Sutter Health Settles Medicare Fraud Case For $90 Million: The Largest Settlement For Medicare Advantage Fraud

• Published date: 15 September 2021
• Subject Matter: Food, Drugs, Healthcare, Life Sciences, Criminal Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Ken Yood, Michael J. Gilbert and Danielle Vrabie

A major California-based health care system, Sutter Health, and several of its medical practice foundation affiliates have agreed to pay a total of $90 million to settle allegations that they violated the False Claims Act ("FCA") by knowingly submitting inaccurate information about the health status of beneficiaries enrolled in Sutter Health's contracted Medicare Advantage ("MA") Plans.¹ The Sutter Health settlement is the largest FCA settlement ever paid by a health care provider for alleged MA fraud.

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.² In announcing the settlement, the U.S. Department of Justice ("DOJ") 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.

To provide services to Medicare beneficiaries who elect to receive their Medicare benefits through MA Plans - Medicare's managed care option - MA Plans are paid by the MA program based upon a capitated (per-enrollee) monthly amount. The capitated payments to MA Plans are risk-adjusted for patient health and complexity through "Risk Adjustment Factors" ("RAF") that reflect financial utilization and risk.³ Because of the RAF adjustments, MA Plans receive increased reimbursement for the treatment of sicker patients, i.e., patients who cost more to treat. In this case, Sutter Health shared in this increased reimbursement for the treatment of sicker patients pursuant to the terms of its MA Plan contracts.

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...