In March 2015, Sutter Health employee Kathy Ormsby brought a False Claims Act (FCA) case against her employer alleging massive Medicare Advantage Program fraud. She spent over six years investigating and litigating the case alongside the government before Sutter agreed to settle for $90 million. It also agreed to a groundbreaking Corporate Integrity Agreement. Here’s what you need to know:
Why is this Case Important?
- It is one of, if not, the largest False Claims Act settlement of Medicare Advantage program fraud allegations against a hospital system.
- It affirmed an FCA whistleblower’s right to litigate non-intervened claims when the government only partially intervenes (takes over the litigation) in a case.
- It confirmed that “actuarial equivalence” between Medicare Advantage overbilling and fee for service overbilling is not a defense to FCA claims – so relators asserting Medicare Advantage program fraud do not need to allege that the defendant’s diagnosis code “error rate” exceeds the traditional-Medicare “error rate”
- It triggered HHS/OIG to put a Corporate Integrity Agreement in place to monitor Sutter’s Medicare Advantage program.
A Public Private Partnership That Works
Ms. Ormsby and her experienced qui tam attorneys worked closely with the Department of Justice and the United States Attorney’s Office for the Northern District of California to secure this important result. Throughout the case, Ms. Ormsby and her attorneys provided valuable additional resources to the government. After the Government decided to intervene on some, but not all, of Ms. Ormsby’s claims, she pursued the non-intervened claims on her own. Thanks to Ms. Ormsby’s case, the Government recovered $90 million – and more than half was attributed to Ms. Ormsby’s non-intervened claims.
Kathy Ormsby was hired by Sutter to support Sutter’s Medicare Advantage program at its Palo Alto Medical Foundation (PAMF) affiliate. From her first day at PAMF, Ms. Ormsby witnessed massive deficiencies in Sutter’s risk adjustment compliance program. Based on her experience, Ms. Ormsby had real concerns that Sutter was submitting claims for government reimbursement based on incorrect or unsupported diagnosis codes in patient records.
Ms. Ormsby initially raised the alarm internally to help Sutter come into compliance for its more than 45,000 patients enrolled in the Medicare Advantage program. When Sutter rejected Ms. Ormsby’s repeated efforts to fix the problems, and took affirmative steps to stop her efforts, she hired experienced qui tam whistleblower attorneys to help her alert the government to what Ms. Ormsby believed to be a fraud – causing knowingly false claims for payment to CMS.
How does the Medicare Advantage Program work?
Medicare Advantage is part of the Medicare program. While traditional Medicare pays healthcare providers a “fee for service,” the Medicare Advantage Program pays a fixed monthly amount for the care of the Medicare beneficiary/patient. Beneficiaries enroll in Medicare Advantage plans provided by Medicare Advantage Organizations (MAOs), which contract with the Medicare program to provide insurance coverage. The MAOs then contract with healthcare providers like Sutter who receive a monthly payment to provide healthcare to the Medicare beneficiary.
The fixed monthly payment for each beneficiary is adjusted based on various factors, including diagnosis codes added to the beneficiary’s medical record, known as Hierarchical Condition Codes, or HCCs. The adjustment to the fixed rate, also known as risk adjustment, is intended to pay higher monthly rates for sicker patients and lower monthly rates for healthier patients. Because these HCCs are submitted to the MAOs by the health care provider in order to get paid by Medicare, accurate codes are essential for appropriate payments from the government to the health care providers and MAOs. If the codes in patients’ medical records are overstated or unsupported, Medicare pays thousands of dollars a year more than it should for their care.
Ms. Ormsby filed a False Claims Act lawsuit in the United States District Court for the Northern District of California in March 2015 – United States ex rel. Kathy Ormsby v. Sutter Health and Palo Alto Medical Foundation, Case No. 3:15-cv-01062-LB. The False Claims Act allows whistleblowers to bring claims to report fraud and misconduct in federal government contracts and programs. These whistleblowers, known as relators, can bring a lawsuit on the government’s behalf (called a qui tam suit), and can receive between 15% and 30% of the government’s recovery as a whistleblower award.
Ms. Ormsby’s 2015 complaint alleged that Sutter and its affiliate PAMF defrauded the government by submitting inaccurate and unsupported diagnoses codes that improperly inflated the reimbursements they received for providing health care to Medicare Advantage patients.
The complaint alleged that Sutter and its affiliates, including PAMF improperly collected and retained Medicare Advantage payments during the relevant period based on:
- diagnoses the patients did not have;
- diagnoses that were more severe than what the patients had;
- old diagnoses that patients were not treated for in the relevant year; and/or
- diagnoses that otherwise failed to meet CMS requirements for risk adjustment.
Ms. Ormsby’s alleged that Sutter and PAMF failed to correct and refund money from previously submitted Medicare risk adjustment claims, even though they knew (or should have known) that those claims were false — a clear violation of Medicare’s rules and regulations. The complaint alleged that when she and a team of auditors she trained audited claims previously submitted through PAMF, error rates were as high as ninety-five percent (95%), yet Sutter and PAMF management refused to take meaningful steps to rectify the problems which had caused millions in overpayments to Sutter from Medicare, and refused to give back the money.
The complaint additionally alleged that Sutter and PAMF executives suppressed the efforts of these internal auditors to measure and correct false risk adjustment claims. Ms. Ormsby asserted that when auditors attempted to correct the unsupported higher risk adjustment data and calculate how much Medicare should be repaid, they were ordered to halt their efforts.
The complaint also alleged that Sutter Health and PAMF reviewed patient medical records to identify diagnoses they could add to the medical record for the sole purpose of increasing Sutter’s risk adjustment scores when Sutter and PAMF should have also identified improperly inflated scores that led to overbilling Medicare.
Ms. Ormsby alleged that Sutter and PAMF had no effective compliance-auditing program for years while submitting hundreds of millions of dollars in bills to the Medicare Advantage program, and that despite internal audit results warning of serious provider over-coding, Sutter and its affiliates failed to correct errors and return overpayments, even going so far as to cancel future audits. The complaint finally alleged that Sutter’s fraudulent scheme to collect and retain improper Medicare Advantage payments was not limited to PAMF; it was occurring Sutter-wide.
How the Case Progressed
From March 2015 to December 2018, Ms. Ormsby’s False Claims Act case remained under seal at the court, as provided for by the False Claims Act, to allow the government time to investigate her allegations. During this time period, Ms. Ormsby and her attorneys provided critical assistance to the government. Then, in late 2018, the case was unsealed and the Department of Justice intervened in the portion of Ms. Ormsby’s False Claims Act case relating to FCA violations at PAMF.
In April 2019, the government filed its Complaint in Intervention regarding the PAMF fraud. Meanwhile, Ms. Ormsby and her attorneys continued to pursue the non-intervened claims arising from the alleged fraud at Sutter’s other affiliates. They also continued to work tirelessly to support the Justice Department’s legal team, which included Olga Yevtekhova and Jenny Koh at Civil Frauds, and Deputy Chief of the U.S. Attorney’s Office for the Northern District of Calfornia’s Civil Division, Sara Winslow, and Assistant U.S. Attorney Ben Wolinsky.
Sutter moved to dismiss both complaints in June 2019. In March 2020, after oral argument, Magistrate Judge Laurel Beeler issued a 104-page opinion that denied Sutter’s motions in their entirety. After examining the purpose and structure of the Medicare Advantage program, and that of the False Claims Act, Judge Beeler concluded that the United States and Ms. Ormsby could proceed with their cases, holding that:
- Even if Sutter and PAMF were correct that Medicare generally paid less for Medicare Advantage patients, than fee for service patients, this does not allow MAOs or providers like Sutter to report false diagnosis codes or keep and not report and return overpayments, and that “(o)ne who elects fraud as a means of self-help may not escape the consequences by urging that his conduct be excused because the [rule] which he sought to evade is invalid”;
- Congress never intended that a False Claims Act case would have to begin by establishing that the Medicare Advantage error rate was higher than the fee-for-service error rate;
- Where the government had issued clear guidance about how it interprets the law, MAOs or providers could not defend their conduct by claiming that their different interpretation was somehow ‘reasonable’, even if it was wrong;
- When the government only partially intervenes in a case, the Relator (Ms. Ormsby) is free to pursue any or all of the remaining claims;
- Sutter and PAMF had a duty to investigate and return money once they were put on notice of potential overpayments – they couldn’t wait until the claims were conclusively determined to be overpayments;
- Once a defendant is on notice of potential overpayments, it cannot fail to make simple inquiries which would alert it to the existence of false claims; and
- Even if the Relator’s direct knowledge of false claims arises from just one Sutter affiliate (PAMF), where she alleges enough details of a company-wide scheme to “lead to a strong inference that claims were actually submitted”, that is enough to support the broader allegations.
In August 2021, the parties settled Ms. Ormsby’s and the government’s FCA claims concerning Sutter and PAMF’s alleged Medicare Advantage fraud for claims submitted for Medicare Advantage beneficiaries/patients from 2010 to 2016. The government recovered $90 million.
Of the total government recovery, $40 million is attributed to Ms. Ormsby’s intervened claim alleging a fraud at PAMF, which the government pursued, and $50 million is attributed to Ms. Ormsby’s non-intervened claim alleging fraud at Sutter’s other affiliates, which she and her lawyers pursued on their own. Sutter also entered into a Corporate Integrity Agreement, the first ever to address risk adjustment fraud in a Medicare Advantage Plan.