White Collar Posts

Heightened False Claims Exposure: 60-Day Period to Repay Begins When Overpayment is Suspected Rather Than Confirmed

August 5, 2015

In a significant decision this week affecting Medicaid and potentially Medicare healthcare providers, a U.S. District Court for the Southern District of New York held that federal False Claims Act (FCA) liability applies to providers that do not repay “identified overpayments” within 60 days of “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.” U.S. ex rel. Kane v. Continuum Health Partners, et al., Case No. 11-CIV-2325 (S.D.N.Y. Aug. 3, 2015), available here. Simply put, the statutory 60-day window to return an overpayment and avoid FCA liability begins to run when the provider is put on notice that a claim may have been overpaid, not from when the overpayment is calculated with certainty. This decision will require providers to move swiftly and diligently to calculate, report, and return overpayments to Medicaid and Medicare programs.

In reaching this decision, the court was mindful that its interpretation of the 60-day “report and return” rule would impose a “demanding” and “unforgiving” standard of compliance on providers, given the time and resources needed to audit suspected overpayments and determine what, if any, repayments are due to the government. Yet the court expressed concern that tolling the 60-day clock until an overpayment is conclusively established would encourage providers to avoid diligent investigation of suspected overpayments and subvert Congress’ purpose in expanding reverse false claims exposure under the FCA for knowingly retaining overpayments.

The Allegations

The government intervened in this FCA whistleblower case brought by a former Continuum Health Partners employee, Robert Kane. Continuum owns and operates a network of non-profit hospitals that, due to a computer glitch caused by their managed care organization, mistakenly billed Medicaid as a secondary payer when the managed care organization had already received fixed payments for the services provided. In September 2010, the New York State Comptroller’s office questioned Continuum about the potentially incorrect billings, and Continuum assigned several employees, including Kane, to review its billing data.

In February 2011, Kane sent an email to Continuum management attaching a spreadsheet of more than 900 potential billing errors, exceeding $1 million in overpayments. Kane’s email explained that further analysis was necessary to confirm the accuracy of the findings, and indeed it was later determined that approximately half of the listed claims were not overpayments. Kane was terminated four days after sending the email. That same month, Continuum repaid five claims but, according to the complaint, no further analysis occurred. Continuum repaid a large number of the claims in 2012 after a civil investigative demand was served and made further repayments in 2013.

The Court’s Opinion

Federal law requires a provider who receives a Medicaid or Medicare overpayment to report and return it within 60 days of the “date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(1-3) (emphasis added). In denying Continuum’s motion to dismiss the FCA claims, the court held that “identified” means when a provider is put on notice of a potential overpayment, rather than the moment when the error is conclusively established. Failure to return the overpayment within 60 days of such identification subjects the provider to FCA multiple damages and penalties. The court reasoned:

• Congress intended for FCA liability to attach in circumstances where there was an established duty to pay the government, even if the precise amount of that payment had not yet been determined.
• Although the statutory framework for the 60-day “report and return” rule is “unforgiving,” the court reasoned that prosecutorial discretion would likely protect “well-intentioned providers working with reasonable haste to address erroneous overpayments.” The court noted the government had alleged Continuum did nothing to ascertain the validity of numerous potential billing errors identified by the fired whistleblower.
• The court would not defer to the agency interpretation of the Centers of Medicare and Medicaid Services (“CMS”) of “identified overpayments” for Medicare programs, although the court concluded that their interpretations were consistent and shared CMS’ view that they gave providers an incentive to determine whether overpayments exist, instead of ignoring potential billing errors. In its May 23, 2014 final rule applicable to Medicare Parts C and D providers, CMS defined “identified overpayment” as when a provider “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.” Similarly, in CMS’s February 16, 2012 proposed rule for Medicare Parts A and B providers, an overpayment is “identified” when the provider “has actual knowledge of the overpayment or acts in reckless disregard or deliberate ignorance of the payment.”

The court also addressed whether the government adequately alleged that Continuum knowingly concealed or knowingly and improperly avoided an obligation under the FCA. The court found that a failure to act in a timely manner can constitute “avoidance” and rejected Continuum’s argument that “avoidance” required an affirmative act.

For a more detailed analysis of 60-day overpayment “report and return” rule, as well as the FCA and its amendments, please see Post & Schell’s 2010 article for ALM's Business Crimes Bulletin , titled “Government Overpayment:  New Risks, New Exposures,” available here.

Practice Tips

The government’s interest in pursuing providers who withhold overpayments cannot be ignored. Indeed, earlier this week the U.S. Attorney’s Office for the Southern District of Georgia announced a $6.88 million FCA settlement with Pediatric Services of America (PSA), a provider of nursing home services to children, based on PSA’s failure to promptly report and return overpayments to Medicare, Medicaid, and Tricare.  According to the government’s press release, available here, this whistleblower lawsuit alleged that PSA maintained numerous credit balances on its books related to claims submitted to federal health care programs and that PSA failed to investigate the reasons for these credit balances, many of which reflected overpayments that should have been returned. As the government warns in its press release, “Participants in federal health care programs are required to actively investigate whether they have received overpayments and, if so, promptly return the overpayments.”

This week’s combined impact of the PSA settlement and the Kane court’s interpretation of the “report and return” rule will certainly be costly and time-consuming for providers. There is now seemingly little defense if identified overpayments are not reported and returned within 60 days.  Accordingly:

• Providers need to devote adequate resources to review their records and evaluate whether potential overpayments are in fact overpayments. 
• Upon learning of a potential billing error or overpayment, the provider must quickly investigate, either internally or in conjunction with outside counsel, and document its efforts in detail to demonstrate to the government that it did not seek to avoid repayment and instead made a good faith effort to address a problem.
• Providers who cannot meet the 60-day repayment window, notwithstanding good faith efforts to comply, should be mindful that regardless of the government’s prosecutorial discretion not to proceed under the FCA, whistleblowers or qui tam relators will not be similarly constrained and may seize on the opportunity to recover under this expanded theory of FCA reverse claims liability.  

If you have questions about managing potential overpayments, please contact Post & Schell's Internal Investigations & White Collar Defense Group, or the authors, Barbara Rowland at browland@postschell.com, Matthew T. Newcomer at mnewcomer@postschell,com, or Mehreen Zaman at mzaman@postschell.com. 

Disclaimer: this E-Flash does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this E-Flash without first seeking the advice of counsel.