Risk Scores at Center of Sutter-DoJ Medicare Advantage Dispute

December 13, 2018 - A complaint against Sutter Health and Palo Alto Medical Foundation over appropriate risk scores has drawn the attention of the Department of Justice.

The federal agency officially announced its intervention into a lawsuit that alleges that Sutter violated the False Claims Act for assigning inaccurate risk scores to its Medicate Advantage beneficiaries.

“Federal healthcare programs rely on the accuracy of information submitted by healthcare providers to ensure that patients are afforded the appropriate level of care and that managed care plans receive appropriate compensation,” said Assistant Attorney General Jody Hunt of the Civil Division. “Today’s action sends a clear message that we will seek to hold healthcare providers responsible if they fail to ensure that the information they submit is truthful.”

DoJ claims that Sutter knowingly used risk scores for MA beneficiaries that led increased payments from partnering Medicare Advantage Organizations (MAOs):

Sutter submitted diagnoses to the MAOs for the MA Plan enrollees that they treated. The MAOs, in turn, submitted the diagnosis codes to CMS from the beneficiaries’ medical encounters, such as office visits and hospital stays, and these diagnosis codes were used by CMS to calculate a risk score for each beneficiary.

The lawsuit alleges that Sutter Health and Palo Alto Medical Foundation knowingly submitted unsupported diagnosis codes for certain patient encounters for beneficiaries under their care. These unsupported diagnosis scores allegedly inflated the risk scores of these beneficiaries, resulting in inflated payments to Sutter. The lawsuit further alleges that once the Sutter entities became aware of these unsupported diagnosis codes, they failed to take sufficient corrective action to identify and delete additional potentially unsupported diagnosis codes.

According to the federal attorney for northern California, Medicare Advantage has become a lucrative market and therefore ripe for exploitation without proper oversight.

 “The share of Medicare beneficiaries enrolled in Medicare Advantage has steadily grown over the past decade, with 19 million beneficiaries enrolled in 2017,” said Attorney Alex G. Tse. “It is critically important that the data submitted to the Medicare Advantage program is truthful, because the government relies on this information to set payment levels.  We will continue to guard government health programs from companies that improperly maximize their bottom line at taxpayer expense.”

In an official statement from a health system spokesperson, Sutter stated its intention to contest the allegations in court.

 "Sutter Health and PAMF 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," the statement read.

And as Sue Dremann of Palo Alto Online astutely detailed, Sutter has favorable chances based on legal precedent. The matter to be scrutinized is the reading of an overpayment rule stipulating how MAOs go about the 60-day process. In 2014, a judge determined that use of more diagnosis codes by Medicare Advantage plans raises doubts about whether these non-traditional levels of payment represent rule overpayment:

The rule defines "overpayments," rules for reporting the overpayment and applicable fines and fees for non-compliance. Violators could face potential False Claims Act liability, other civil monetary liabilities and exclusion from federal health care programs for failure to report and return an overpayment. Damages can be triple the amount of the overpayments, and penalties can be between nearly $11,000 to more than $21,000.

But Medicare Advantage plans also contain more diagnosis codes than does traditional Medicare, which could lead to "overpayments" when compared to traditional Medicare costs for the same patient, the court noted. And while the False Claims Act applies to willful false coding, the Overpayment Rule has a broader standard under which it penalizes the Medicare Advantage organizations.

DoJ now leads the litigation following the filing of a lawsuit by whistleblower Kathleen Ormsby, a former Palo Alto Medical Foundation employee.