On August 30, 2021, the DOJ announced a $90 million dollar settlement with Sutter Health and affiliates[1] (“Sutter Health”) to settle False Claims Act (“FCA”) allegations brought by qui tam relator, Kathy Ormsby, related to the Center for Medicare & Medicaid Services’ (“CMS”) MA Program.[2] Sutter Health elected to settle with DOJ and the relator without an admission of liability. As part of the Settlement Agreement, the Office of Inspector General (“OIG”) required Sutter Health to enter into a Corporate Integrity Agreement.

The MA Program

Under the MA program, CMS pays Medicare Advantage Organizations (“MAOs”) a capitated amount for each beneficiary to cover the costs associated with providing health care services typically covered under traditional Medicare. These payments are “risk adjusted” for certain demographic factors as well as the health status of the beneficiary. The latter is established through the submission of diagnosis codes to CMS, some of which trigger an additional payment that correlates to the predicted costs of care associated with treating that condition, otherwise referred to as “risk adjusted diagnosis codes”. The more risk adjusted diagnosis codes submitted, the higher the payment to the MAO.

The Core Allegations

Sutter Health, headquartered in California, is comprised of hospitals, medical foundations and other medical service entities. It contracts with MAOs to provide and manage health care services to health plan MA enrollees under a capitated arrangement, whereby the MAO would pay a portion, often times a majority, of the capitated payment it receives from CMS to Sutter Health.

The DOJ contended that Sutter Health violated the FCA by knowingly submitting, or causing to be submitted, risk adjusted diagnosis codes that were false, or unsupported by the underlying medical record causing CMS to make improperly inflated payments to MAOs, and ultimately Sutter Health. In addition, the DOJ believed Sutter Health became aware of diagnosis codes that were not supported by the medical record and failed to take corrective action to identify and delete additional potentially unsupported codes.[3]

Allegations focused on a number of provider initiated activities that can drive risk adjustment scores and corresponding payments, including physician education and engagement, risk adjustment score tracking, coder involvement, physician incentives, queries to elicit certain diagnostic coding, and pre-populated problem lists. These activities, themselves are not necessarily problematic, provided the output, diagnostic coding is accurate.  DOJ’s primary focus was the alleged failure of the organization to have an effective compliance program in place to conduct adequate internal monitoring and respond to, or follow up with, the results of both internal and external auditing efforts in light of what the DOJ classifies as aggressive risk code chasing activities.

Risk Adjustment Enforcement Is Not Just Plan Issue; MA Downstream Entities Should Proceed with Caution

Sutter’s settlement is the most recent of a number of government enforcement actions taken against downstream Medicare Advantage risk bearing organizations pursued under both a “causes to be submitted” and “reverse false claims” theories. MSO entities, Medicare Advantage vendors and other risk bearing entities would be wise to take immediate action by evaluating, and if needed, adopting enhanced risk adjustment monitoring and compliance procedures commensurate with increased federal scrutiny.


[1] Affiliates included: Sutter Bay Medical Foundation, d/b/a Palo Alto Medical Foundation, Sutter East Bay Medical Foundation, and Sutter Pacific Medical Foundation; Sutter Valley Medical Foundation, d/b/a Sutter Gould Medical Foundation and Sutter Medical Foundation.

[2] 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 (August 30, 2021), https://www.justice.gov/opa/pr/sutter-health-and-affiliates-pay-90-million-settle-false-claims-act-allegations-mischarging

[3] See United States of America, ex rel. Kathy Ormsby v. Sutter Health and Palo Alto Foundation, 444 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.

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