Sutter Health to Pay $45.6 Million to Settle Illegal Kickback and Medicare Fraud Claims, Whistleblower Receives $5.9 Million Award

On November 14, Sutter Health agreed to pay $30.5 million to settle a whistleblower lawsuit over anti-kickback violations. One day later, the California healthcare provider agreed to pay another $15.1 million to resolve a separate Medicare fraud lawsuit.

Sutter Health to Pay $45.6 Million to Settle Illegal Kickback and Medicare Fraud Claims, Whistleblower Receives $5.9 Million Award

The $30.5 million settlement resolves allegations that Sutter Health paid illegal kickbacks to doctors in exchange for patient referrals. The complaint that initiated the government’s investigation was filed by a compliance officer who first attempted to raise concerns about the misconduct internally.

The additional $15.1 settlement resolved allegations that Sutter Health illegally billed Medicare for services referred by doctors who were receiving kickback payments and double-billed the government program for certain services.   

“The Stark Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has a financial relationship, unless that relationship satisfies one of the law’s statutory or regulatory exceptions. . . The law is intended to ensure that medical decision-making is not influenced by improper financial incentives and is instead based on the best interests of the patient,” a spokesperson for the prosecution said.

This has been a complicated year for Sutter, which paid $30 million to settle a Medicare Advantage lawsuit last April. The whistleblower, in that case, Kathleen Ormsby, was a former Sutter Health employee, who alleged that Sutter overcharged the government for services provided to Medicare Advantage members.  

Compliance Officer Turned Whistleblower Received $5.9 Million Award

Sutter’s former compliance officer, Laurie Hanvey, will receive $5.8 million from the $30.5 million settlement plus $96,000 from a separate $506,000 settlement with Sacramento Cardiovascular Surgeons Medical Group.   

Hanvey first filed her lawsuit in San Francisco in 2014. According to her allegations, California-based physicians received millions of dollars from Sutter to incentivize patient referrals to its hospitals. The lawsuit states that the company “knowingly submitted thousands of false claims to the United States and the state of California which resulted in millions of dollars of government reimbursement that would not have been paid but for defendant’s misconduct.”

A spokesperson for Ms. Hanvey said that treatment decisions should never be made based on profit-seeking and that kickbacks often lead to recommendations for medically unnecessary procedures. 

Over the last 25 years, Hanvey has been a compliance officer for various healthcare providers. She started working for Sutter in 2012. Barely a year later, she was already raising concerns about potentially illegal payments to referring doctors. Her lawsuit describes similar exchanges between Sutter and medical practices in the Bay Area, Sacramento, Modesto, and other locations in California.

Hanvey alleges that she discovered several false billings by Sacramento Cardiovascular Surgeons Medical Group Inc, likely created to disguise kickbacks. The company, run by three surgeons, allegedly made an illegal deal with Sutter. Under its terms, Sutter Health paid the surgeons’ assistants’ annual salaries ($170,000 each) in exchange for the specialists referring patients to Sutter hospitals. Allegedly, Sacramento Cardiovascular “did in fact bill third party payers, including Medicare,” for a portion of the services provided by the assistants.

According to Hanvey’s complaint, Sutter Health made $900,000 payments to Sac Cardio under suspicious “call coverage agreements.” In June 2014, Hanvey halted one of these payments, recommending further investigation. Still, one of Sac Cardio’s surgeons, Dr. James Longoria, “threatened to shut down the operating rooms” if the medical group did not receive the funds, and the payment went ahead.   

Sacramento-headquartered Sutter Health has over 50,000 employees, including 5,000 physicians. The company operates 24 hospitals across California. Several lawsuits relating to similar fraudulent schemes and violations are currently pending. Allegations of Medicare and Medicaid fraud have been made against Sutter and its affiliates, Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation, and Sacramento’s Sutter Medical Foundation.

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