The Southern District of New York has spoken on one of the first issues to confront those seeking compliance with the new “60-day rule” under the Affordable Care Act (ACA), and it does not bode well for defendant hospitals and providers. On August 3, 2015, the district court in Kane v. Healthfirst, Inc., issued its opinion on the defendants’ motion to dismiss, and in doing so, decided how the date from which the 60-day repayment rule, applicable to Medicare and Medicaid overpayments, was triggered.

The 60-day rule, which is still in its enforcement infancy, requires healthcare providers to “report and return” overpayments within 60 days of the “date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(1)-(3) (emphasis added). Any overpayments retained beyond the 60-day period expose the provider to liability under the False Claims Act (FCA). At issue in the opinion was how the New York district court should define the term “identified,” which was left undefined by Congress. In its 44-page opinion, the court carefully weighed all arguments, but ultimately sided with the government in finding that the 60-day period ran from the date on which the defendants were “put on notice that a certain claim may have been overpaid.” No other courts have interpreted or defined the term in the context of the 60-day rule.

Background

In Kane, a software glitch caused three New York hospitals to submit improper claims seeking reimbursement from the New York Medicaid program. Kane, a hospital employee, was tasked with internally investigating the issue to determine the extent of the improper claims and potential overpayments. In February 2011, Kane sent an email to executives at Continuum Health Partner, Inc. – the hospitals’ operator – attaching a spreadsheet listing 900 claims that were improperly billed and overpaid in an amount exceeding $1 million. The hospitals began repaying some of the overpayments in batches, but did not make full repayments until March 2013, following service of a Civil Investigative Demand from the U.S. Department of Justice. During the pendency of the hospitals’ repayment efforts, a qui tam action was filed by Kane, in which both the federal government and the state of New York intervened.

The government alleged that the hospitals “fraudulently delayed” their repayments for up to two years by not diligently investigating and returning the overpayments within 60 days of Kane’s email to Continuum and argued that an entity has “identified” an overpayment if it is “put on notice that a certain claim may have been overpaid.” Effectively, the government proposed an interpretation of “identified” that would be triggered when an entity “has determined, or should have determined through the exercise of reasonable diligence, that it has received an overpayment.” The hospitals countered, arguing that Kane’s spreadsheet did not “identify” any overpayments, but rather only provided a list of claims that were potentially erroneous. The hospitals then concluded that Kane’s email and spreadsheet merely amounted to “notice” of potential overpayments, and that notice alone did not meet the “identification” standard. The defendants thus argued that claims of overpayment were only “identified” when they were “classified with certainty.”

District Court’s Reasoning and Decision

The district court, in relying on statutory constructions such as plain meaning, legislative history and purpose, avoiding absurdity, and extending agency deference, agreed with the government’s interpretation. The district court paid particular attention to the legislative history and purpose of the FCA and ACA, which it described as “Congress’s more than 150-year commitment to deterring fraud against the Government and ensuring that Government losses due to fraud are recouped in a timely fashion.” “By requiring providers to self-report overpayments and imposing a relatively short deadline for repayments, violation of which risks the severe liability of the FCA, Congress intentionally placed the onus on providers, rather than on the Government, to quickly address overpayments and return any wrongly collected money,” the court noted. The court also appeared to sympathize with the government, stating that to adopt the defendants’ interpretation of “identified” “would make it all but impossible to enforce the reverse false claims provision of the FCA in the arena of healthcare fraud.” Last, the court noted that its finding was harmonious with “CMS’s final rule for Medicare Advantage and Part D sponsors, as well as its proposed rule for Medicare Part A and B providers and suppliers” – both of which construed the term “identification” at issue in the case. Accordingly, the court in Kane found that the term “identification” was met and was thus triggered when an entity was “put on notice that a certain claim may have been overpaid.”

Conclusion

The court’s opinion in Kane is potentially indicative of how other courts will treat the issue going forward. The opinion offers the first judicial guidance on when the 60-day rule is triggered. While the district court realized its decision imposed “a demanding standard of compliance” on providers, it conceded that the “ACA itself contains no language to temper or qualify this unforgiving rule.” Healthcare providers should take notice of this opinion and be mindful of the government’s expanded enforcement powers under the FCA and increased willingness to pursue those who fail to diligently investigate, report, and return overpayment mistakes in a timely manner. However, in an apparent attempt to offer some semblance of hope to providers grappling with the 60-day rule, the court did note 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,” but who ultimately cannot satisfy the 60-day rule.