In an eagerly anticipated decision issued on August 3, 2015, in an order denying the defendant hospitals’ motion to dismiss, the Southern District of New York became the first court to interpret and define the extent of a provider’s obligations under 42 U.S.C. § 1320a-7k(d) (section 6402 of the Affordable Care Act), commonly referred to as the “60-day rule.” See Kane ex rel. New York v. Healthfirst, Inc., 11 CIV. 2325 (ER) (S.D.N.Y. Aug. 3, 2015). The court held that the 60-day rule to report and refund overpayments may be triggered in situations where “a person is put on notice that a certain claim may have been overpaid.” Such an interpretation raises the possibility that the 60-day time period in which to report and refund an overpayment may begin—or even expire—before a provider has the opportunity to actually quantify the scope of the potential overpayment.
The 60-day rule requires recipients of an overpayment to report and refund the overpayment within 60 days of “identification” of the overpayment (or the date the corresponding cost report is due, whichever is later). See 42 U.S.C. § 1320a-7k(d).
In Kane, the relator, a former employee who served as the Technical Director of Revenue Cycle Operations, alleged that a group of hospitals violated the reverse False Claims Act (FCA) provision, 31 U.S.C. § 3729(a)(1)(G), by improperly retaining overpayments. The relator and the New York Office of the State Comptroller (the Comptroller) allegedly informed the hospitals that certain claims had been improperly billed to Medicaid due to a software glitch caused by the State’s Medicaid managed care organization, Healthfirst. In February 2011, the relator allegedly provided the hospitals with a spreadsheet of hundreds of claims affected by the glitch. However, the relator and the Government contend that the hospitals did nothing further with the relator’s analysis and took approximately two years to fully reimburse the Medicaid program for overpayments identified by the Comptroller. Additionally, the relator contends he was terminated within four days of sending the spreadsheet that identified the claims affected by the glitch.
On September 22, 2014, the hospitals filed a motion to dismiss arguing the complaint failed to allege a FCA claim because, among other things, mere notice of potential overpayments does not create an obligation to refund. Specifically, the relator’s February 2011 transmittal email containing the spreadsheet noted that his analysis was preliminary and that he recommended further efforts to corroborate his findings. Based on these statements by the relator, the hospitals argued they lacked knowledge of an overpayment because the relator’s report was characterized as preliminary and incomplete and, accordingly, they were waiting for the new report that the relator himself had indicated was required.
In its August 3, 2015 opinion, the court denied the hospitals’ motion to dismiss and adopted the Government’s position that identification includes situations where “a person is put on notice that a certain claim may have been overpaid.” Thus, based on this court’s interpretation of the meaning of “identification,” the 60-day clock may begin (and indeed may expire) before the provider has had sufficient time to complete a reasonable investigation. The court rejected the hospitals’ definition of identification—which required conclusive proof of an overpayment—arguing that such a definition would lead to absurd results and would effectively encourage providers to “stick their head in the sand” when faced with potential overpayments.
In some respects, it is unfortunate that the first court decision interpreting the 60-day rule involved what appear to be rather difficult facts regarding the hospitals’ diligence to report and refund the overpayments. The hospitals in Kane allegedly did not pursue any further actions to develop the preliminary report and took two years to refund overpayments discovered by the State Comptroller. The court did acknowledge that in certain circumstances a provider acting with reasonable diligence may be unable to isolate and return all overpayments within the 60-day timeframe. However, in such circumstances, the court appeals to “prosecutorial discretion,” suggesting that “prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments” and that “such actions would be inconsistent with the spirit of the law and would be unlikely to succeed.” Those statements, however, may be little comfort to providers who may have to deal with aggressive qui tam relators and significant defense costs.
To view the court’s opinion, click here.
Reporter, Isabella Edmundson, Atlanta, + 1 404 572 3527, iedmundson@kslaw.com.
