Massachusetts physicians can no longer refer Medicaid and private pay patients to clinical laboratories in which they or a family member have a direct or indirect ownership interest. The provision was included in the commonwealth’s 2015 budget bill. Governor Deval Patrick signed the budget on July 14, 2014. 

Significantly, the provision provides exceptions for the following arrangements:

  • clinical laboratories owned by a licensed physician or group of licensed physicians that is used exclusively in connection with the diagnosis and treatment of the physician’s or group’s patients and where all testing is performed by or under the direct supervision of the physician or group; 
  • hospitals or clinics licensed under applicable Massachusetts law that are used exclusively in connection with the diagnosis or treatment of the hospital’s or clinic’s own patients; and 
  • any arrangement exempted under the federal physician self-referral law (commonly known as the “Stark Law”) or specifically permitted by regulation.


On June 27, 2014, the U.S. Department of Justice and the New York State Attorney General’s Office intervened in a federal False Claims Act case in the United States District Court for the Southern District of New York. The case, U.S. ex rel. Kane v. Healthfirst, Inc., centers on allegations that several New York hospitals failed to report and refund identified overpayments within the 60-day timeframe set forth under Section 1128J(d) of the Social Security Act.

According to the complaint, the hospitals improperly submitted claims to New York Medicaid for additional payments after being paid in full by Healthfirst, a Medicaid managed care plan. State law bars hospitals from seeking payment from Medicaid as a secondary payor. The hospitals allege that the billing errors are the result of a coding error contained in electronic remittances issued by Healthfirst that identified New York Medicaid as a secondary payor.

In September 2010, the New York Office of the State Comptroller notified the hospitals that it had identified a small number of claims where the hospitals had improperly billed New York Medicaid as the secondary payor. In response, the hospitals launched an internal investigation. The hospitals allegedly identified the scope of the errors in early February 2011, but did not fully refund New York Medicaid until March 2013. 

Section 1128J(d), which was added by the Affordable Care Act (“ACA”), requires an overpayment to be reported and returned by the later of “(A) the date which is 60 days after the date on which the overpayment was identified; or (B) the date any corresponding cost report is due, if applicable.” An “overpayment” is defined as “any funds that a person receives or retains under [Medicare] or [Medicaid] to which the person, after applicable reconciliation, is not entitled.” The ACA also clarified that an overpayment that is not reported and returned within the 60 days is an “obligation” under the False Claims Act (“FCA”), and thus subject to FCA liability. However, the statute does not define when an overpayment has been identified and the proposed regulations addressing the 60-day window (issued in February 2012) have not been finalized.

Providers and other stakeholders will be closely following this case as the court likely will have to determine when the hospitals “identified” the overpayments and whether their investigation was reasonable in light of the 60-day clock.