Medicare and Medicaid providers have an obligation to refund overpayments from federal health care programs. The False Claims Act (“FCA”) imposes liability for any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government.” In 2010, Congress passed the Patient Protection and Affordable Care Act, which included a provision creating liability under the FCA for health care providers who fail to disclose and refund overpayments within the latter of sixty days after the date the overpayment is identified or the date the next applicable cost report is due. A claim under the FCA asserting violations of this “sixty-day rule” is known as a “reverse false claim.”

Although a Centers for Medicare & Medicaid Services (“CMS”) rule implementing and clarifying the sixty-day repayment requirement has been proposed, it has not yet gone into effect, as CMS has once again delayed the deadline for publishing the final rule until February 16, 2016. With the CMS rule in limbo, there remains considerable ambiguity concerning when an overpayment has been “identified,” thus triggering the sixty-day rule. In a landmark decision entered August 3, 2015, the U.S. District Court for the Southern District of New York, which is often regarded as the standard-bearer on issues of legal significance, held that the clock starts ticking “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”

The case, Kane v. Healthfirst Inc., et al. and United States v. Continuum Health Partners Inc., et al., case number 1:11-cv-02325, involves allegations that a software glitch caused several hospitals operated by Continuum Health Partners, Inc. to submit claims to Medicaid for reimbursements to which they were not entitled. Medicaid, through the New York Department of Health (“DOH”), mistakenly paid the hospitals for many of these claims. In February 2011, the relator, a former employee of one of the hospitals who was tasked with identifying the universe of erroneously billed claims, sent an email to management with a spreadsheet listing over 900 claims that contained the erroneous billing code. His email further advised that additional analysis would be needed to confirm his findings. Although the relator was terminated just four days after sending the email, the hospital did not discard his findings. Instead, over the course of the next two years, the hospitals reimbursed DOH for the mistaken overpayments.

In June 2014, the DOJ intervened on behalf of the United States in the relator’s FCA lawsuit, alleging that the hospitals violated the reverse false claims provision of the FCA by “fraudulently delaying its repayments for up to two years after [they] knew of the extent of the overpayments.” The defendant hospitals countered that they were not obligated to report and return any overpayment until they knew with certainty the details of the alleged overpayments.

Following a painstaking application of the various canons of statutory interpretation, the court concluded that the defendants were required to report and return overpayments within sixty days after the relator had put them “on notice of a set of claims likely to contain numerous overpayments.” In reaching this noteworthy conclusion, the court explained that “[t]o allow defendants to evade liability because [the relator’s] email did not conclusively establish each erroneous claim and did not provide the specific amount owed to the government would contradict Congress’ intentions.” In short, the defendants’ interpretation, if accepted, would make the sixty-day rule impossible to enforce.

While this decision marks an important victory for the DOJ, it also enhances the need for CMS’s proposed rule clarifying how the sixty-day rule will be applied in practice. The proposed rule provides the following guidance:

• The word “identified” is defined to mean the date a provider has “actual knowledge of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of an overpayment.”
• A provider who receives information regarding a possible overpayment has an obligation to make a reasonable inquiry to determine whether an overpayment exists. If the inquiry reveals an overpayment, then the provider has sixty days from that point to report and return the overpayment.
• The sixty-day period to report and return the overpayment typically begins at the end of the provider’s reasonable investigation and not on the date the provider received the initial report of a possible overpayment.

Notwithstanding the district court’s decision in Kane, it is still unknown whether an overpayment is “identified” when a provider verifies that an overpayment occurred, but has not verified the exact amount of the overpayment. Under such a scenario, the obvious question remains: How can a provider report and return an overpayment if it does not know how much it has been overpaid?

A copy of the decision can be found here. Polsinelli will continue to monitor this case and will report on any noteworthy developments.