United States: The 60-Day Rule: Failure To Return Overpayments Caused By Software Glitch Costs Hospital $2.95 Million

A software glitch can be just as risky for a healthcare provider as submitting a false claim. Or so it was declared on August 24, 2016 when the U.S. Attorney for the Southern District of New York announced that Continuum Health Partners, Inc. and two of its New York City network hospitals would pay $2.95 million to resolve False Claims Act allegations that they had knowingly retained more than $843,000 in government funds in violation of the "60-day overpayment rule." The settlement concludes the first chapter in the judicial development of the rule: United States of America ex rel. Kane v. Continuum Health Partners, Inc., No. 11 CIV 2325 (S.D.N.Y. Aug. 23, 2016), a case that presented such compelling facts in favor of liability and a correspondingly strict inaugural judicial opinion that providers are left wondering whether the "unforgiving" 60-day rule imposes unworkable compliance obligations or is, instead, limited to its facts.

Although most False Claims Act (FCA) cases involve some fraudulent scheme to submit claims to the government, liability may also arise from retaining a Medicare or Medicaid overpayment. The Affordable Care Act added an extra weapon to the government's arsenal by stating that an obligation to repay the government materializes 60 days after the date on which the provider identifies the overpayment. The statute leaves undefined what it means to "identify" an overpayment. Although the Centers for Medicare & Medicaid Services (CMS) recently finalized a regulation interpreting this provision, providers should be mindful of the pitfalls in Kane.

In 2009, system incompatibilities between the Continuum hospitals and the Medicaid managed care organization Healthfirst resulted in a coding error that incorrectly indicated to the hospitals that certain claims were not only payable by Healthfirst, but were also payable by secondary payers such as the state Medicaid program. As a result, the hospitals' billing systems automatically billed the Medicaid program, which paid the claims. The New York State Comptroller's Office discovered the error in 2010, and, working with Continuum, implemented a software fix. Continuum tasked employee Robert Kane with identifying the impact of the software bug, and in February 2011, Kane presented Continuum with a list of 890 potentially-impacted hospital claims. Kane indicated that his list was probably over-inclusive and would require further analysis (indeed, only half of the claims were actually overpayments). Four days after Kane presented his list, however, Continuum fired him. Kane's spreadsheet of 890 claims and his analysis never made it to the Comptroller. That month, Continuum only repaid five of the overpaid claims, and ultimately took more than two years to repay the government for the balance.

The defendants contended that Kane's list was uncertain and that the 60-day period should not have begun until each repayment had been "classified with certainty." The defendants argued that if the clock begins to tick when potential overpayments are identified, this would unduly tax a provider's compliance program and would deny it the time needed to conduct a full and effective investigation. The government alleged, on the other hand, that an overpayment is identified when the provider is put on notice that a certain claim may have been overpaid. Judge Ramos adopted the government's position, noting that under the FCA, an "obligation" means an established duty, "whether or not fixed." Accordingly, the court stated that the rule encompasses not only a fixed obligation where all the particulars are defined, but also one where the duty is established and the amount owed is not yet determined.

In reaching this decision, the court acknowledged the "demanding standard of compliance in particular cases," noting that an overpayment would still be an obligation under the FCA even when a provider receives an analysis like Kane's, struggles to conduct an internal audit, reports its efforts to the government within the 60-day window, but has yet to isolate and return all overpayments on the 61st day. As the court held:

The ACA itself contains no language to temper or qualify this unforgiving rule; it 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.

Accordingly, under the Kane analysis, a provider only has 60 days from when a potential overpayment is identified to return the funds to the government, or risk FCA liability under the statute. The court suggested "prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments." For many in the field, however, this is little comfort: although a prosecutor may ultimately decide not to pursue the case, that does not relieve the provider from responding to the government's investigative subpoenas, or from the expense of litigating the case against the relator if the government declines to intervene.

Following the Kane opinion, CMS issued a final rule clarifying, and in some cases softening, the "unforgiving" 60-day rule. See our analysis of the rule here. Unfortunately for healthcare providers seeking relief in light of the Kane decision and settlement, the rule is not applicable to overpayments providers receive from Medicaid and Medicare Parts C and D. Until CMS promulgates rules for these programs, providers will remain in the shadow of Kane. In the meantime, providers and their compliance officers should learn from the defendants' mistakes, which turned a 2009 programming error into a treble damages settlement in 2016.

First and foremost, providers should not wait to identify and return known overpayments "until they receive[ ] the Government's CID[,]" as the government alleged in Kane. If the key to prosecutorial discretion is actually a "well-intentioned healthcare provider," then a government subpoena should not signal the start of overpayment identification efforts. Second, providers should follow up on potential overpayment issues raised by their employees and should ensure that those workers charged with verifying the provider's compliance with government regulations have the support and resources needed to investigate and take corrective action when warranted. Finally, if an issue is identified, the provider should consider CMS's guidance on using claims adjustments and credit balance mechanisms as well as appropriate self-disclosure protocols.

Proactive identification of overpayments is critical: for now, Kane stands as a stark reminder of how Congress designed the 60-day rule to operate and just how damaging a provider's failure to act on credible information can be.

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