Editor's Note: Healthcare providers that treat Medicare and Medicaid patients regularly face the quandary of what to do when there's the possibility they may have been overpaid by the government for their services. Since 2010, the law has been clear that providers are required to pay back overpayments within 60 days of being identified or risk liability under the False Claims Act (FCA). 31 U.S.C. § 3729 et seq.

What is not clear is when the 60-day period starts. Does it begin when the provider learns of a possible overpayment—or only when the provider has confirmed an overpayment? How much time, money and energy must the provider spend investigating the overpayment? And how promptly must the provider complete the investigation?

In a recent case of first impression, U.S. ex rel. Kane v. Continuum Health Partners, No. 11 Civ. 2325, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015),1 Judge Edgardo Ramos directly addressed these issues. By taking an expansive view of what constitutes "identification" of an overpayment, Kane has significantly expanded the scope of potential FCA liability for healthcare providers. In a new article in the New York Law Journal, summarized below, Manatt examines the Kane ruling—and the risks that it creates. Click here to read the full article.

Statutory Background

Enacted during the Civil War, the False Claims Act, 31 U.S.C. § 3729 et seq, allows the government or private whistleblowers (called relators) to sue to recover monies wrongfully paid out due to fraudulent claims. In 1986, Congress amended the FCA, adding the so-called "reverse false claims" provision, imposing liability on a party who affirmatively "made or used a false record or statement" to avoid paying money to the government.

In 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA), which, among other things, strengthened the "reverse false claims" provision, making parties liable under the FCA if they "knowingly conceal" or "knowingly and improperly" avoid or decrease an obligation to pay the government." 31 U.S.C. §3729(b) (1) (A). As part of the Patient Protection and Affordable Care Act (ACA), Congress added a provision in 2010 requiring healthcare providers who receive an overpayment to "report and return" the overpayment in 60 days. Providers who knowingly conceal or improperly retain payments beyond 60 days may be liable under the FCA.

Background on Kane

Kane began innocently when a third-party's computer glitch caused three Continuum hospitals to be paid for Medicaid claims that should not have been submitted. The overpayments were identified in September 2010, and the glitch was fixed in December 2010.

According to the complaint, based on a request from management, the relator, Robert Kane, wrote an email on February 4, 2011, attaching a spreadsheet of approximately 900 claims potentially affected by the glitch. There is no dispute the list was over-inclusive. About half the claims were never paid. Kane was terminated four days after the email.

The complaint further alleges that Continuum "did nothing further" to investigate the potential overpayments or bring them to the attention of the New York State Comptroller. Instead, in April 2011, Continuum began reimbursing New York State for overpayments identified by the Comptroller. 2015 WL 4619686 at *17. Continuum completed reimbursing New York in March 2013, after the U.S. Attorney issued a Civil Investigative Demand regarding the overpayments.

On April 5, 2011—day 60 after he provided his spreadsheet—Kane filed an FCA case. The United States and New York intervened in June 2014. The government alleged that by failing to investigate the potential overpayments that Kane identified, Continuum delayed repayment for more than two years.

Continuum moved to dismiss, arguing that because Kane's analysis was preliminary, no overpayment had been "identified" for purposes of the ACA. Therefore, the 60-day clock did not begin running. Continuum argued that the 60-day rule could not be reasonably applied where an overpayment had not been definitively ascertained, because of the time needed to investigate. Therefore, because it had no "obligation" to repay New York for claims until it determined with certainty those claims were overpaid, it was not liable under the FCA.

The Ruling

Judge Ramos ruled that Continuum's obligation had been triggered by the awareness of potential overpayments. He rejected Continuum's arguments, holding 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." Id. at *11.

According to Ramos, Continuum's argument was that "identified" means "ascertained with certainty." Ramos ruled that "identified' does not mean "ascertained with certainty." He pointed out that under FERA, an obligation is "an established duty, whether or not fixed, arising…from the retention of an overpayment." Id. at *11 (citing 31 U.S.C. §3729 (b) (3). Ramos further noted that Continuum's argument would create an incentive for providers not to investigate potential overpayments. Id. at *14.

Ramos also rejected Continuum's argument that the time it would take to investigate potential overpayments ordinarily would exceed the 60-day rule, exposing providers to FCA liability, even when they are investigating in good faith. Ramos stated 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." Id. at *13.

Kane Creates New FCA Risks

Kane creates significant risks for healthcare providers who, given the volume of claims they file, are likely to receive overpayments at some time. Healthcare providers routinely become aware of potential overpayments, for example, through self audits. As a result of Kane, on day 61 of identifying a potential overpayment, the provider is now at risk of an FCA lawsuit.

Nor does the decision's reliance on the good faith of federal prosecutors provide any comfort. Providers cannot rely on prosecutorial discretion to know when it's "OK" not to follow the court's interpretation of a law. Moreover, even if providers could rely on every government attorney's discretion, relators still can bring a weak or unfair FCA case.

Providers can take steps to mitigate the FCA risks that Kane creates. To trigger FCA liability, a provider must knowingly conceal or knowingly and improperly avoid an obligation to pay. Therefore, one option for providers is not only to self-disclose possible overpayments if the government is unaware of them but also to clarify at the outset who is responsible for investigating the overpayments and what a "reasonable" investigation will entail. Providers may even state in the letter that, because they dispute whether any repayment is owed, they believe the 60-day clock is not yet running.

While such steps reduce FCA risk, they don't eliminate it. For that, the Centers for Medicare and Medicaid Services (CMS) would have to address the real-world issues presented when a positive overpayment is noted. Although CMS has issued a proposed guidance on when an overpayment is "identified" with respect to certain Medicare programs, it has not provided guidance in the Medicaid context. Furthermore, CMS announced this year that its final guidance for the Medicare and Medicaid 60-day rule has now been delayed one year. Without more certainty around what triggers the 60-day rule in the Medicaid context, providers remain at the mercy of the whims of individual local Medicaid programs, prosecutors and FCA relators.