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Whistleblower Lawsuit Results in $90 Million Medicare Advantage Settlement

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In August 2021, the United States Department of Justice (DOJ) announced the second largest Medicare Advantage whistleblower lawsuit settlement of $90 million. The whistleblower lawsuit was filed against Sutter Health and its affiliates in 2015 by Sutter employee Kathleen Ormsby and alleged that the company had massively overbilled the Medicare Advantage program over a period of approximately six years. As the original whistleblower, Ormsby may receive 15 to 30 percent of the settlement.

Sutter Health Medicare Advantage Inflated Billing

Sutter Health was accused of submitting inflated diagnosis codes for a period of six years, resulting in higher reimbursement. The group reportedly continued the improper process even while knowing of the falsity.

The claims stated that Sutter Health had been accused of applying pressure to healthcare providers to document higher paying diagnosis codes. When auditors gave notice to Sutter Health that some of the billing codes appeared to be inaccurate, Sutter failed to delete the codes or take corrective action.

Sutter Health Whistleblower Lawsuit Filed

Kathleen Ormsby was a Sutter Health employee through employment at Palo Alto Medical Foundation. She was hired in 2013 and began comparing benefit codes with patient medical records, noting high error rates which suggested massive overpayment. When Ormsby notified her superiors, her audits were shut down but instead of making corrections, the company continued their practices.

Sutter has 76 hospitals, outpatient surgery centers, cancer treatment centers and cardiac centers and it later became apparent that the practice was not limited to the facility that Ormsby worked at but was also occurring at other Sutter Health facilities. In 2015, Ormsby reported the discrepancies and filed a whistleblower lawsuit under the False Claims Act.

Medicare Advantage Payment Structure May Perpetuate Fraud

Medicare Advantage works on a “capitated” sum which pays a certain amount for a certain type of patient. It is to the company’s advantage if the patient appears to be sicker than they may actually be as the diagnosis rate amount paid by Medicare will be higher.

This is different than regular Medicare where providers are reimbursed in a more familiar “fee for service” manner. Some experts have stated that this payment scheme makes it more likely that participants in the Medicare Advantage program will inflate risk scores to receive higher reimbursement.

Medicare Advantage now makes up about 40% of Medicare enrollment or $350 billion annually.

Sutter Health $90 million Lawsuit Settlement Terms

The US DOJ settled the lawsuit against Sutter Health for $90 million, making it the second largest settlement for a Medicare Advantage lawsuit. The settlement includes $60 million in restitution for the fraud allegations and $30 million in penalties, however Sutter Health does not have to agree to admit wrongdoing.

As the first complainant in the whistleblower lawsuit, Kathleen Ormsby will receive between 15% and 30% of the settlement, actual amount to be determined.


Sutter Health Paying $90M in Medicare Fraud Settlement, US News (08/2021)

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