Whistleblower Lawsuit Against Sutter Health Moves Forward in Stark Law Case

The False Claims Act (FCA) and the Stark Law are two of the most critical tools used to combat healthcare fraud, particularly in cases involving improper physician compensation and illegal financial relationships between hospitals and referring doctors.

A recent whistleblower lawsuit against Sutter Health highlights the growing importance of Stark Law enforcement in healthcare fraud cases. This lawsuit, brought by a former compliance officer, alleges that Sutter Health engaged in unlawful financial arrangements with Sacramento Cardiovascular Surgeons Medical Group, violating the Stark Law and leading to False Claims Act violations.

Click here to read the Wilbanks & Gouinlock press release on the Sutter Health settlement.

The Whistleblower Lawsuit Against Sutter Health

In September 2014, Wilbanks & Gouinlock (W&G) filed a False Claims Act complaint on behalf of Laurie Hanvey, a former compliance officer at Sutter Medical Center in Sacramento, California. Ms. Hanvey, who had direct knowledge of regulatory violations, alleged that Sutter Health knowingly overpaid Sacramento Cardiovascular Surgeons Medical Group for:

• Physician assistant services
• Medical director agreements

These excessive payments, she contends, were designed to induce referrals, a violation of the Stark Law—which prohibits physician self-referrals for certain healthcare services if a financial relationship exists between the referring doctor and the entity providing the service.

Despite her internal protests, the allegedly improper compensation arrangements continued, leading Ms. Hanvey to take legal action under the False Claims Act’s qui tam provisions.

Government Investigation and Key Allegations

Following a five-year federal investigation, the United States Department of Justice (DOJ) confirmed multiple allegations in Ms. Hanvey’s whistleblower complaint. The Government contended that Sacramento Cardiovascular Medical Group and Sutter Health engaged in a range of improper financial practices, including:

• Stacking multiple medical director agreements – Paying neurosurgeons for overlapping administrative roles, leading to inflated compensation.
• Excessive call coverage fees – Unjustifiably high payments for on-call services, raising concerns about improper inducements.
• Overpaying neurosurgeons for mid-level provider services – Allegations that Sutter Health leased employees at excessive rates, resulting in inflated reimbursements.

According to the whistleblower lawsuit, these practices violated the Stark Law and led to false claims submitted to Medicare and other federal healthcare programs.

A Common Pattern in Stark Law Violations

The Sutter Health whistleblower lawsuit follows a recurring trend in Stark Law enforcement—hospitals allegedly overcompensating key referring physicians in ways that violate federal regulations.

One common tactic involves providing “free employees” to physicians, effectively artificially boosting their compensation while creating an illegal financial relationship.

These improper physician compensation schemes are particularly concerning because they:

• Distort medical decision-making, prioritizing financial incentives over patient care.
• Increase healthcare costs by leading to unnecessary services and inflated reimbursements.
• Violate the False Claims Act, potentially resulting in billions in recoveries for the government.

Ongoing Litigation in the Northern District of California

The whistleblower lawsuit against Sutter Health is currently proceeding in the U.S. District Court for the Northern District of California. While some settlements have already been reached, these represent only a fraction of the total alleged damages in the case.

As the litigation moves forward, Stark Law violations and False Claims Act cases remain a key focus of federal enforcement efforts—with whistleblowers playing a crucial role in exposing fraud.

The Impact of Whistleblower Lawsuits on Healthcare Fraud Enforcement

Cases like Ms. Hanvey’s whistleblower lawsuit against Sutter Health underscore the critical role that whistleblowers play in protecting Medicare, Medicaid, and other government healthcare programs from fraud.

The False Claims Act’s qui tam provisions allow individuals with inside knowledge of fraud to file lawsuits on behalf of the government and receive a percentage of the recovery. In many Stark Law cases, whistleblower lawsuits lead to:

• Significant financial recoveries – The DOJ recovers billions annually from False Claims Act settlements.
• Improved compliance and oversight – Hospitals and healthcare providers implement stronger internal controls following legal actions.
• Better patient care – Eliminating improper financial incentives helps ensure that medical decisions are based on patient needs, not financial gain.

How to Report Stark Law Violations and Healthcare Fraud

If you suspect violations of the Stark Law or have firsthand knowledge of healthcare fraud, you may have grounds for a False Claims Act whistleblower lawsuit. Contact our office for a free consultation:

• Fill out our consultation form by clicking here.
• Email us at info@wilbanksgouinlock.com.
• Call (404) 842-1075, ext. 123 or 122.

This article is for informational purposes only and should not be considered legal advice.