The auditing firm, Rockville Recovery Associates, said Sutter hospitals were charging patients for services provided by employees who were not actually present for the procedures by adding a billing code, “37x Anesthesia,” on top of operating-room charges. Rockville also said Sutter officials negotiated contract terms that prevented payers from analyzing and contesting such charges.
Hospital officials framed the case differently. They said Sutter facilities were billing for anesthesia services through a “time-based” method, as is common among hospitals. As a result of the settlement, Sutter will now switch to a “flat-rate” system.
“Sutter 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,” Bill Gleeson, Sutter Health spokesman, said in a news release. “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.”
Superior Court Judge Judy Hersher said in a Sept. 13 ruling (PDF) that critics—including the state insurance commissioner's office, which joined the lawsuit as a plaintiff in 2011—presented ample evidence to allow the case to proceed to trial.
For example, hospital employees testified in pretrial depositions that they had three to four anesthesia technicians to cover as many as 15 anesthetizing locations, and that the workers didn't keep track of how much time they spent with each patient. Sutter employees also testified that they knew 37x codes were intended only for when hospital staff were present, and that the code wasn't used in other contexts when staff weren't present.
C. Duane Dauner, president and CEO of the California Hospital Association, came to Sutter's defense in public statements (PDF), saying that Sutter's time-based billing scheme “is the industry standard and that hospitals are following state and federal guidelines.” But he also noted that other hospitals are likely to consider switching to flat rates to provide more transparency to hospital bills.
Sutter officials agreed to post on the system's websites all components of anesthesia charges, including both the prices charged and the costs the hospital incurred to provide those services.
“Insurers and the public will now be able to compare Sutter's costs to what it charges for anesthesia,” California Insurance Commissioner Dave Jones said in a statement. “They will see any markups. 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.”
As part of the settlement, healthcare-network consulting firm MultiPlan is paying $925,000 to settle allegations that the audit policy it negotiated with Sutter prevented payers from challenging the inflated anesthesia bills. MultiPlan did not admit wrongdoing.
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