The U.S. Attorney's Office has joined a lawsuit against Sutter Health and the Palo Alto Medical Foundation accusing the health care providers of knowingly submitting wrong or inaccurate diagnosis codes for some Medicare payments, the U.S. Justice Department announced on Tuesday.
The lawsuit alleges that Sutter and the Palo Alto Medical Foundation violated the federal False Claims Act by submitting inaccurate codes that inflated the "risk scores" of patients on the Medicare Advantage program and enabled Sutter to reap greater reimbursements from the Centers for Medicare and Medicaid Services, which oversees the Medicare program.
The lawsuit also alleges that when the Palo Alto Medical Foundation became aware of these inaccurate diagnosis codes, it failed to identify and delete additional potentially inaccurate codes that would result in a higher payment to Sutter.
Medicare beneficiaries have the option of enrolling in managed health care insurance plans called Medicare Advantage, also known as Medicare Part C. The plans are owned and operated by private Medicare Advantage organizations or MAOs. Medicare Advantage plans are paid a "per-person" amount to provide Medicare-covered benefits to the beneficiaries.
The Centers for Medicare adjusts the amount of the payment based on demographic information and the health status of each patient in the plan. A patient with more severe diagnoses has a higher adjusted amount, or "risk score." The government makes a larger payment to the Medicare Advantage plan for that patient, according to the Justice Department. Sutter allegedly submitted the inaccurate diagnoses codes for their patients to the insurers, who then submitted the codes to Centers for Medicare.
As a contracted provider to the insurer, Sutter receives a share of the payments to the insurers from Centers for Medicare.
The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, by Kathleen Ormsby, a former employee of the Palo Alto Medical Foundation. The False Claims Act 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.
U.S. Attorney Alex G. Tse said in a statement that the government's participation in the lawsuit illustrates a commitment to protect the integrity of the Medicare Advantage program.
"The share of Medicare beneficiaries enrolled in Medicare Advantage has steadily grown over the past decade, with 19 million beneficiaries enrolled in 2017. It is critically important that the data submitted to the Medicare Advantage program is truthful because the government relies on this information to set payment levels. We will continue to guard government health programs from companies that improperly maximize their bottom line at taxpayer expense," he said.
Jody Hunt, assistant attorney general of the Department of Justice's Civil Division, said that federal health care programs rely on the accuracy of information submitted by health care providers to ensure that patients are afforded the appropriate level of care and that managed care plans receive appropriate compensation.
"Today's action sends a clear message that we will seek to hold health care providers responsible if they fail to ensure that the information they submit is truthful."
In an emailed statement from Sutter Health, company officials said, "Sutter Health and PAMF are aware of the matter and take the issues raised in the complaint seriously. The lawsuit involves an area of law that is currently unsettled and the subject of ongoing litigation in multiple jurisdictions. We intend to vigorously defend ourselves against the allegations in the complaint."
A Sept. 7, 2018, federal court ruling in D.C. District Court could work in Sutter's favor.
U.S. District Judge Rosemary Collyer overturned the 2014 Overpayment Rule set forth under the Affordable Care Act. Under the Overpayment Rule, or 60-day Rule, a Medicare Advantage organization must report and return any overpayment it received no later than 60 days after the date it identified receiving the overpayment.
The rule defines "overpayments," rules for reporting the overpayment and applicable fines and fees for non-compliance. Violators could face potential False Claims Act liability, other civil monetary liabilities and exclusion from federal health care programs for failure to report and return an overpayment. Damages can be triple the amount of the overpayments, and penalties can be between nearly $11,000 to more than $21,000.
But Medicare Advantage plans also contain more diagnosis codes than does traditional Medicare, which could lead to "overpayments" when compared to traditional Medicare costs for the same patient, the court noted. And 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.
Collyer ruled that the Overpayment Rule can't use a different level of scrutiny for diagnosis codes in Medicare Advantage plans than it applies to overpayments in traditional Medicare plans.
But the issue is far from settled. The government could prove that Sutter “knowingly” provided false information, defined as having “actual knowledge,” or “acts in deliberate ignorance of the truth or falsity of the information,” or “acts in reckless disregard of the truth or falsity of the information,” standards required under the False Claims Act. If the government can make that case, the lawsuit could cost Sutter many millions of dollars.
A similar whistleblower case involving HealthCare Partners Holdings, which serves southern California, settled for $270 million in October. Like Sutter, HealthCare Partners, which was purchased by dialysis giant DaVita group, was also accused of submitting wrong diagnostic codes to the Centers for Medicare and Medicaid Services to obtain inflated payments.
DaVita, which purchased HealthCare Partners in 2012, voluntarily disclosed the diagnostic coding practices by HealthCare Partners after it discovered the situation, according to the Department of Justice. In the settlement, the companies did not acknowledge wrongdoing.
HealthCare Partners serves about 600,000 patients in California; parent company DaVita, which operates in California and multiple western states, has 1.7 million patients and more than 70,800 employees, according to its website.
Sacramento-based Sutter serves 3 million patients in California and Hawaii, according to its 2017 financial report. It has more than 53,000 employees and 5,500 affiliated doctors.