The question of when an overpayment becomes “identified” for purposes of False Claims Act liability has generated significant uncertainty, and one district court just added more fodder for debate. See UnitedHealthcare Ins. Co. v. Price, No. 16-cv-157 (D.D.C. Mar. 31, 2017). The Affordable Care Act (“ACA”) requires persons to report and return overpayments from Medicare or Medicaid within 60 days of identification, and the failure to do so can trigger FCA liability. The ACA delegated to CMS the task of defining when an entity has “identified” an overpayment. CMS promulgated two rules (in May 2014 for Medicare Advantage (“MA”) plans and Part D Sponsors and in February 2016 for Medicare Part A/B providers), which equate “identification” to circumstances in which a person “has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment.” The “should have identified” standard generated concerns that CMS was using a simple negligence standard. The FCA, however, requires proof of at least “reckless disregard,” which courts have equated to gross (not merely simple) negligence.

As we reported here, last year UnitedHealthcare sued CMS based on the Agency’s 2014 Part C/D Final Rule on overpayments (“2014 CMS Rule”). Among other arguments, UnitedHealthcare contended that by defining “identified” overpayments as those overpayments that an MA plan “should have known” that it had received, the 2014 CMS Rule imposes a negligence standard, which is inconsistent with the FCA and therefore arbitrary and capricious. The only question before the court at this phase was whether UnitedHealthcare has standing to sue CMS. The district court concluded that UnitedHealthcare does have standing, noting concerns that the 2014 CMS Rule imposes certain obligations on UnitedHealthcare “under pain of a False Claims Act suit provable by negligence alone.”

UnitedHealthcare has asked the court to declare the 2014 CMS Rule invalid, and this district court’s conclusion that CMS’s rules potentially have swept up negligent conduct into the ambit of FCA liability introduces new litigation risk for the government and relators.

A copy of the court’s opinion can be found here.