HIGHLIGHTS:

  • The U.S. District Court for the Southern District of New York issued the first decision directly addressing when an overpayment is “identified” for purposes of starting the 60-day repayment clock under the federal False Claims Act (FCA).
  • The court held that a provider “identifies” an overpayment when it is alerted to a potential overpayment, thus giving 60 days to complete an investigation into whether an actual overpayment exists and repay any funds to the government.

The U.S. District Court for the Southern District of New York issued the first decision directly addressing when an overpayment is “identified” for purposes of starting the 60-day repayment clock under the federal False Claims Act (FCA). In its Aug. 3, 2015 decision, denying the defendants’ motions to dismiss the government’s complaint in United States ex rel. Kane v. Healthfirst, Inc., et al., No. 11 CIV 2325 (S.D.N.Y. Aug. 3, 2015), the court held that a provider “identifies” an overpayment when it is alerted to a potential overpayment, thus giving 60 days to complete an investigation into whether an actual overpayment exists and repay any funds to the government.

According to the complaint, the case stems from the discovery of an error in Healthfirst’s billing software that caused the submission of improper claims for secondary coverage to New York’s Medicaid program by a hospital consortium. The hospital allegedly was first alerted to the error by the New York State Comptroller’s Office. An investigation ending in February 2011 found more than 900 potentially erroneous claims. Within days of this revelation, the hospital fired the employee, relator Robert Kane, who produced the list of claims. Following Kane’s termination, the hospital allegedly “did nothing further” to confirm which claims were affected, and did not fully repay Medicaid until the government issued a Civil Investigative Demand in June 2012.

Kane filed this action, soon after his termination, under the FCA and its New York and New Jersey counterparts. The FCA, as amended in 2009 by the Fraud Enforcement and Recovery Act (FERA), imposes liability on any person who “knowingly or improperly avoids or decreases an obligation to pay or transmit money or property to the government.” Pursuant to the ACA, an “obligation” carrying liability under the FCA arises when the recipient of an overpayment fails to “report and return” it to the government within 60 days of the “date on which the overpayment was identified.” The term “identified” is not defined.

Timing of Potential Overpayment Identification Is Key

In denying the defendants’ motions, the court rejected the argument that an overpayment is identified only when it is “conclusively proven to be an overpayment.” Rather, the court held, an overpayment is “identified” as soon as “a provider is put on notice of a potential overpayment.” Consequently, under the court’s reasoning, a provider must repay the government in full within 60 days of being alerted to a potential overpayment, or an “obligation” will arise carrying with it potential FCA liability. However, the court opined that the mere existence of an “obligation,” without more, cannot state a claim under the FCA. Rather, “it is only when an obligation is knowingly concealed or improperly avoided or decreased that a provider has violated the FCA.” The ruling, therefore, fails to conclusively establish when FCA liability would attach where a provider who is diligently working to wrap-up its investigation, and make a repayment, does not complete the process within 60 days.

Notwithstanding the apparent caveat in the court’s otherwise bright-line ruling, and the fact-dependent nature of FCA liability, providers should move quickly to investigate whenever they are alerted to a potential overpayment, and to complete the repayment within 60 days.