lawsuits filed against Kaiser Permanente affiliates relating to alleged Medicare Advantage diagnosis coding practices.  By all accounts, we can expect this pattern of robust enforcement and sizeable recoveries to continue. 

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