Sutter Health hospitals agree to pay record payment in Department of Insurance lawsuit involving anesthesia billing

News: 2013 Press Release

SACRAMENTO, Calif.- Insurance Commissioner Dave Jones today announced that Sutter Health, which operates one of the largest hospital chains in California, agreed to pay $46 million and implement historic changes in its billing and disclosure of anesthesia charges and services to its patients, insurers and other payers.

Sutter has over 20 hospitals in northern California, including California Pacific Medical Center in San Francisco, Sutter General Hospital in Sacramento, and Memorial Medical Center in Modesto. The settlement brings to a close a 2011 whistleblower lawsuit brought against Sutter by billing auditor, Rockville Recovery Associates. The commissioner joined the whistleblower in that lawsuit.

"This settlement represents a groundbreaking step in opening up hospital billing to public scrutiny," said Commissioner Jones. "The settlement requires Sutter to disclose on its Website every component of its anesthesia billing and what those services cost Sutter. Patients, insurers and the public will now be able to compare Sutter's costs to what it charges for anesthesia. They will see any mark-ups. I commend Sutter for agreeing to these reforms and this settlement. This new transparency should lead to lower prices and point the way to similar billing reforms for all types of hospital services."

The whistleblower lawsuit alleged that Sutter included a false and misleading charge in its surgery bills. Sutter patients or their insurers received three separate charges relating to anesthesia, including a charge by an outside anesthesiologist, a charge for the operating room and a charge under an obscure Code 37x Anesthesia. Sutter often charged thousands of dollars for Code 37x Anesthesia for each operation. Yet the services covered by that code were allegedly already captured in the operating room charge, itself a charge in the thousands of dollars. Sutter charged for anesthesia on a time-based or chronometric basis even when no Sutter employee, only the outside anesthesiologist, was present and overseeing anesthesia. Some hospitals also charged separately for anesthesia gasses using code 25x. Sutter's contracts with insurers also included a clause alleged to unduly restrict insurers from contesting the bills.

The settlement requires that Sutter:

• Pay $46 million
• Stop billing for anesthesia in the operating room on a chronometric basis and instead charge on a fully disclosed flat-fee basis
• Describe every component of its anesthesia billing
• Post on its Website and provide to insurers and the commissioner the cost to each Sutter hospital of its anesthesia services, updated annually
• Clarify the relationship between its master schedule of charges (known as chargemasters in the health care industry) and the bills that consumers and insurers receive. This change will lead to an increase of transparency and accountability in hospital billing
• More readily permit insurers and other payers to contest Sutter's bills.

Another defendant, Marin General Hospital, has agreed to implement the same changes to its procedures for billing anesthesia services. Marin General Hospital was a member of Sutter Health during the period of the misconduct alleged by the complaint. In 2010, Marin General Hospital became an independent hospital.

Today's settlement also includes defendants MultiPlan, Inc. ("Multiplan") and Private Healthcare Systems, Inc. ("PHCS"), whose provider contracts with Sutter included Sutter's audit policy that allegedly unduly restricted payers' ability to challenge Sutter's charges. In addition to paying $925,000, MultiPlan and PHCS agreed to continue to provide notifications to payers about their audit rights.

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Media Notes:

In March of this year, Time Magazine devoted a special issue to the problem of lack of transparency in hospital billing practices. "Bitter Pill: Why Medical Bills Are Killing Us" exposed hospital bills that sometimes include markups as high as 10,000 percent.

As required by the state's insurance whistleblower law, Sutter's settlement payment will be divided between the whistleblower, Rockville Recovery Associates, and the State of California. The state will receive $20 million, to be used to enhance the investigation and prevention of insurance fraud. Sutter and MultiPlan/PHCS do not admit to wrongdoing in the settlement agreement.

A copy of the Sutter settlement and complaint are available to the public.