On August 24, 2016, DOJ announced a $2.95 million settlement with defendants facing FCA liability for allegedly delaying repayment of more than $800,000 in Medicaid overpayments. The settlement amounted to nearly 3.5 times the amount of the improper billings stipulated in the settlement documents.

This is the first FCA settlement involving the Affordable Care Act’s 60-day repayment provision and flows from allegations that the defendants violated the obligation to report and remit overpayments within 60 days of when such payments have been identified. The stipulation accompanying the parties’ settlement of the FCA claims at issue also included language that the defendants “admit[ted], acknowledge[d], and accept[ed] responsibility for” the conduct underlying the government’s allegations regarding the violation of this obligation.

The parties’ settlement comes a year after the district court’s opinion denying the defendants’ motion to dismiss in U.S. ex rel. Kane v. Healthfirst, Inc., 120 F. Supp. 3d 370 (S.D.N.Y. 2015), which was the first published opinion to consider a healthcare provider’s obligations under the 60-day repayment provision, and six months after CMS published its final rule on the reporting and returning of overpayments.

The District Court’s Denial of Defendants’ Motion to Dismiss

The defendants were alleged to have failed to make timely repayment of money overbilled to Medicaid, which resulted from a software glitch. The overcharges to Medicaid began in 2009 and were discovered in 2010 by Continuum Health Partners, Inc. (Continuum), which tasked Robert Kane, a hospital employee, with performing an internal investigation to determine the scope of the issue.

In 2011, Kane was fired four days after circulating an email with a spreadsheet of over 900 improperly billed claims amounting to more than $1 million in potential overpayments. Around the time Kane was terminated, Continuum refunded five of the improper claims, but did nothing further to investigate Kane’s analysis. In June 2012, Continuum refunded more than 300 claims after receiving a CID seeking information on the overpayments. All claims were not refunded until March 2013—more than two years after Kane’s initial email notification of problematic claims.

Kane filed his original FCA complaint on April 5, 2011. In June 2014, DOJ filed its complaint-in-intervention. In moving to dismiss the government’s allegations, Continuum argued that an overpayment should not be considered to have been “identified” by mere notice of a potential, but unconfirmed overpayment and that the 60-day timeframe should be considered to have been triggered only when an overpayment has been confirmed and quantified. For its part, DOJ asserted that Kane’s email identified the majority of the improperly billed claims and the fact that additional analysis was required to corroborate his findings did not delay the start of the 60-day period to make repayment.

In denying Continuum’s motion to dismiss, the district court explained that “[t]o define ‘identified’ such that the sixty day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained, is compatible with the legislative history of the FCA and the [Fraud Enforcement and Recovery Act] highlighted by the Government.”

The district court recognized that its opinion would set a high bar for compliance, but reasoned that prosecutorial discretion would limit enforcement actions against “well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.” And, the district court suggested that in a case—unlike that of Continuum—where a provider worked diligently to identify overpaid claims, but was still “scrambling” to conclusively identify and return overpayments at the end of 60 days, the provider would not have acted with the required mental state to establish an FCA violation.

For a full analysis of the decision, please see our earlier post here.

CMS’ Final 60-Day Rule

The district court’s decision in Kane was followed by CMS’ publication of its final rule on the 60-day rule in February of this year. The CMS final rule eased some of the requirements for healthcare providers compared to what CMS originally had proposed. And, contrary to the district court’s opinion in Kane, the final CMS rule provides that an overpayment is “identified” when a provider or supplier not only determines that it has received an overpayment, but also has quantified the overpayment through the exercise of “reasonable diligence.” CMS also set a six-month benchmark for what it considers a timely investigation under the “reasonable diligence” standard for identifying overpayments. Under this benchmark, providers and suppliers have six months from the receipt of credible information to conduct a good faith investigation, absent “extraordinary circumstances.”

CMS’ final rule applies only to Medicare Part A and Part B, whereas the district court’s opinion in Kane involved overpayments made by Medicaid. Accordingly, the district court’s interpretation of when an overpayment is “identified” may continue to shape the boundaries of FCA reverse false claims liability in the Medicaid context.

For additional analysis of the final rule, please see our earlier post here.

Implications

The district court’s opinion in Kane, the recently announced settlement of the allegations underlying that lawsuit, and the CMS final rule certainly emphasize the need for providers to address any potential overpayments in a timely and diligent fashion. As is evident from the settlement reached in Kane, the diligence exercised by a provider can mean the difference between a simple return of an overpayment and potential FCA liability, which brings with it the possibility of treble damages and penalties.