First Court Decision Defining “Identified” Overpayments Under the Medicare/Medicaid 60-Day Report and Return Rule

The United States District Court’s decision in Kane v Healthfirst, 11 Civ. 2325 (ER) (August 3, 2015) is a reminder to the health care community that the Affordable Care Act of 2010 (ACA) strengthened the False Claims Act and provided the government with powerful tools to seek recovery. The Court acknowledged the “stringent” and “potentially unworkable” nature of the report and return rule, but nonetheless determined that Congress intended to place the onus on providers to quickly investigate, report, and return overpayments within 60 days.

The Significance of the 60-Day Report and Return Rule

The ACA amended the Social Security Act to require a person who has received a Medicare or Medicaid overpayment to report and return the overpayment to the appropriate government agency or contractor, along with the reason for the overpayment, within 60 days after the overpayment is identified. 42 USC 1320a-7k(d). Missing the 60-day deadline transforms an identified overpayment into a False Claims Act obligation, potentially leading to a reverse false claim action by the government or qui tam relators and triggering treble damages, civil money penalties and exclusion from federal health care programs.

In 2012, the Centers for Medicare and Medicaid Services (CMS) proposed regulations implementing the report and return rule, including a definition for “identified” overpayments, but delayed publication of the final rule until February 2016.

Kane v Healthfirst

The overpayment in Healthfirst arose from an insurance company computer error that mistakenly informed the hospitals that they could seek secondary payment from other payers following payment by New York’s Medicaid managed care program. This error caused the hospitals’ electronic billing systems to bill secondary payers, including New York’s Medicaid fee-for-service program, which mistakenly paid the claims, resulting in double Medicaid payment.

The error was initially noticed by the Comptroller for the State of New York, who communicated it to the hospital network operator, Continuum, in September 2010. Continuum asked its employee, Robert Kane, to review the billing issue and identify claims subject to the computer error. In February 2011, Kane sent an email and a spreadsheet to Continuum’s management containing 900 hospital claims that needed further analysis with potential liability of over $1 million. Continuum fired Kane four days later. Within two months he filed the qui tam action.

The Comptroller twice provided Continuum with additional claims that were improperly billed and paid, and Continuum reimbursed some claims to the government. However, the government alleged that Continuum did not act to reimburse the vast majority of claims until after the government issued a civil investigative demand in June 2012, and did not complete all reimbursements until March 2013. Half of the claims on Kane’s original spreadsheet were properly paid, and half were found to be overpayments and returned to the government.

The government alleged that the overpaid claims were identified when Kane sent his email and spreadsheet to Continuum’s management in February 2011, that the failure to report and return all overpayments within 60 days created a False Claims Act obligation, and that defendants knowingly avoided the requirement to report and return the overpayment in violation of the False Claims Act.

The Court agreed, finding that the overpayments did not have to be determined with certainty to be identified. Rather, it is sufficient that a person be put on notice of potential overpayments, after which the person must act quickly to confirm the overpayments and take appropriate action.

The Court also noted that while identified overpayments might qualify as False Claims Act obligations, an obligation in and of itself does not violate the False Claims Act. It is only when an obligation is knowingly concealed or knowingly and improperly avoided or decreased that False Claims Act liability arises. The Court suggested that prosecutorial discretion would counsel against enforcement actions aimed at “well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.” The government’s allegation that it took Continuum more than two years and the issuance of a civil investigative demand to complete their investigation and return the overpayments was key to the Court’s conclusion that under the alleged facts the defendants acted with recklessness or in deliberate ignorance of whether overpayments were made.

Implications for Providers

The standard imposed by the False Claims Act for reporting and returning overpayments, as acknowledged by the Healthfirst Court, is an exacting standard with dire consequences for missteps. Providers often are inundated with claim and billing information, some of which in retrospect can be characterized as identified overpayments. Providers will need organized, well-designed and equally exacting processes for reviewing claim and billing information and responding quickly to reports of noncompliance, whether coming from inside or outside the organization.

Providers should update their billing and compliance processes now, rather than waiting for the proposed 60-day report and return rule to be finalized by CMS. Not only has the government demonstrated that strong enforcement action can be successful under existing statutes, but, as the Healthfirst Court itself observed, the proposed CMS rule is consistent with the Court’s conclusions. Providers should take a critical and comprehensive look at their billing and compliance processes and move to create a streamlined process capable of investigating, reporting and returning potential overpayments within 60 days.

For more information, please contact Donna O’Connor at 248-203-0720, or at doconnor@dykema.com, or contact any of the attorneys in the Health Care Practice Group.