SACRAMENTO -- Sutter Health has agreed to pay a $46 million settlement to the state Department of Insurance for issues related to billing practices on the hospital chain's anesthesia patients, insurers and other payers, Insurance Commissioner Dave Jones said today.
The settlement stems from a whistleblower lawsuit that alleged the Sacramento-based health system, which operates a number of hospitals across the North Bay, "included a false and misleading charge in its surgery bills", and that "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…" according to Commissioner Jones.
Yet, according to the suit, the services covered by that code were allegedly already captured in an operating room charge, itself a charge in the thousands of dollars.
The 2009 lawsuit was brought against Sutter by billing auditor, Rockville Recovery Associates. The commissioner joined suit in 2011. A trial in Sacramento Superior Court was scheduled to start this month.
The California Hospital Association, in a statement provided by Sutter Health, said the method of billing for anesthesia services "was, and still is, consistent with federal and state laws and regulations."
"In fact, more than 90 percent of California hospitals, including hospitals operated by the state, bill for anesthesia services in this same manner,” C. Duane Dauner, president and CEO of the California Hospital Association, said.
Under the settlement, Sutter said it will change from the industry standard, time-based method of charging for such services to a flat-rate system. The health systems will also "proactively educate consumers" about anesthesia services and how patients are billed for them.
Commissioner Jones, meanwhile, said the settlement "represents a groundbreaking step in opening up hospital billing to public scrutiny," noting Sutter's agreement to disclose via its website every component of its anesthesia billing, including cost to the health system, which operates more than 20 hospitals throughout Northern California.
"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," Commissioner Jones said in announcing the settlement. "This new transparency should lead to lower prices and point the way to similar billing reforms for all types of hospital services."
While agreeing to the settlement, Sutter Heath spokesman Bill Gleason said its hospitals "consistently followed appropriate regulations and protocols in billing for anesthesia services."
"Because we followed the law and hospital industry practice, it was difficult to agree to a monetary settlement of any size. We made a tough decision—based on the best interests of our charitable assets—that the certainty and closure of a settlement was preferable to the significant human and financial resources associated with a lengthy trial. As a not-for-profit health system, we’re pleased to put this matter behind us and devote our full attention and resources to patient care.”
Marin General Hospital, which was operated by Sutter Health until a 2010 severance agreement, has also agreed to change its procedures for anesthesia services because it was a member of Sutter during the period of alleged billing issues.
In addition to the $46 million payment, the settlement includes:Stop billing for anesthesia in the operating room on a chronometric basis and instead charge on a fully disclosed flat-fee basisDescribe every component of its anesthesia billingPost on its website and provide to insurers and the commissioner the cost to each Sutter hospital of its anesthesia services, updated annuallyClarify the relationship between its master schedule of charges, better known as chargemasters, and the bills that consumers and insurers receive.More readily permit insurers and other payers to contest Sutter's bills.