United States: U.S. District Court Issues Ruling On Preliminary Motion To Dismiss Interpreting 60-Day Overpayment Rule

Holds Identification Occurs when Providers Are "Put on Notice" of Potential Overpayment

Compliance with the labyrinth of health care rules and regulations has always been a burdensome challenge for health care providers, and particularly for compliance officers who are frequently presented with potential overpayments that after months of investigation fail to reveal an actual overpayment. The United States District Court for the Southern District of New York has not made this task any easier. Instead, in a decision of first impression and in the absence of a final Centers for Medicare and Medicaid Services ("CMS") rule, the District Court in United States ex rel. Kane v. HealthFirst adopted the Department of Justice's position on the meaning of "identified" for the purpose of reporting and returning overpayments under the Affordable Care Act's ("ACA") 60-day rule.1 In so doing, the District Court held that "the sixty day clock begins ticking when a provider is put on notice of a potential overpayment."2

Although the court acknowledges that its holding creates a "demanding standard of compliance in particular cases, especially in light of the penalties and damages available under the FCA," it notes that the ACA "contains no language to temper or qualify this unforgiving rule."3 The court further provides that the government is "nowhere require[d] to grant more leeway or more time to a provider who fails to timely return an overpayment but acts with reasonable diligence in an attempt to do so."4 In adopting the government's "stringent" interpretation that, according to the court, will in certain cases create a "potentially unworkable burden on providers," the court noted that the defendants' interpretation—which proposed a "classified with certainty" standard—would produce absurd results, including "a perverse incentive to delay learning the amount due and relegating the sixty-day period to merely the time within which they would have to cut the check."5

Despite the significant implications of the court's decision for compliance departments, the court provided a glimmer of light by also holding that while the "identified" overpayments might qualify as an "obligation" under the False Claims Act ("FCA"), "the mere existence of an 'obligation' does not itself establish a violation of the FCA." The court noted that the government must still prove that the provider knowingly, as that term is defined in the FCA, concealed or knowingly and improperly avoided its obligation to return the overpayment.6

Factual Background and Procedural History

The New York Southern District Court's August 5, 2015 Order arose from the filing of a motion to dismiss by the defendants. Under the applicable rules, the court was required to construe the facts in the light most favorable to the government. The facts, as reported by the court, revealed that the case stemmed from overpayments that allegedly arose from a software glitch in the billing system of HealthFirst, a Medicaid managed care insurer.7 The glitch resulted in coding that allowed the providers to seek further payment on "Covered Services" from additional payors. In reality, these "Covered Services" were included in the monthly capitation payment paid by the New York State Department of Health ("DOH") to HealthFirst, and in fact, the HealthFirst contract prohibited providers from seeking further reimbursement.8 According to the government's complaint, the defendant health care providers allegedly submitted claims to DOH seeking further payment on the Covered Services, which were then mistakenly paid by DOH.9

The potential overpayments were initially brought to the attention of Continuum Health Partners by the state comptroller in September 2010.10 The relator, Robert Kane, an employee of defendant Continuum Health Partners, was tasked with reviewing Continuum's billing data to identify the universe of claims potentially affected by the software glitch. In February 2011, after reviewing the billing data, Kane sent an email to Continuum management along with a spreadsheet containing a universe of 900 claims containing the erroneous billing code, all of which were Medicaid claims.11 The email stated that "further analysis" would have to be conducted to confirm Kane's findings.12 Kane was terminated five days after sending the email. Although it was later determined that only approximately half of the claims on the relator's spreadsheet constituted actual overpayments, the overpayments, according to the government's complaint, were not fully returned for two years and only after the issuance of a Civil Investigative Demand ("CID").13

Kane filed his initial complaint against HealthFirst on April 5, 2011, alleging violations of the FCA and the New York State False Claims Act, which was subsequently amended on May 15, 2014, for an alleged failure to timely report and return overpayments received from Medicaid related to the Covered Services. In June 2012, the government issued a CID to Continuum requesting information about the claims submitted for Covered Services rendered to HealthFirst Medicaid enrollees.14 Both the United States Attorney's Office for the Southern District of New York and the State Office of the Attorney General, Medicaid Fraud Control Unit intervened by filing Notices of Election to Intervene in Part and Complaints-in-Intervention on June 27, 2014.15 The United States alleged that the defendants violated the FCA's "reverse false claims" provision found at 31 U.S.C. § 3729(a)(1)(G).16 New York also asserted that the defendants violated the similar reverse false claims provision contained in the New York State False Claims Act.17

The defendants filed a motion to dismiss both Intervenor-Complaints under Federal Rule of Civil Procedure 9(b) on the basis that the Complaints failed to allege that the defendants (i) had an obligation, (ii) knowingly concealed or knowingly and improperly avoided or decreased an obligation, and (iii) had an obligation to pay or transmit money to the federal government. In denying the defendants' motion to dismiss, the court engaged in an exhaustive review of statutory interpretation principles.18

District Court's Analysis

The primary issue before the court was whether the defendants' failure to return the identified overpayments within 60 days of such identification constituted an "obligation" to pay or transmit money to the government, thereby creating FCA liability. Thus, as an initial matter, the court was required to define the term "identified" for the purpose of determining when the 60-day clock began to tick. The government argued that the relator's email and accompanying spreadsheet identified overpayments under the ACA that matured into obligations that, when not reported and returned in 60 days of the email, constituted a violation of the FCA.19 The defendants argued that the relator's email "only provided notice of potential overpayments and did not identify actual overpayments so as to trigger the ACA's sixty-day report and return clock."20 According to the District Court, the defendants urged the court "to adopt a definition of 'identified' that means 'classified with certainty.'"21 The government, on the other hand, urged a definition that would be satisfied when "a person is put on notice that a certain claim may have been overpaid."22 The court noted that the government's proposal would treat "identified" as synonymous with "known" as that term is defined in the FCA.23

The court engaged in an exhaustive review of statutory interpretation principles, including the plain meaning of the word "identify" and canons of statutory construction to include the legislative history behind the ACA's deliberate use of the word "identified" rather than use of the word "known," the necessity to "avoid absurdity," the legislative purpose behind the 2009 amendments to the FCA with the passage of the Fraud Enforcement and Recovery Act ("FERA"), and agency deference to CMS's interpretation of the ACA's report and return provisions with respect to the Part C Medicare Advantage program and the Part D Prescription Drug program.24

The court found that dictionary definitions failed to provide a "plain meaning" to the term "identified" as used in the ACA. Turning to the canons of statutory construction, the court found the legislative history behind Congress's choice of the word "'identified' as opposed to 'known,' a term that is expressly defined elsewhere in the ACA report and return provision," significant.25 However, the court found it equally plausible that Congress's inclusion of the definitions of "knowing" and "knowingly" within the ACA's report and return provision "indicat[ed] that the FCA's knowledge standard should apply to the determination of when an overpayment is deemed 'identified.'"26 The court ultimately concluded that the "put on notice" position argued by government, "rather than the moment when an overpayment is conclusively ascertained," was more compatible with the legislative history of the FCA and the FERA. In particular, the court was persuaded by FERA's definition of "obligation" as "an established duty, whether or not fixed, arising ... from the retention of an overpayment."27 Thus, the court concluded that allowing the defendants to evade FCA liability because the relator's email "did not conclusively establish each erroneous claim" and the specific amount owed would "contradict Congress' intentions as expressed during the passage of the FERA."28

Although recognizing the "demanding standard of compliance" that would be created under the court's holding, the court offered little comfort, stating that the ACA contained "no language to temper or qualify this unforgiving rule" and further finding that the ACA "nowhere requires the Government to grant more leeway or more time to a provider who fails timely to return an overpayment but acts with reasonable diligence in an attempt to do so."29 The only glimmer of reprieve offered by the court was found in its holding that the "mere existence of an 'obligation' does not establish a violation of the FCA. Rather, ... it is only when an obligation is knowingly concealed or knowingly and improperly avoided or decreased that a provider has violated the FCA."30 The court went on to suggest 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" as such actions "would be inconsistent with the spirit of the law and would be unlikely to succeed."31

Despite what it referred to as a "potentially unworkable" burden on providers, the court found that the defendants' interpretation would make it impossible to enforce the reverse false claims provisions of the FCA.32 The court's position appears to have been influenced by the facts of this case and more particularly what it found to be a likely outcome of an alternative holding, i.e., the ability of a provider "to escape FCA liability by simply ignoring the analysis altogether and putting its head in the sand [thereby] subvert[ing] Congress' intent in amending §3729(a)(1)(G)."33 According to the court, if Kane's email were deemed insufficient to "identify" overpayments, there would be "no recourse for the Government when providers behave as Continuum allegedly behaved here. It would be an absurd result to construe this robust anti-fraud scheme as permitting willful ignorance to delay the formation of an obligation to repay the government money that it is due."34

The court also found that the relatively short deadline for reporting and returning overpayments, violations of which expose the provider to severe risks under the FCA, intentionally placed the onus on providers, rather than the government.35 This reading, according to the court, was in line with the legislative purpose of the FCA as evidenced by the 1986 FCA Amendments and FERA.36 One hopeful note was sounded in the court's consideration of CMS's interpretation of the ACA's "report and return" provisions with respect to Part C and Part D of the Medicare programs.37 In CMS's final rule, it explained that "reasonable diligence might require an investigation conducted in good faith and in a timely manner by qualified individuals in response to credible information of a potential overpayment."38 The court also considered CMS's proposed rule for Medicare providers and suppliers in which CMS explained that its definition of "knowing" would give providers "an incentive to exercise reasonable diligence to determine whether an overpayment exists."39 Failure to exercise such diligence with "all deliberate speed" could, according to CMS's proposed rule, result in the knowing retention of an overpayment under the reckless disregard or deliberate ignorance standard.40 The court concluded by "observing" that its conclusion was "at least consistent" with CMS's interpretation of the provisions at issue in the court's decision.41

Compliance Takeaways

The court clearly outlined that providers cannot stick their heads in the sand when it comes to the prompt investigation of employee, or even outside, notices of potential overpayments. There is also no question that once a provider is "put on notice of a potential overpayment," the provider should exercise reasonable diligence in investigating the notice's credibility. This is consistent with the position CMS has taken with the "report and return provisions" but, as evidenced in the reasons articulated by CMS in delaying the finalization of its proposed rule for Medicare providers, there are "significant policy and operational issues that need to be resolved." Moreover, CMS's publications concerning the report and return provisions expressly acknowledge that providers need time to investigate potential overpayment allegations. Indeed, CMS's commentary to the proposed rule implies, consistent with the court's caution to potentially overzealous prosecutors, that FCA liability results only when a provider "fails to make any reasonable inquiry" into the potential overpayment allegation.

Health care providers would also be well served to closely monitor all external audits to ensure that once specific claims that could contain overpayments are identified, follow-up investigations are conducted in a manner that allows the provider to quickly quantify actual overpayments. Perhaps even more importantly, once a provider begins an investigation, the provider must be equally diligent in returning the overpayment. Large health care providers, who may have multiple investigations proceeding at any one time, will likely be forced to prioritize resources to ensure that all investigations are being conducted in a manner that demonstrates the "reasonable haste" described by the court or at the very least, the "reasonable diligence" proposed by CMS.

Footnotes

[1] Kane ex rel. United States v. HealthFirst, Inc., 11-cv-2325, 2015 U.S. Dist. LEXIS 10178 (S.D.N.Y Aug. 3, 2015).

[2] Id. at *38.

[3] Id. at *42.

[4] Id.

[5] Id. at *44, *45.

[6] Id. at *42-43.

[7] See id. at *3.

[8] See id. at *5-6.

[9] See id. at *8.

[10] See id.

[11] See id. at *9.

[12] See id.

[13] See id. at *11.

[14] See id. at *12.

[15] See id. at *13.

[16] See id. at *13.

[17] See id. at *13.

[18] See id. at *25.

[19] See id.

[20] Id. at *26.

[21] Id. at *26-27.

[22] Id. at *27.

[23] Id.

[24] See id. at *27-52.

[25] See id. at *37.

[26] See id.

[27] See id. at *38.

[28] Id.

[29] Id. at *42.

[30] Id. at *42-43.

[31] Id. at *43.

[32] Id. at *45.

[33] Id. at *43-44.

[34] Id. at *44.

[35] See id. at *47-48.

[36] See id.

[37] See id. at *49.

[38] Id.

[39] Id. at *51.

[40] Id.

[41] Id. at *52.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

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.

Disclaimer

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.

Registration

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 by clicking here .

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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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.