When an Overpayment Becomes a False Claims Act Issue: Explaining the First Judicial Interpretation of the 60-Day Rule
On August 3, 2015, Judge Edgardo Ramos of the United States District Court for the Southern District of New York issued the first judicial opinion addressing when a health care provider has “identified” a Medicare or Medicaid overpayment under the Affordable Care Act’s (ACA) requirement that providers return overpayments within sixty days of the date the payment is identified (the “60-Day Rule”) or face potential liability under the federal False Claims Act (FCA). In United States ex rel. Kane v. Continuum Health Partners, Inc., No. 11-2325 (S.D.N.Y. Aug. 3, 2015), the court concluded 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.”1
Section 6402(a) of the ACA requires providers, suppliers, Medicare Advantage organizations, prescription drug plan sponsors, and Medicaid managed care organizations to “report and return” an “overpayment” within the later of (a) sixty days after the overpayment is “identified,” or (b) the date any corresponding cost report is due, if applicable. The 60-Day Rule defines an “overpayment” as any funds a person receives or retains under Medicare or Medicaid to which the person, after applicable reconciliation, is not entitled. Congress left the term “identified” undefined. On February 16, 2012, the Centers for Medicare and Medicaid Services (CMS) issued a notice of proposed rulemaking to implement the 60-Day Rule for Medicare Parts A and B. In the notice, CMS proposed to define “identified” as the time a person has “actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”2 It also proposed that, when a provider receives information about a “potential” overpayment, there is an obligation “to make a reasonable inquiry” to determine whether an overpayment exists. Failure to make such an inquiry “with all deliberate speed” could result in the provider knowingly retaining an overpayment. CMS has delayed its deadline to publish the final rule until February 2016, and in the meantime, healthcare providers continue to wrestle with when their sixty days for repayment begin.3
If a provider misses the sixty-day-repayment window, it could face treble damages and statutory penalties under the FCA. Under the ACA, an overpayment retained after the deadline is an “obligation” under the False Claims Act.4 The FCA, as amended by the Fraud Enforcement and Recovery Act (FERA), provides liability for one who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”5 The FCA defines “knowingly” to include both “actual knowledge” and situations where a provider “acts in deliberate ignorance” or “reckless disregard” of the truth or falsity of information.6
In Continuum, whistleblower Robert P. Kane alleged that three New York City hospitals belonging to a network of non-profit hospitals operated by Continuum Health Partners, Inc. (Continuum) violated the FCA by failing to repay identified overpayments within sixty days. Following a civil investigation, both the United States Attorney’s Office for the Southern District of New York and the State of New York (collectively the “Government”) intervened. The Government’s claims arose from services provided by each of the hospitals to Medicaid patients who were members of a managed care program administered by Healthfirst, Inc., a non-profit insurance company. The Continuum hospitals contractually agreed to accept reimbursement only from Healthfirst for certain covered services. A software glitch, however, caused the hospitals mistakenly to seek additional secondary payment from other payors, including Medicaid. As a result, the New York State Department of Health (DOH) incorrectly made secondary payment for claims submitted by the hospitals in 2009.
In September 2010, auditors from the New York State Comptroller’s office approached Continuum with questions about the incorrect billings. Between September 2010 and December 2010, the parties uncovered the software glitch and a corrective software patch was implemented. Thereafter, Kane, a Continuum employee, was asked to determine which claims were improperly submitted to Medicaid. Kane reviewed the claims between late 2010 and early 2011, and on February 4, 2011, he sent an email to several members of Continuum’s management with a spreadsheet listing more than 900 claims (totaling over $1 million) that Kane believed were incorrectly billed.7 Kane’s email also indicated that further analysis would be needed to confirm his findings. Independently, the New York Comptroller alerted Continuum of approximately five additional claims for which Medicaid was incorrectly billed.
Four days after Kane sent his email, he was terminated. Sixty-one days after Kane sent his email, he filed a qui tam complaint under seal alleging violations of the FCA. Although Continuum repaid the first five improper claims identified by the Comptroller in February 2011, the Government alleged that Continuum “did nothing further” with Kane’s analysis and “never brought Kane’s analysis to the attention of the Comptroller despite many communications with the Comptroller concerning additional claims to be repaid.” Unrelated to Kane’s analysis, the Comptroller independently identified several additional batches of improper claims between March 2011 and February 2012. Although Continuum began to repay those claims identified by the Comptroller in April 2011, the Government alleged that Continuum did not complete its repayment until March 2013. In particular, the district court noted that it was not until the Government issued a civil investigative demand seeking additional information about the overpayments in June 2012 (over a year after Kane’s email), that Continuum finally reimbursed the DOH for more than 300 overpayments.
In denying the Defendants’ motion to dismiss the Government’s complaints in intervention, the Southern District of New York agreed with the Government that the whistleblower’s email and spreadsheet “identified” overpayments within the meaning of the ACA, and that these overpayments matured into “obligations” in violation of the FCA when they were not reported and returned by Defendants within sixty days. The court employed theories of statutory interpretation and reviewed the legislative history and purpose of the ACA, FCA, and FERA to determine that an overpayment is “identified” when the provider “is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”8 Judge Ramos reasoned that this duty to repay may arise “even if the precise amount due has yet to be determined.9 Despite Continuum’s argument that Kane’s email only provided “notice of potential overpayments and did not identify actual overpayments,”10 the court held that such an email must constitute an identification, or otherwise the Government would have no recourse when a provider “simply ignor[es] the analysis altogether and put[s] its head in the sand."11
Recognizing that the court’s ruling imposes “a demanding standard of compliance” and “a stringent—and, in certain cases, potentially unworkable—burden on providers,” the court noted that even where an “obligation” arises to repay money, a violation of the FCA also requires that the obligation be “knowingly concealed or knowingly and improperly avoided or decreased.”12 This suggests that providers may avoid incurring FCA liability even beyond the sixty-day window if they can show that they have not concealed, avoided, or decreased their obligation to repay. The court further noted that “prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.13 Notably, the court suggested that its reasoning was consistent with CMS’s proposed rule even though that rule has yet to be finalized.
The Continuum decision provides insight into how at least one federal jurisdiction interprets the 60-Day Rule. While this ruling is technically binding only in the Southern District of New York, it is reasonable to expect that other courts will look to its reasoning for guidance. In addition, CMS may consider the case in defining when an overpayment is “identified” in its forthcoming final rule. In the meantime, healthcare providers should consider the following implications of the Continuum decision:
Once a healthcare provider is put on notice of a potential overpayment, the government may take the position that a provider must have qualified individuals diligently conduct a timely and good-faith investigation.
Healthcare providers should document their investigative efforts to demonstrate that they conducted a timely internal investigation.
Given the severe repercussions and swift deadlines of the 60-Day Rule, as interpreted in Continuum, healthcare providers should carefully consider which internal and outside personnel they ask to complete that investigation.
Healthcare providers may need to initiate the repayment process before knowing the exact amount of overpayment and should be prepared to explain their repayment analysis to the government when they do so.
While certain providers may benefit from prosecutorial discretion if they demonstrate diligent response efforts, such discretion is far from guaranteed and would be limited to those cases initiated by the Government.
A copy of the court’s opinion is available here.
 Id. at 23 (emphasis added).
 77 Fed. Reg. 9179-9187 (Feb. 16, 2012).
 CMS separately issued a final rule implementing the 60-Day Rule with respect to the Medicare Advantage program and the Medicare Part D Prescription Drug program. See 79 Fed. Reg. 29844 (May 23, 2014). In that final rule, CMS indicated that a Medicare Advantage organization or Part D sponsor has identified an overpayment “when the [entity] has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.” 42 C.F.R. §§ 422.326(c), 423.360(c). While this final rule and CMS’s commentary thereto were not at issue in the Continuum decision, the court did note that “its logic plainly does [apply].” Continuum at 30.
 42 U.S.C. § 1320a-7k(d)(3).
 31 U.S.C. § 3729(a)(1)(G).
 Id. § 3729(b)(1)(A).
 Although Kane’s email overestimated how many claims were improperly billed to Medicaid, approximately half of the items listed did, in fact, constitute overpayments.
 Continuum at 33.
 Id. at 24.
 Id. at 17.
 Id. at 26.