In a significant development for healthcare providers, a federal court in New York has adopted the government’s interpretation of the 2010 Patient Protection and Affordable Care Act’s (ACA’s) so-called 60-day rule, which governs when an “identified” overpayment must be repaid to the government before it becomes subject to federal False Claims Act (FCA) liability.

Writing in Kane v. Continuum Health Partners, Inc., et al., Judge Edgardo Ramos, a federal district judge sitting in the Southern District of New York, ruled in favor of the government, holding that a healthcare provider must return and repay Medicare and Medicaid overpayments within 60 days after the provider is put on notice of the potential overpayment, not 60 days after the overpayment is quantified.

The 60-day rule requires anyone who has received an overpayment from Medicare or Medicaid to report and return the overpayment within the latter of (1) 60 days after the date on which the overpayment was identified and (2) the due date of a corresponding cost report (if any). Those who fail to timely report and return an identified overpayment may be subject to substantial liability under the FCA.

Since 2010, healthcare providers have been awaiting clarification about when an overpayment is “identified” under the ACA. Despite having proposed rules in 2012, and having adopted final rules for Medicare Parts C and D interpreting “identified” in this context to mean having “actual knowledge of the overpayment or act[ing] in reckless disregard or deliberate ignorance of the overpayment”, the Centers for Medicare & Medicaid Services (CMS) announced that it would not finalize its interpretation of the 60-day rule for Parts A and B until sometime in 2016. In the absence of affirmative guidance to the contrary, many in the industry have taken the position that, as long as a provider diligently pursues quantifying an overpayment once a potential issue is identified, then it should not be deemed to have a known overpayment pending the results of those efforts.

Kane marks the first court interpretation of the 60-day rule and, although the court sided with the government, the opinion is not necessarily a defeat for healthcare providers who diligently investigate an issue once they are put on notice. In Kane, a billing software glitch caused three New York hospitals to receive overpayments from the New York State Department of Health (NYDOH) for services provided to Medicaid recipients between 2009 and 2010. State auditors notified the defendants of a potential Medicaid billing issue in September 2010, and the defendants tasked an employee, Robert Kane, with ascertaining which claims had been improperly billed to Medicaid. Approximately five months after the defendants were put on notice of the potential billing issue, Kane completed the hospital’s internal inquiry. On February 4, 2011, he sent an email and spreadsheet to several members of management providing a preliminary list of 900 potentially erroneous Medicaid claims with potential overpayments totaling more than US$1 million (the Kane email). Four days later, Kane was terminated and, according to the government, the hospital subsequently “did nothing further” with Kane’s work. The court seemed to echo this observation, noting that in the month after the Kane email was provided to management, only five improper claims were repaid to the NYDOH, and emphasizing the fact that it was not until after a Civil Investigative Demand was issued by the government to the hospital more than a year later, in June 2012, that the hospital finally paid more than 300 of the affected claims. Under these facts, Judge Ramos ruled that  the defendants violated the FCA by failing to report and return the Medicaid overpayments within 60 days after receiving Kane’s email.            

Judge Ramos’s ruling clearly demonstrates that healthcare providers must investigate potential overpayments quickly and thoroughly. Judge Ramos rejected the defendants’ position that an overpayment is not “identified” until it is “conclusively proven to be an overpayment” because such an interpretation would create a “perverse incentive” for providers to delay quantifying issues of which they are notified in order to delay making repayment.

At the same time, the ruling suggests that providers who diligently investigate and report a potential overpayment may not violate the FCA even if they cannot quantify and return the overpayment within 60 days. Judge Ramos advises  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. Such actions would be inconsistent with the spirit of the law and would be unlikely to succeed.”  In fact, in the Kane case, after the defendants received notice from the state of the possible issue, they took five months to complete an internal review of the matter, which resulted in the Kane email. The government did not take the position that the notice from the state triggered the 60-day clock. Rather, according to the government’s position, it was only five months later, when the defendants’ internal assessment of the NYDOH’s claims was delivered in the Kane email, that the 60-day requirement was triggered. And the government had conceded that even then, if the defendants had simply run out of time while diligently pursuing the issue, on the 61st day “the government wouldn’t be bringing that kind of claim.”  

Kane serves as a potent reminder: once providers learn they may have received an overpayment from the government, they should  act promptly and diligently to best position themselves to avoid FCA liability. But interestingly, thanks to its particular circumstances,  Kane is a nuanced opinion, suggesting that ultimately, the determination of an identification date remains somewhat subjective and fact-dependent.

This is the takeaway for prudent providers: when faced with a report of potential overpayments, carefully document your response and your inquiry. It may be necessary to seek objective counsel for guidance and confirmation that the inquiry was sufficient and conducted in good faith.