Federal government joins false claim suit against Sutter Health

The U.S. Department of Justice announced Tuesday it will become a party in a whistleblower lawsuit filed in federal court in San Francisco against Sacramento-based Sutter Health LLC and the Palo Alto Medical Foundation.

The lawsuit, originally filed under seal in 2015, alleges that Sutter Health and its Palo Alto affiliate violated the federal False Claims Act by submitting inaccurate health status information on certain patients and thereby generating inflated Medicare payments.

The patients in question had enrolled in managed healthcare insurance plans run by private organizations in connection with the Medicare Advantage program.

U.S. Attorney’s Office spokesman Abraham Simmons said the lawsuit alleges that Sutter submitted unsupported diagnosis codes for some patients enrolled in the program.

The codes were transmitted from Sutter to the federal Centers for Medicare & Medicaid Services, allegedly causing the agency to make inflated reimbursement payments to Sutter.

The lawsuit was filed three years ago by former Palo Alto Medical Foundation employee Kathleen Ormsby and is now in the process of being unsealed, Simmons said.

Under the False Claims Act, claims concerning federal agencies are kept under seal until the government conducts an investigation and decides whether to intervene and become a party in the case.

When the government does intervene, it takes the lead role in handling the lawsuit and the original whistleblower is entitled to a share of any financial penalties imposed.

Sutter Health spokeswoman Amy Thoma Tan said in a statement:

“Sutter Health and the Palo Alto Medical Foundation are aware of the matter and take the issues raised in the complaint seriously … The lawsuit involves an area of law that is currently unsettled and the subject of ongoing litigation in multiple jurisdictions. We intend to vigorously defend ourselves against the allegations in the complaint.”