Kathy Ormsby’s work auditing medical case files uncovered an alleged scheme to defraud the federal government: The California health system that employed her was scouring health histories of thousands of elderly Medicare patients, then pressuring doctors to add false diagnoses it found to their current medical records.
The point of larding the medical records with outdated and irrelevant diagnoses such as cancer and stroke — often without the knowledge of the patients themselves — was not providing better care, according to a lawsuit from the Justice Department, which investigated a whistleblower complaint Ormsby filed. It was to make patients appear sicker than they were.
The maneuver translated into millions of dollars in inflated bills to the federal Medicare Advantage insurance program, the government alleged in its false-claims lawsuit filed in U.S. District Court in California.
The case was part of a broader government crackdown on abusive billing practices in Medicare Advantage, the privatized insurance option that by next year is expected to cover more than half of all Medicare beneficiaries. The Justice Department is pursuing civil lawsuits against multiple companies that participate in the privatized system, from huge insurers to prestigious nonprofit hospital systems, alleging they have cheated the system for unfair profit.
Ormsby’s former employer, the Palo Alto Medical Foundation, which has 1,600 doctors, and its parent affiliate, Sutter Health, which runs 24...
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