United States: Identification Of Overpayments: A Win For DOJ Cautions 'Prosecutorial Discretion' In Enforcement Of An 'Unforgiving Rule'

On August 3, 2015, the Southern District of New York issued the first judicial opinion interpreting the Affordable Care Act's "60-Day Overpayment Rule"1 in a False Claims Act ("FCA") case. In a clear win for the Department of Justice ("DOJ"), the court denied the defendant hospitals' motion to dismiss in Kane v. Healthfirst, Inc., et al.,2 and found that the government stated a claim under the FCA where the hospitals had failed to timely repay overpayments. At the center of the decision was an answer to the question, "What constitutes 'identification' of an overpayment?"

Unfortunately, the old adage proves true once again: bad facts make bad law. While the court clearly counsels against the initiation of enforcement actions aimed at well-intentioned health care providers working with reasonable haste, such policy arguments were not relevant in Kane based on the facts alleged. As a result, its holding does not offer the same flexibility: the 60-day clock starts ticking when a provider is "put on notice of a potential overpayment." Therefore, the new questions become how will DOJ respond to the court's recommendation of "prosecutorial discretion," and will whistleblowers follow suit? This is a particularly challenging issue for providers and suppliers given that the rule, once violated, cannot be cured by refunding the overpayment.


The 60-Day Overpayment Rule requires health care providers to report and return "identified" overpayments within 60 days. An overpayment that is retained after the 60-day deadline creates an "obligation" for purposes of FCA liability. In Kane, the defendant hospitals were first alerted by the New York State Comptroller's office in September 2010 to a "software glitch" that may have caused incorrect billing to New York Medicaid. In late 2010, after further discussions with the Comptroller's office and the software vendor, the defendant hospitals received a corrective software patch and tasked an employee, the Relator, to investigate and ascertain which claims had been improperly billed. On February 4, 2011, the Relator sent an email to several members of management identifying 900 claims with erroneous billing codes, and stating that further analysis would be necessary to confirm his findings. Four days later, the Relator was terminated. While the defendant hospitals ultimately repaid the overpayments associated with the software glitch, they did not inform the Comptroller's office of the Relator's analysis, and the repayments were not completed until March 2013, with the majority being made subsequent to a Civil Investigative Demand issued in June 2012.

Overpayments Are "Identified" When Providers Are "Put On Notice of Potential Overpayments"

Congress did not define the term "identified' in the ACA. The defendant hospitals argued that "identified" should mean "classified with certainty." By contrast, the government urged a definition that would be satisfied where a provider is "put on notice that a certain claim may have been overpaid." Ultimately, the court agreed with the government.

Relying primarily on legislative history applicable to the 2009 Fraud Enforcement and Recovery Act ("FERA") amendments to the FCA, and the consequences of adopting each party's position, the court held that overpayments are identified when providers are "put on notice of potential overpayments." More specifically, the court reasoned that Congress intended for FCA liability to attach where "there is an established duty to pay money to the government," and such an "obligation" under the FCA exists "even if the precise amount due has yet to be determined." Therefore, because an overpayment retained more than 60 days after identification creates an "obligation" under the FCA, interpreting the term "identify" as meaning "classified with certainty" would contradict Congress' intentions as expressed during the passage of the FERA amendments.

Separately, while the court recognized that the government's interpretation could impose an unworkable burden on providers, it concluded that requiring "certainty" as to the amount of an overpayment would encourage providers to deliberately ignore potential overpayments and make it all but impossible for the government to enforce the FCA. Critical to this reasoning, however, was the court's acknowledgment that "the mere existence of an 'obligation' does not establish a violation of the FCA."

"Obligations" Must Be Knowingly Concealed or Knowingly and Improperly Avoided

To establish FCA liability, the government, in addition to proving the retention of an overpayment, must show that the obligation was knowingly concealed or knowingly and improperly avoided. Of course, the definition of "knowing" under the FCA includes "actual knowledge," as well as situations in which a person "acts in deliberate ignorance" or "reckless disregard." Nevertheless, the court acknowledged that a violation of the 60-Day Overpayment Rule does not automatically trigger FCA liability; in other words, the mere retention of an overpayment for more than 60 days after identification is not a de facto reverse false claim. It is in this space that the court urges "prosecutorial discretion": where the "unforgiving" 60-Day Overpayment Rule offers no leeway or additional time to a provider, the FCA may, surprisingly, offer providers some cover from strict enforcement. In Kane, however, the court did not find that to be the case with the defendant hospitals based on the facts alleged.

Going Forward—DOJ's First Settlement Under the 60-Day Overpayment Rule and Awaiting CMS' Final Rule

Given the facts alleged in Kane, questions remain regarding how its holding will apply to health care providers who diligently investigate potential overpayments but fail to comply with the strict 60-day report and repayment deadline. Unfortunately, if the only recourse available to providers is to argue that their failure to strictly comply with the 60-Day Overpayment Rule does not amount to a reverse false claim under the FCA, many providers may be forced to settle to avoid the huge consequences associated with FCA liability. For example, one day after the Kane decision, DOJ announced its first settlement resulting from a provider's alleged failure to promptly report and return overpayments. Pediatric Services of America and several related entities ("PSA") agreed to pay $6.88 million and enter into a corporate integrity agreement to resolve allegations that it violated the FCA by retaining credit balances on its books related to claims it had submitted to various federal health care programs, including Medicare and Medicaid. According to DOJ, some of the credit balances had been on PSA's books for several years, while others were written off or absorbed without any investigation into the reason for the credit balances. PSA cooperated with a joint audit of the credit balances and explained in a statement that the inaccurate payments were the result of a software glitch associated with a 2008 update that caused 0.8 percent of its claims to be incorrectly billed. These facts are similar to Kane, and therefore leave the following question unanswered: should we expect the same results where a provider's return of an identified overpayment takes several months instead of several years?

Without a clear answer to that question, it is more important than ever for providers to carefully consider any internal or external allegations of incorrect billing, and diligently investigate those allegations and document all actions taken. We also expect the Centers for Medicare & Medicaid Services ("CMS") to finalize its proposed rule regarding application of the 60-Day Overpayment Law to providers in the Medicare context, and perhaps expand the rule's scope to apply in the Medicaid context as well.3 In February 2015, CMS decided to delay this final rule, citing "significant policy and operational issues that need to be resolved in order to address all of the issues raised by comments to the proposed rule and to ensure appropriate coordination with other government agencies."4 While Kane clearly demonstrated that enforcement may proceed under the statutory provisions alone, CMS likely will want to re-emphasize its interpretation of the 60-day report and repayment deadline.

In March 2012, we published a client memorandum that analyzed CMS' proposed rule entitled, 10-Year 'Look Back' Proposed for Identification and Return of Medicare Part A and B Overpayments. Regarding the issue of the identification of an overpayment, we wrote the following, which is worth revisiting in light of these developments:

CMS is proposing that an overpayment is "identified" if the provider or supplier (1) has actual knowledge of the existence of the overpayment; or (2) acts in reckless disregard or deliberate ignorance of the overpayment.

While "actual knowledge" is self-explanatory, there is no express statutory definition of "reckless disregard" or "deliberate ignorance."5 Providers and suppliers can reasonably expect that these vague standards will be read to require significant affirmative obligations. Thus, in the face of information that suggests an overpayment may exist (even if the chain of causation is remote), a provider would not be able to avoid repayment obligation by failing to perform activities to verify whether such overpayments exist, such as self-audits, compliance checks and other research. [Or, in the words of the court in Kane, once the provider is "put on notice of potential overpayments," the 60-day clock begins to run.]

In the proposed rule, CMS provides the example of an instance where a provider experiences a "significant increase in Medicare revenue [where] there is no apparent reason for the increase." Even were an audit or investigation to be made, reckless disregard or deliberate ignorance could still exist if there is a failure to conduct such inquiry with all "deliberate speed" after obtaining information (or an allegation) about a potential overpayment. 42 FR 9182 (February 16, 2012). Because overpayments can be collateral to other behavior, CMS's interpretation of this rule will likely create significant audit obligations.

CMS provides examples of instances when an overpayment has been "identified" and requires repayment, including instances where the provider or supplier:

  • Reviews billing or payment records and learns that it incorrectly coded certain services, resulting in increased reimbursement.
  • Learns that a patient death occurred prior to the service date on a claim that has been submitted for payment.
  • Learns that services were provided by an unlicensed or excluded individual on its behalf.
  • Performs an internal audit and discovers that overpayments exist.
  • Is informed by a government agency of an audit that discovered a potential overpayment, and the provider or supplier fails to make a reasonable inquiry.
  • Experiences a significant increase in Medicare revenue and there is no apparent reason for the increase.

Reading the proposed rule and explanatory text in context, the 60-day period for reporting and repayment appears to begin when there is actual knowledge of an overpayment or when a reasonable inquiry reveals an overpayment. The proposed rule does not address affirmatively what constitutes a "reasonable inquiry." However, because the 60-day reporting and repayment period also may begin to run when information about an overpayment is received but "recklessly" disregarded or deliberately ignored, the threshold for what is a "reasonable inquiry" may be fairly high.

Reed Smith will publish further analysis when the final rule is released, and continue to monitor legal developments in this important area.


1. 42 U.S.C. § 1320a-7k(d).

2. No. 11 Civ. 2325 (ER) (S.D.N.Y. August 3, 2015).

3. 77 Fed. Reg. 9179 (Feb. 16, 2012).

4. 80 Fed. Reg. 8247 (Feb. 17, 2015).

5. There is, however, significant case law under the FCA on these standards, if we are to assume a direct corollary.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Nancy Bonifant Halstead
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions