State Accuses Sutter Health of Fraud

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Sutter Health, one of California's largest health care givers, fraudulently charged insurers up to hundreds of millions of dollars over the past decade for anesthesia services that in some cases weren't even provided, the state's insurance commissioner said Wednesday.

"This is happening across all Sutter hospitals," Commissioner Dave Jones said. "It's being done at the expense of private insurers and ultimately results in higher premiums that businesses and consumers are forced to pay."

Jones, speaking at a news conference across the street from Sutter's California Pacific Medical Center in San Francisco, said his office will join a lawsuit filed by a "whistle-blower" auditing firm two years ago in Superior Court in Sacramento.

The auditing firm claims in the suit that it first found evidence of the alleged frauds at California Pacific Medical Center while it was conducting a routine audit for an insurance company. Further analysis by the firm, Rockville Recovery Associates in New York, found similar practices at other Sutter sites, according
to the lawsuit.

Sutter officials said the organization has yet to see any evidence of fraud or billing improprieties. "We believe this case is without merit and we intend to vigorously defend this matter," said spokesman Bill Gleeson in a written statement.

Sutter Health is a Sacramento-based health care provider with 24 hospitals – including half a dozen medical centers in the Bay Area – and 3,500 doctors in its network. It operates as a nonprofit, and reported $9.1 billion in revenues in 2010. Sutter's total income in 2010 was $878 million.

Anesthesiologists generally are not employed by hospitals and their charges are not included on the hospital bill. Instead, they typically bill insurers separately. But the lawsuit alleges that Sutter hospitals routinely billed
insurers for anesthesia services when patients were treated in an operating room, even when the anesthesiologist had already charged his or her own fee, and sometimes when no anesthesia had been used.

In many cases, bills sent to insurers were exorbitant, the lawsuit said.

A typical anesthesia bill for a hospital would be about $150 to $250 – often to cover the costs of a technician to prepare an operating room – but Sutter hospitals regularly were charging $3,000 to $5,000, according to the lawsuit.

Contracts between Sutter Health and insurance providers forbade insurers from questioning charges, according to the lawsuit. Such contractual clauses are intended to prevent insurers from refusing to pay for medical services, and thus are useful to patients. But in this case, Jones said, they kept insurers from looking for and rejecting fraudulent charges.

Consumer groups on Wednesday said they were furious, but not surprised, to see such allegations raised against a major health care provider. The lawsuit is Jones' first major case since becoming insurance commissioner in January.

If a jury rules against Sutter Health, the organization could face massive penalties. But just drawing attention to the lawsuit itself may alert health care providers and insurers alike that the state, as well as consumers, is
paying attention, said Doug Heller, executive director of Consumer Watchdog.

"This is the other part of health care reform, getting the fraud and fat out of our health care system," Heller said. "What is so angering to me is that it's the patients and consumers who are blamed for high health care costs. Yet, there are apparently hundreds of millions of dollars in fraud from one hospital chain."

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