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.