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 entered into a Corporate Integrity Agreement (“CIA”) with the Department of Health and Human Services.[4]  CIAs are a common feature of FCA settlements and permit the settling entities to continue participation in federal health care programs, but only under certain conditions.  The Sutter Health CIA, which has a five-year term, requires, among other things, that Sutter Health implement a centralized risk assessment program and hire an Independent Review Organization to annually review a sample of Sutter Health’s MA patients’ medical records and associated diagnosis codes.

While MA Plans have typically been viewed as presenting less of a fraud risk than their fee-for-service counterparts, that has been changing rapidly.  Both private whistleblowers and the government have been increasingly filing and pursing lawsuits in this space.  This trend is unsurprising.  As cited in a Kaiser Family Foundation study dated June 21, 2021,[5] MA Plan enrollment has exploded over the past 20 years.  The Centers for Medicare & Medicaid Services (CMS) estimates that over 26 million Americans are enrolled in MA plans for 2021, which would account for over 44% of all beneficiaries and over $335 billion in total spending.

Last December, Deputy Assistant Attorney General Michael Granston specifically singled out MA fraud as an important priority for the Department, particularly in cases like Sutter Health, where the allegations concern unsupported diagnosis codes designed to make patients appear sicker.[6]  It is important now more than ever for MA plans to be diligent about their documentation practices – which are being carefully scrutinized by the Department of Justice in these cases – and promptly address and remediate any identified overpayments.

We will continue to monitor and report on notable MA FCA cases and settlements.


[1] Press Release, Sutter Health and Affiliates to Pay $90 Million to Settle False Claims Act Allegations of Mischarging the Medicare Advantage Program, Department of Justice (Aug. 30, 2021), https://www.justice.gov/opa/pr/sutter-health-and-affiliates-pay-90-million-settle-false-claims-act-allegations-mischarging.

[2] See United States of America, ex rel. Kathy Ormsby v. Sutter Health and Palo Alto Foundation444 F. Supp. 3d 1010 (N.D. Cal. 2020), United States’ Complaint-in-Intervention, found at https://www.justice.gov/opa/press-release/file/1428661/download.

[3] For more information regarding the MA risk-adjustment payment model, see Section 2, “Primer on the CMS-HCC Model,” Evaluation of the CMS-HCC Risk Adjustment Model: Final Report, Centers for Medicare and Medicaid Services (March 11, 2011), https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Evaluation_Risk_Adj_Model_2011.pdf#:~:text=It%20contains%20three%20major%20sections%3A%20a%20primer%20on,differences%20between%20the%20individuals%20in%20MA%20Chronic%20Condition.

[4] See Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Sutter Health, Sutter Bay Medical Foundation, and Sutter Valley Medical Foundation, https://oig.hhs.gov/fraud/cia/agreements/Sutter_Health_Sutter_Bay_Medical_Foundation_and_Sutter_Valley_Medical_Foundation_08302021.pdf

[5] See Medicare Advantage in 2021: Enrollment Update and Key Trends, Meredith Freed, Jeannie Fuglesten Biniek, Tricia Neuman and Anthony Damico, Kaiser Family Foundation (June 21, 2021), https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2021-enrollment-update-and-key-trends/

[6] Remarks of Deputy Assistant Attorney General Michael D. Granston at the ABA Civil False Claims Act and Qui Tam Enforcement Institute – Washington, D.C. (Dec. 2, 2020), https://www.justice.gov/opa/speech/remarks-deputy-assistant-attorney-general-michael-d-granston-aba-civil-false-claims-act