New York Whistleblower Court First to Address What It Means to “Identify” Overpayment under ACA’s 60 Day Rule

For the first time since its enactment as part of the Affordable Care Act (ACA) in 2010, a federal court in a whistleblower action will consider a provision requiring providers to return overpayments within sixty days of when they are “identified.”  The upcoming decision by the United States District Court for the Southern District of New York in U.S. ex rel. Kane v. HealthFirst Inc. et al  will likely be just  the first of many decisions on the subject.   Providers and government regulators are poised for what could prove a lengthy dispute at both the trial and appellate levels around the ACA’s 60 day rule and its interplay with overpayments in the False Claims Act (FCA) context.

In Kane, the government argues that the defendant providers “identified” overpayments when a whistleblower gave them a report listing claims affected by a software glitch in the company’s system, specifically a bill coding error.  The report identified hundreds of affected claims.   According to the government, rather than acting promptly to return the identified funds, the defendant fired the whistleblower and then took more than two years to fully reimburse the Medicaid program.

The provider argues that the whistleblower’s report, which listed some nine hundred claims totaling over a million dollars, was merely a compilation of the universe of claims that may have been wrongly submitted to and paid by Medicaid.  Further analysis was required at that point in order to confirm that the items were in fact overpayments.  Further, defendants note that approximately half of the claims initially identified by the whistleblower turned out to have never been submitted or paid.   Until all necessary analysis was accomplished, the affected claims had not been “identified.”

In addition to addressing the novel 60 day issue, this case also serves as a clear reminder that the intersection of the ACA’s 60 day rule and the False Claims Act is a problematic and potentially dangerous area for all providers.  In addition to creating the 60 day rule, the ACA also makes the retention of an identified overpayment an “obligation” under the FCA.  As such, overpayments are subject to the FCA’s treble (triple) damages provision, as well as to its onerous penalties which range from a minimum of $5,500 up to $11,000 per claim, and can also subject affected providers to possible exclusion from participation in federal programs.

The Kane defendants have moved to dismiss the government’s case because the claims at issue had been identified by them only as “potentially” affected by the bill coding error.  There was no initial indication that those claims had actually been billed to or paid by the government.  They assert that mere notice of  potential overpayment does not give rise to an established duty to act until 60 days after the overpayment is “identified” which they argue does not occur until the health care provider has actual knowledge of the overpayment.

The government counters that the FCA’s long-standing reverse false claims provision, which prohibits a provider from keeping a known overpayment, and the ACA’s relatively new 60 day rule, are distinct requirements both of which apply to the provider’s conduct in the case.  The government clearly thinks that the affected claims were sufficiently “identified” at the time of the whistleblower’s initial report.  But whether they were “identified” or merely “potential” for purposes of the 60 day rule is not dispositive from the government’s perspective.  Rather, the defendant’s alleged failure to act in a diligent manner once the “potential” overpayments were known alone constitutes “reckless disregard” and/or “deliberate ignorance” of the duty to return the overpayments and is therefore actionable under the FCA.

In this regard, the government’s brief argues “while {the 60 day ACA provision} provided a bright line for health care providers for when overpayments must be returned and when FCA liability could be triggered, the ACA did not purport to narrow the reverse false claims provision of the FCA, which has wide application to all types of overpayments…not simply Medicare and Medicaid funds “knowingly” retained…The Court need not find a violation of the [ACA’s 60 day provision] to find a violation of the reverse false claims provision of the FCA.  Separately, the ACA also captures the provider’s conduct…The [FCA’s reverse claims provision] and the ACA’s [60 day] report-and-return requirement are not coextensive.”

While not directly at issue in this case, providers should be aware that HHS’s Centers for Medicare and Medicaid  Services (CMS) recently finalized regulations addressing the meaning of “identify” for purposes of returning overpayments in the Medicare managed care arena.  Those regulations require recipients of federal funds to act with “reasonable diligence” and state that an entity has “identified” an overpayment when it “has determined, or should have determined through the exercise of reasonable diligence that it has received an overpayment.”

The defendants moved to dismiss the government’s suit on September 22, 2014.  The government’s opposition brief was filed on November 10, 2014.  The Court has not yet set a hearing or decision date in the matter.

Written by: A.G. (Alec) Alexander, III

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