Updated on: August 20, 2015

Court’s Interpretation of “Identified” Overpayments Imposes a “Demanding Standard of Compliance”

By Jessica Forster, Esq. and Kevin R. Miserez, Esq.
Original story posted on: August 19, 2015

  On Aug. 3, in the case of Kane v. Healthfirst, Inc., et. al., the Southern District of New York issued the first court opinion interpreting the 60-day overpayment provision of the Patient Protection and Affordable Care Act (PPACA). When a person has received a Medicare or Medicaid overpayment, the PPACA requires the person to report and return the overpayment within 60 days from the date the overpayment was “identified.” Failure to report and return an overpayment within 60 days from identification creates an “obligation” under the False Claims Act (FCA). The FCA imposes liability on any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government.” Under the FCA, the term “knowingly” encompasses situations in which a person has “actual knowledge” or acts in “deliberate ignorance” or “reckless disregard” of the truth or falsity of the information. 

In Kane, the Centers for Medicare & Medicaid Services (CMS) brought a case against three Continuum Health Partners, Inc. hospitals (“the hospitals”) under the reverse FCA for the failure to report and return identified overpayments stemming from a “software glitch” that caused them to submit improper claims to New York’s Medicaid program.  According to the court opinion, after the hospitals were made aware of the software glitch, they tasked certain employees, including Robert Kane (relator), with reviewing billing data in an effort to identify all potentially affected claims. Approximately five months after being notified of the software glitch, Kane emailed a spreadsheet to members of the hospitals’ management identifying 900 claims as having been improperly billed, totaling over $1 million. Kane was terminated from the hospital four days later. 

According to the allegations by CMS, it took the hospitals two years to return the entire overpayment related to the improperly billed claims. It further was alleged that, while the hospitals did repay some of the claims shortly after receiving Kane’s spreadsheet, it was not until the government issued a civil investigative demand that the vast majority of the overpayment was repaid by the hospital – approximately one and half years after the spreadsheet was provided by Kane. As a result, CMS alleges that the hospital violated the FCA because the hospitals “intentionally or recklessly” failed to take the necessary action to timely identify or reimburse those claims affected by the software glitch. 

The pivotal issue in Kane centered on the meaning of the word “identified,” which triggers the 60-day report-and-return deadline under the PPACA (i.e., whether Kane’s email and spreadsheet properly “identified” overpayments, thus making it a FCA violation when the hospitals failed to report and return the overpayments within 60 days). Because Congress did not define the term “identified,” the hospitals and CMS each provided their arguments to the court as to how the term “identified” should be defined. The hospital argued for the court to adopt a definition of “identified” that means “classified with certainty,” thereby contending that Kane’s email did not start the 60-day clock because it only provided notice of potential overpayments rather than identifying actual overpayments. Conversely, CMS argued that a person need only be “put on notice that a certain claim may have been overpaid” in order to meet the definition of “identified” under the PPACA.  

In the end, the court agreed with CMS’s definition of the word “identified” and denied the hospitals’ motion to dismiss the complaint. As part of its analysis, the court analyzed the legislative history of the FCA, finding that the 60-day time frame to report and return an overpayment begins when a person is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained. According to the court, to hold that an overpayment has not been identified until a precise overpayment amount has been determined would produce absurd results, because it would incentivize providers to delay in determining (or ignore completely) the overpayment amount due. Thus, while the court did acknowledge that CMS’s meaning of “identified” would “impose a demanding standard of compliance in particular cases,” the court determined that to hold otherwise would make it all but impossible for the government to enforce the reverse FCA.

Although the court recognized the stringent burden on providers under its adopted definition, the court noted that “the mere existence of an ‘obligation’ does not establish a violation of the FCA. Rather, in the reverse FCA context, it is only when an obligation is knowingly concealed or knowingly and improperly avoided or decreased that a provider has violated the FCA.” Accordingly, as pointed out by the court and CMS, if it were the case that the hospital was “diligently working on the claims and it’s on the sixty-first day and they’re still scrambling to go through the spreadsheet … the provider would not have acted with reckless disregard, deliberate ignorance, or actual knowledge of an overpayment required to support an FCA claim.” However, the court found this not to be the case here, where the hospitals delayed repaying the overpayment for up to two years after Kane’s email. 

There has been much uncertainty across the healthcare industry surrounding the PPACA’s 60-day overpayment provision, particularly as it pertains to the meaning of when an overpayment has been “identified.” On Feb. 16, 2012, CMS issued a proposed rule intended to resolve many of these uncertainties. However, the proposed rule has still not been finalized, and CMS announced earlier this year that it will extend the publishing date of the final rule by another year.

While the proposed rule is not scheduled to be finalized until February 2016, the decision in Kane has provided a greater indication of not only how the 60-day requirement will be interpreted by the courts, but also the government’s future enforcement of potential reverse FCA violations. 

About the Authors 

Jessica Forster is an associate at Wachler & Associates, P.C.  Ms. Forster dedicates a considerable portion of her practice to defending healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.  Her practice also includes the representation of clients in Stark, anti-kickback, and fraud and abuse matters.

Kevin Miserez is an associate at Wachler & Associates, P.C.  Mr. Miserez dedicates a substantial portion of his practice to representing healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.

Contact the Authors

jforster@wachler.com

kmiserez@wachler.com

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