A New York district court issued the first judicial opinion Monday, Aug. 3 on the Affordable Care Act’s “60-day rule,” which requires that a Medicare or Medicaid overpayment be reported and returned within 60 days of the date on which the overpayment was “identified.” The decision by Judge Edgardo Ramos provided a definition of what it means to “identify” an overpayment and thus begin the 60-day time period in which overpayments must be reported and returned. Given that the 60-day rule maintains that any person who knowingly fails to comply with this obligation within the 60-day timeframe has violated the False Claims Act (“FCA”), the potential implications of Judge Ramos’s decision are significant.

The case involved allegations that Continuum Health Partners Inc. (“Continuum”) violated the “reverse false claims provisions” (discussed in more detail below) of the FCA by failing to repay identified overpayments within the 60-day timeframe. Specifically, the allegations state that Continuum had identified overpayments to three of its New York City hospitals in February 2011 when then-employee Robert Kane, tasked with auditing claims for a billing error that manifested as a result of a software glitch, emailed several managers and executives at Continuum with a list of 900 claims totaling nearly $1 million that were possibly submitted to the Medicaid program in error as a result of the software glitch.

Four days after sending the email to Continuum leadership, Kane was terminated by Continuum. Kane subsequently filed this case as a qui tam action under the FCA and related state laws. Kane (and the U.S. government, which later elected to intervene in the case) asserted that the overpayments were “identified” by his February 2011 email to the managers and executives of Continuum, and that Continuum allegedly failed to act on Kane’s analysis or the universe of claims he identified, approximately half of which were never actually overpaid, but the majority of which were claims that had in fact been erroneously billed.

In an order denying Continuum’s motion to dismiss a qui tam FCA suit alleging that it intentionally retained Medicaid funds, Judge Ramos adopts the government’s proposal that “identification” of an overpayment occurs when “a person is put on notice that a certain claim may have been overpaid.” Rejecting Continuum’s argument that “identified” means “classified with certainty,” Judge Ramos presents an interpretation of the 60-day rule that markedly contrasts the understanding many providers have held of the rule’s trigger point.

Analyzing the legislative history of the FCA and the Fraud Enforcement and Recovery Act, which impose FCA liability on any person who knowingly avoids an obligation to repay the government (referred to as the “reverse false claims provision”), the opinion purports that Congress intended for FCA liability to exist in circumstances where “there is an established duty to pay money to the government, even if the precise amount due has yet to be determined.” Judge Ramos also points to a final rule implementing ACA’s report and return provision governing Medicare Part C and Part D, which defines “identified overpayment” as a situation where the entity “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.” (42 C.F.R. §§ 422.326(c), 423.360(c).) While Judge Ramos recognizes that the rule does not apply to Medicaid, he contends that “its logic plainly does.”

In light of the fact that Kane alerted Continuum’s leadership team as to possible overpayments in early 2011 and that the New York State Comptroller had actually approached Continuum regarding the billing errors allegedly caused by the software glitch in late 2010, Judge Ramos determined that Continuum had an “established duty to report and return wrongly collected money.” Continuum argues that compliance with such a stringent standard would be impracticable, as the steps that a provider would take after receiving notice of potential overpayments typically spans greater than 60 days. In response, Judge Ramos suggests that “prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers with reasonable haste to address erroneous overpayments.” Granting prosecutors such weighty discretion fails to give much reassurance to providers of the onerous obligations that accompany Judge Ramos’s opinion.

According to the ruling, Continuum’s argument that the 60-day period is not triggered until after it has uncovered the legitimacy of the claims and amount owed would create a “perverse incentive to delay learning the amount due.” However, while Continuum may have failed to adequately respond to initial allegations of potential overpayments, Judge Ramos’s opinion appears to unduly burden well-intentioned providers by requiring comprehensive investigations of all claims flagged as potentially overpayments, with virtually no regard for the credibility or source of that information. Also, the Court’s opinion does not provide much insight into the meaning of being “put on notice” of potential overpayments, which triggers the 60-day timeframe, thus adding to a provider’s challenge of compliance with the rule.

What this means to you

It should be noted that given the opinion addresses a motion to dismiss, the court was required to accept all factual allegations in the complaint as true and draw all reasonable inferences in the government’s favor. However, as the first statutory interpretation of the 60-day rule’s term “to identify,” it presents a significant decision that may be followed by other district courts. Therefore, providers should consider the ruling as an indicator of the need to diligently investigate allegations of potential overpayments. Also, providers should comprehensively document all measures taken to identify any overpayments. Without any further explanation of the meaning of being “put on notice” of a possible overpayment, providers are left in a challenging position in which they should err on the side of fully investigating all allegations with relative haste.