DOJ joins lawsuit accusing Sutter Health of Medicare Advantage fraud

Sutter Health Building
An unsealed whistleblower lawsuit accuses the California health system of submitted unsupported diagnosis codes to Medicare Advantage plans to boost reimbursement. (Sutter Health)

Federal prosecutors have intervened in a newly unsealed whistleblower lawsuit accusing Sutter Health of submitting unsupported diagnosis codes to Medicare Advantage plans that generated inflated payments.

The lawsuit comes weeks after DaVita's medical group paid $270 million to resolve similar allegations.

The Department of Justice (DOJ) announced Tuesday it would intervene in a case filed by Kathleen Ormsby, a former employee of the Palo Alto Medical Foundation, accusing Sutter and her former employer of knowingly submitting false health status information about beneficiaries to boost risk scores and drive up reimbursement.


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Ormsby claims the California-based health system submitted incorrect diagnosis codes and then failed to take sufficient corrective action once it became aware the codes were incorrect.

RELATED: DaVita group to pay $270M to settle Medicare Advantage false claims probe with DOJ

“Federal healthcare programs rely on the accuracy of information submitted by healthcare providers to ensure that patients are afforded the appropriate level of care and that managed care plans receive appropriate compensation,” Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division said in a statement. “Today’s action sends a clear message that we will seek to hold healthcare providers responsible if they fail to ensure that the information they submit is truthful.”

The government uses diagnosis codes submitted by providers to calculate Medicare Advantage “risk scores,” which are used to determine the amount insurers need to care for beneficiaries based on their health condition.

RELATED: DOJ takes Anthem to court over refusal to comply with Medicare Advantage fraud investigation

Risk scores have become a contentious issue in recent years as several large insurers have disclosed they have received civil investigative demands related to MA risk adjustment practices.

Recently a judge ruled that the DOJ can force testimony form Anthem regarding its risk adjustment data and retrospective chart review program. UnitedHealth successfully beat back a whistleblower lawsuit alleging it submitted erroneous diagnosis codes. A second lawsuit, joined by the DOJ, is working its way through the courts.

U.S. Attorney Alex G. Tse for the Northern District of California acknowledged Medicare Advantage’s growing popularity and said the intervention “illustrates our commitment to protecting the integrity of the Medicare Advantage program.”

“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,” he added. “We will continue to guard government health programs from companies that improperly maximize their bottom line at taxpayer expense.”

In an emailed statement, a spokesperson for Sutter Health alluded to previous Medicare Advantage fraud cases and said the health system intends to "vigorously defend ourselves" against the allegations. 

“Sutter Health and PAMF are aware of the matter and take the issues raised in the complaint seriously," the statement read. "The lawsuit involves an area of law that is currently unsettled and the subject of ongoing litigation in multiple jurisdictions."

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