Among the many changes under the Affordable Care Act (“ACA”), few have generated as much discussion as Section 6402(d), requiring healthcare providers to report and return any overpayment within 60 days of the date the overpayment is “identified”1 or risk liability under the False Claims Act (“FCA”) for a “reverse” false claim. Providers have grappled with how and when this provision would be applied as enforcement agencies have largely remained silent in offering an interpretation.2 This silence changed last week as a federal district court issued a ruling defining what it means to “identify” an overpayment followed by the public announcement of a settlement resolving an FCA action based upon a provider’s failure to refund credit balances. Both cases demonstrate the importance of providers exercising due diligence in promptly reviewing and addressing potential overpayment situations.

U.S. ex rel. Kane v. Healthfirst, Inc. et al.

On August 3, 2015, the Southern District of New York offered the first judicial interpretation of the ACA’s 60-day rule, siding with the Department of Justice’s interpretation of  “identified” in U.S. ex rel. Kane v. Healthfirst, Inc. et al., No. 1:11-cv-02325 (S.D.N.Y.) In Kane, the United States alleged that a group of hospitals failed to make timely repayment of money overbilled to Medicaid as a result of a software glitch. The overcharges to Medicaid began in 2009 and were discovered in 2010 by Continuum Health Partners, Inc. (“Continuum”), which tasked Kane, a hospital employee, with performing an internal investigation to determine the scope of the issue. In 2011, Kane was fired four days after circulating an email with a spreadsheet of over 900 improperly billed claims worth more than $1 million in potential overpayments. Around the time Kane was terminated, Continuum refunded five of the improper claims, but did nothing further to investigate Kane’s analysis. In June 2012, Continuum refunded more than 300 claims after receiving a Civil Investigative Demand seeking information on the overpayments. All claims were not refunded until March 2013, more than two years after the Kane’s initial email notification of problematic claims.

Kane filed his original complaint on April 5, 2011. The United States filed its notice of partial intervention on April 24, 2014 with its complaint in intervention following shortly thereafter on June 27, 2014. The Defendants moved to dismiss the complaint on September 22, 2014. The outcome of the motion to dismiss turned on the court’s interpretation of the meaning of “identified” in the statute. Continuum argued that an overpayment is not “identified” by mere notice of a potential but unconfirmed overpayment and that the 60-day timeframe may only be satisfied when an overpayment has been confirmed and quantified. The United States contended that Kane’s email identified the majority of the improperly billed claims and the fact that additional analysis was required to corroborate his findings did not delay the start of the 60-day period to make repayment.

In denying Continuum’s motion to dismiss, the Court opined, “[t]o define ‘identified’ such that the sixty day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained, is compatible with the legislative history of the FCA and the [Fraud Enforcement and Recovery Act] highlighted by the Government.”

Although the Court recognized that its decision would set a high bar for compliance, it reasoned that prosecutorial discretion would limit enforcement actions against “well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.” Citing a statement made by the Department of Justice in a pre-motion conference, the Court predicted that the Department of Justice will not bring enforcement actions against providers who are “diligently working” to reconcile overpayments as such providers “would not have acted with the reckless disregard, deliberate ignorance, or actual knowledge of an overpayment” predicate to an FCA cause of action.

U.S. ex rel. Odumosu and McCray v. Pediatric Servs. of Am. Healthcare Settlement

On August 4, 2015, the day following the Kane decision, providers of pediatric home nursing services reached a joint FCA settlement in two whistleblower investigations, U.S. ex rel. Odumosu v. Pediatric Servs. of Am. Healthcare, N.D. Ga., No. 1:11-cv-1007, and U.S. ex rel. McCray v. Pediatric Servs. of Am. Healthcare, S.D. Ga., No. 4:13-cv-127. The FCA settlement is the first settlement based upon a healthcare provider’s failure to identify potential overpayments. The United States alleged that the defendants did not refund credit balances owed to TRICARE and 20 states’ Medicaid programs between 2007 and 2013. Defendants claimed that the billing errors resulted as part of a self-disclosure involving a software upgrade that caused errors in .08% of charges.

The defendants agreed to pay $6.88 million to resolve these allegations, as well as allegations that they submitted claims to Georgia’s Pediatric Program for home nursing care without required supervisory documentation and inflated the length of time services were provided to patients covered by federal healthcare programs. In its press release announcing the settlement, the Department of Justice promised zero tolerance for providers “keeping American taxpayer dollars unjustly.”

Lessons for Providers

The results in Kane and Odumosu represent cautionary tales for healthcare providers and likely signal future government enforcement actions and additional whistleblower lawsuits. To avoid FCA liability, providers should work diligently to address potential overpayments as soon as a potential problem is raised. Courts and the Department of Justice will judge providers in hindsight based on whether they handled the problem with reasonable diligence. Providers should document all steps taken to address potential overpayments and inform stakeholders of the issue to reduce the risk of a whistleblower suit. Consulting with counsel when faced with a possible overpayment may help providers determine a swift and comprehensive course of action best suited to avoid an enforcement action and become the next test case.

1 Section 6402(d) of the Affordable Care Act requires that any overpayment retained by a provider must be reported and returned by “60 days after the date on which the overpayment was identified” or “the date any corresponding cost report is due,” whichever is later. Patient Protection and Affordable Care Act, PUB. L. NO. 111-148, § 6402(d)(2) (2010).

2 On February 16, 2012, the Centers for Medicare & Medicaid (“CMS”) published a proposed rule interpreting the 60-day repayment requirement. CMS intended for the rule to create an incentive for providers to “exercise reasonable diligence to determine whether an overpayment exists.” Although the proposed rule defined “identified” as actual knowledge, deliberate indifference, or reckless disregard of an overpayment, questions about the implementation of this requirement and its potential expansion of FCA liability remained. On February 17, 2015, CMS announced a one-year delay in publication of the final rule to allow for additional time to address “significant policy and operational issues,” as well as implicitly granting more time for courts to interpret the requirement.