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Sutter Health pays $30 million to settle alleged overpayment of Medicare Advantage funds

Sutter admits no liability in settlement; There's a federal lawsuit against health system and another that's ongoing.

Susan Morse, Managing Editor

Sutter Health in California has agreed to pay $30 million to resolve allegations that it and its affiliates inflated the severity of illness of Medicare Advantage patients to get higher risk scores and the resulting increase in financial benefits.

The nonprofit Sutter Health contracts with certain Medicare Advantage organizations to provide healthcare services to California beneficiaries, and in return, receives a share of the MA payments that the organizations receive. 

Sutter submitted diagnoses to the MA organizations for the plan enrollees.  The MAOs, in turn, submitted the diagnosis codes to the Centers for Medicare and Medicaid Services from the medical encounters, such as office visits and hospital stays.  The diagnosis codes were used in CMS' calculation of a risk score for each beneficiary.

CMS overpaid the plans and providers, the Justice Department said on Friday. The $30 million settlement resolves the allegations. There has been no determination of liability.


The popularity of Medicare Advantage plans is increasing for both insurers and consumers. The capitated payments for MA gives plans an incentive to operate efficiently at a lower cost.

But risk scores can be manipulated by representing that a population is sicker than it actually is.

MA plans are paid a capitated, or per-person, amount to provide Medicare-covered benefits to beneficiaries who enroll in the private plans. 

CMS adjusts the payments in risk scores based on demographic information and the health status of each plan beneficiary. The more severe diagnoses get higher risk scores, and CMS makes a larger risk-adjusted payment to the MA plan.


Earlier this month, the government filed a complaint against Sutter and a separate affiliated entity, Palo Alto Medical Foundation, alleging they violated the False Claims Act by submitting unsupported diagnosis scores. That case, United States ex rel. Ormsby v. Sutter Health, is still ongoing. 

Friday's announced settlement included affiliates Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation and Sutter Medical Foundation.


"Misrepresenting patients' risk results in higher payments and wasted Medicare funds," said Steven J. Ryan, Special Agent in Charge with the Office of Inspector General for the U.S. Department of Health and Human Services. "With some one-third of people in Medicare now enrolled in managed care Advantage plans, large health systems such as Sutter can expect a thorough investigation of claimed enrollees' health status."

Twitter: @SusanJMorse
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