In a highly anticipated ruling in Kane ex rel United States, et al. v. Health First, Inc., et al., a New York federal judge has issued the first judicial interpretation of the sixty-day overpayment return provision in the Affordable Care Act.  In 2009, the FERA created a “reverse false claim” for failing to report and refund an overpayment, even if the recipient was faultless in receiving the overpayment, on pain of liability under the FCA.  The ACA added a requirement that an overpayment be refunded within sixty days of its “identification,” but left unanswered when an overpayment is “identified” so as to trigger the sixty day clock.  The answer is in and it is not good for healthcare providers.

The case arose from a software glitch suffered by HealthFirst, Inc., a non-profit Medicaid managed care insurer, which caused three of its participating hospitals operated by Continuum Health Partners (“Continuum”) to submit improper claims for reimbursement under Medicaid.

After the software glitch was identified and brought to its attention, Continuum assigned its employee, Kane, to review Continuum’s billing data to identify all claims potentially affected by the software glitch.  Five months later, Kane sent an email to Continuum’s management attaching a spreadsheet of 900 claims totaling over $1,000,000 that he thought might be erroneous but would need further analysis to confirm.  Four days after pushing the “Send” button on his computer, Kane was fired.  Continuum slowly began to reimburse improperly billed claims in April 2011 and did not finish that process until 2013, relying on Medicaid to discover and assert claims before paying.  As it turned out, only half of the claims identified by Kane were erroneous.

Meanwhile, Kane became a Relator and filed a qui tam action alleging that Continuum fraudulently delayed repayments for up to two years with knowledge of the overpayments.  The Department of Justice intervened in the case and Judge Edgardo Ramos of the Southern District of New York rendered his interpretation in ruling on the defendants’ motion to dismiss.  Predictably, the government took the position that the email notifying management of potential overpayments triggered the sixty day period.  Just as predictably, the defendants argued that notice of a potential overpayment did not trigger the sixty day period; rather that the sixty day period should begin when the provider had conclusive knowledge of the overpayment.  Judge Ramos sided with the government.  He believed the defendants’ interpretation produced the absurd, untenable and congressionally unintended result of leaving it to the recipient exclusively to decide when, if ever, the sixty day clock started. Judge Ramos acknowledged the government’s interpretation might impose a difficult and potentially unworkable burden to determine the existence of actual overpayments and repay them all within sixty days of receiving notice of a potential overpayment like Kane’s email.  He trusted that prosecutorial discretion would militate against filing enforcement actions against defendants who had worked diligently to identify overpayments, even if they were repaid untimely.

The upshot of the case for providers is that once they are on notice of potential overpayments, they should act diligently to identify all of the overpayments and repay them within the sixty day deadline and, if that is not possible, to document continuous good faith efforts to do so within a reasonable time.

 

The ACA turned mistaken overpayments by intermediaries, carriers and Medicaid agencies into potential False Claims Act violations by healthcare providers when it required that an overpayment be reported and refunded within 60 days after it was “identified.”  The ACA does not define what constitutes “identification” of an overpayment, so providers have been left to wonder when the 60-day period begins to run.  CMS issued proposed regulations in February 2012, not finalized.  They say that an overpayment is identified when a person has “actual knowledge of the existence of an overpayment or acts in reckless disregard or deliberate indifference of the overpayment.”  The preamble also says the 60-day period would not begin to run until the healthcare provider had an opportunity to undertake a “reasonable inquiry” into the circumstances of the overpayment.  So what does “reasonable inquiry” mean?  Does it mean the inquiry necessary to give a healthcare provider a sneaking suspicion that an overpayment might have occurred, or does it mean a detailed investigation that positively shows an overpayment, or something in between?

The U.S. District Court for the Southern District of New York may answer that question in a qui tam lawsuit brought against Continuum Health Partners, Inc., which squarely raises the issue of when is the 60-day time period is triggered.  This case marks the DOJ’s first intervention in a qui tam case premised on the 60-day provision.  The whistleblower alleges that Continuum Health Partners either purposefully or recklessly failed to take steps to identify approximately 900 overpayments after being notified of a suspicion that overpayments existed.  He also contends the 60-day time period begins to run when an overpayment is first suspected.  Arguing for dismissal, Continuum Health Partners explained why the 60 days should not begin to run until the conclusion of a thorough investigation that positively identifies an overpayment.  Continuum Health Partners has a lot of money riding on the Court’s answer, with potential exposure to civil penalties of between $5,500 and $11,000 per false claim, plus three times the amount of the damage the government suffers.  Other healthcare providers have a lot riding on it as well, since the answer will also dictate how much time and money they spend examining and analyzing reimbursements to identify potential overpaments.