In a novel decision, the U.S. District Court for the Southern District of New York has ruled that the 60-day clock to return overpayments to the government begins ticking when a health provider receives notice a potential overpayment exists, not when an overpayment is conclusively ascertained.
Doctors should be concerned about the ruling, said Houston health law attorney Michael E. Clark , immediate past chair for the American Bar Association Health Law Section.
“This is a very troubling development because the judge has embraced the theory that certainty is not required as to what constitutes an identified overpayment,” Mr. Clark said in an interview. “Rather, knowledge can be established by recklessness under the facts. In short, practitioners must set up systems to alert them about potential overpayments so they can move quickly to avoid potentially ruinous False Claims Act liability.”
The Aug. 3 ruling in Kane v. Healthfirst is the first published decision to address the 60-day overpayment rule imposed under the Affordable Care Act and the Fraud Enforcement and Recovery Act (FERA). The rule requires that an overpayment be reported and returned by health providers within 60 days of the “date on which the overpayment was identified.” Health providers who retain an overpayment beyond that point are subject to liability under the False Claims Act (FCA).
In the Kane case, the federal government contends that three hospitals operated by Continuum Health Partners failed to report and return overpayments to Medicaid within 60 days of identification. Because of a computer glitch, Continuum billed both the government and a managed care organization for the same services, according to court documents. After the New York State Comptroller’s Office alerted Continuum to a possible overbilling, Continuum hired an employee, Robert P. Kane, to conduct an internal investigation into its billing. Mr. Kane – who was later fired – allegedly found 900 potentially improper Medicaid claims totaling $1 million, according to court documents. The government claims Continuum failed to repay the overpayments within 60 days and instead repaid only “small batches” of the affected claims over the next 2 years. Mr. Kane filed a whistleblower suit against Continuum, and the government intervened as a plaintiff.
But Continuum argued that the hospitals did not knowingly conceal the overpayments from the government, and that the overbillings had not been officially “identified.” The defendants were provided only notice of potential overpayments and did not identify actual overpayments so as to trigger the 60-day report and return clock, Continuum said in court documents. The health system requested the court throw out the government’s suit for lack of merit.
District Judge Edgardo Ramos agreed with the federal government and allowed the lawsuit to continue. Judge Ramos said the legislative history indicates that Congress intended for FCA liability to attach in circumstances where there is an established duty to pay money to the government, even if the precise amount due has yet to be determined.
“Here, after the comptroller alerted defendants to the software glitch and approached them with specific wrongful claims, and after Kane put defendants on notice of a set of claims likely to contain numerous overpayments, defendants had an established duty to report and return wrongly collected money,” Judge Ramos said in his opinion. “To allow defendants to evade liability because Kane’s email did not conclusively establish each erroneous claim and did not provide the specific amount owed to the government would contradict Congress’s intentions as expressed during the passage of the FERA.”
In an email, a spokesperson for the defendants said the hospitals are disappointed with the judge’s decision and will continue to vigorously defend its case in court. Attorneys for the government did not return messages seeking comment.
The judge’s ruling is encouraging to the federal government and for plaintiffs who wish to sue health providers for overbilling violations, said Joel M. Androphy , a Houston plaintiffs’ attorney.
“This is going to open the floodgates for lawyers now as part of their false claim and reporting practices to let the courts know about overpayment issues because they know the court and the government will be listening,” Mr. Androphy said in an interview. “It’s not going to be the sole basis for [a plaintiff’s] claim necessarily, but it could be an integral part.”
Mr. Androphy added that defendants can no longer complain they were confused by the 60-day overpayment rule and the meaning of “identification.” The judge’s ruling makes the regulation more clear and provides guidance to health providers about how the rule will be enforced, he said.
Washington health law attorney Robert T. Rhoad however, disagreed that the opinion clarifies application of the 60-day overpayment rule. The decision does not provide the bright lines for compliance that providers expect and need, said Mr. Rhoad.
“While the Kane decision provides an exposition of the etiology and perceived intent of the 60-day rule, its ultimate ruling was made through the narrow lens of the specific and arguably egregious [facts] alleged,” Mr. Rhoad said in an interview. “If anything, by finding that certainty is not required in identifying an overpayment triggering the 60-day rule, the decision may encourage the government and qui tam relators to come forward with expansive theories of what might constitute reckless disregard by a provider to identify an overpayment to invoke FCA liability by the running of the 60-day clock.”
To protect themselves from litigation, physicians should take prudent steps to conduct an appropriate investigation if faced with actual or constructive notice of a possible overpayment, Mr. Rhoad said. Showing that they acted with due diligence and without delay to investigate and, if identified, report an overpayment could help doctors withstand future governmental or judicial scrutiny.
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