Constantine Cannon Client Secures Record $90 Million False Claims Act Whistleblower Settlement with Sutter Health

Sutter Health settles closely watched whistleblower lawsuit alleging it violated the False Claims Act by submitting inaccurate and unsupported medical information on tens of thousands of patients enrolled in Medicare Advantage.

SAN FRANCISCO, CA (August 30, 2021) – Constantine Cannon, together with co-counsel Keller Grover and Kleiman Rajaram, announce the landmark $90 million False Claims Act settlement with Sutter Health on behalf of their whistleblower client, Kathy Ormsby, over allegations that Sutter committed massive Medicare Advantage fraud over the course of roughly six years.

The settlement is the largest False Claims Act (FCA) settlement against a hospital system involving allegations of fraud on the Medicare Advantage program, and the second largest reported Medicare Advantage fraud settlement ever.

The settlement resolves this case as the U.S. Department of Justice announced its intervention in a series of Medicare Advantage fraud cases in recent weeks. Medicare Advantage (also known as Medicare Part C) has seen its enrollment double over the past decade and is now a $350 billion market annually. More than 41% of all Medicare beneficiaries are now enrolled in Medicare Advantage Plans.

Ms. Ormsby filed her lawsuit in 2015 under the qui tam provisions of the False Claims Act, which permit whistleblowers to file lawsuits to recover taxpayer dollars lost to fraud committed against the government. Ms. Ormsby alleged that Sutter, through several affiliates including Palo Alto Medical Foundation (PAMF), intentionally or recklessly submitted inaccurate and unsupported medical diagnosis codes that inflated Sutter’s reimbursements from Medicare Part C, known as the Medicare Advantage Program.

Medicare Part C authorizes qualified individuals to opt out of traditional fee-for-service coverage under Medicare Parts A and B and enroll in privately-run managed care plans that provide coverage for both inpatient and outpatient services.  Unlike the traditional fee-for-service model, Medicare Part C pays for care with monthly amounts based on the health of the patient as documented in diagnosis codes in their medical records, known as a risk adjustment factor (RAF).  Ms. Ormsby was employed at Sutter as a RAF Manager.

After investigating Ms. Ormsby’s allegations, including extensive cooperation from Ms. Ormsby and her attorneys, the Department of Justice intervened in the portion of Ms. Ormsby’s case relating to PAMF.  As expressly contemplated by the False Claims Act, Ms. Ormsby continued to pursue the non-intervened claims related to the alleged fraud at Sutter’s other affiliates.  The settlement followed Sutter’s unsuccessful effort to dismiss both the government’s complaint and Ms. Ormsby’s.  The order denying Sutter’s motions to dismiss created important precedent for future False Claims Act cases alleging Medicare Advantage fraud.

Gordon Schnell of Constantine Cannon said: “We are all grateful for the heroic efforts of our frontline healthcare workers, especially over the last 18 months fighting COVID-19.  This case highlights the other heroic individuals in our healthcare system, people like Kathy Ormsby who risk their career and personal well-being to make sure our healthcare system places patients before profits.”

Kathleen R. Scanlan of Keller Grover LLP, counsel for Ms. Ormsby, said: “Today’s settlement is a terrific victory for taxpayers.  Kathy Ormsby was the catalyst behind the return of nearly a hundred million dollars to a program we all fund to provide cost-effective healthcare to the most vulnerable in our communities, the elderly.  Her case also sends a powerful message to other healthcare providers in the Part C program: gaming a patient’s RAF score is fraud, and you can be held responsible for it under the False Claims Act.”

Jeffrey F. Keller of Keller Grover LLP, added: “Kathy Ormsby demonstrated tremendous courage when she came forward to allege a major fraud on the Medicare Part C program by California’s second largest healthcare provider.  Representing her in this case has been an absolute privilege.  Hopefully she inspires others to follow her lead in reporting allegations of fraud on the government.”

Mark Kleiman of Kleiman Rajaram said: “This case is an important example of whistleblowers and their lawyers partnering with the government to bring extra expertise and legal firepower to the fight against fraud.  This is just how the False Claims Act was intended to work.  We hope it serves as a model for more cooperation between the government and whistleblowers in the future.”

Under the False Claims Act’s whistleblower reward provision, Ms. Ormsby is entitled to 15-30% of the settlement amount for her vital role in bringing this matter forward and helping secure this record settlement for the government.

In addition to Ms. Scanlan, Mr. Keller, Mr. Schnell, and Mr. Kleiman, Ms. Ormsby was also represented by Sarah P. Alexander, Hamsa Mahendranathan, and Gary Reilly of Constantine Cannon and Pooja Rajaram of Kleiman Rajaram.

Ms. Ormsby and her entire legal team acknowledge the hard work of the Justice Department’s legal team, including Olga Yevtekhova and Jenny Koh at Civil Frauds, and Chief of the U.S. Attorney’s Office for the Northern District of California’s Civil Division, Sara Winslow, Assistant U.S. Attorney Ben Wolinsky and former Assistant U.S. Attorneys Kim Friday and Erica Hitchings at the U.S Attorney’s Office for the Northern District of California.

About Constantine Cannon

With offices in New York, Washington, D.C., San Francisco and London, Constantine Cannon LLP is one of the largest whistleblower practices in the United States. The firm’s team of dedicated whistleblower lawyers represent whistleblowers under federal and state False Claims Acts as well as the whistleblower programs of the IRS, SEC, CFTC, DOT, and others.

Constantine Cannon also has deep expertise in practice areas that include antitrust and complex commercial litigation, government relations, securities, and e-discovery. The firm’s antitrust practice is among the largest and most well recognized in the nation. Constantine Cannon’s experience spans multiple industries, including healthcare, banking, electronic payments, insurance, high tech, telecommunications, the Internet, and government contracting.

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