On June 27, 2014, the Department of Justice (“DOJ”) elected to intervene in a FCA suit based solely on an alleged failure to timely refund overpayments to the government. The failure to refund provision was one of the significant changes to the FCA wrought by the Affordable Care Act, and this suit is believed to be the first one in which DOJ has intervened based solely on allegations of a failure to refund.

The ACA amended the FCA by defining “obligation” as it is used in the “reverse false claims” provision to include retention of an overpayment from Medicare or Medicaid. Failure to report and return such overpayment within 60 days from the date on which the overpayment is “identified” creates potential liability under the FCA. The ACA left many open questions regarding the mechanics of the overpayment provision.

The relator is a former employee of Continuum Health Partners (now part of Mount Sinai Health System), who conducted an internal audit of Continuum’s claims after the New York Office of the State Comptroller notified Continuum in September 2010 that it had wrongly billed Medicaid as a secondary payor on certain claims. After concluding that a computer programming glitch was responsible for the error, relator emailed his managers on February 4, 2011, enclosing a spreadsheet indicating what he believed to be approximately 900 erroneous claims from three hospitals. Relator’s employment was terminated four days later. However, Continuum began refunding the claims at issue “in small batches,” such that 600 of the approximately 900 claims had been repaid as of June 2012, when Continuum received a subsequent Civil Investigative Demand. The remaining 300 claims were refunded by March 2013.

DOJ’s intervention in this case is notable in several respects. First, as we previously reported here, in February 2012, the Centers for Medicare and Medicaid Services (“CMS”) published a proposed rule to implement the ACA’s overpayment provision, as applicable to providers and suppliers under Medicare Parts A and B. Over two years later, CMS still has not published a final rule. Yet DOJ has apparently chosen this case as a vehicle to litigate the scope of the overpayment rule, notwithstanding that CMS has yet to issue final guidance. (While CMS has issued final guidance as to the meaning of “identified overpayment” for MA organizations and Part D Plan sponsors, it does not appear that this guidance applies to the claims at issue in this case).

DOJ’s complaint indicates that it believes that the defendants “identified” the overpayments on February 4, 2011, when relator provided the spreadsheet of claims at issue to his superiors. Relator also apparently shares that view, as the docket reflects that he filed his complaint under seal on April 5, 2011, exactly 60 days after writing the email to his managers detailing what he believed to be erroneous claims. Relator did so, even though (according to the complaint in intervention) his email to his superiors “indicated that further analysis was needed to corroborate his findings.” Thus, this lawsuit (and DOJ’s intervention, in particular) suggests that even preliminary, uncorroborated results from internal compliance activities may be sufficient to reach the point at which a company becomes sufficiently aware of an overpayment to trigger the countdown to FCA liability.

This suit also highlights the significant financial stakes at issue even in a case based solely on failure to timely refund overpayments. While the complaint contains the standard plea for treble damages, it appears from the allegations that Continuum already refunded the claims at issue, which would all but eliminate the prospect of damages. However, the defendants remain exposed to the possibility of civil penalties ranging from $5,500 to $11,000 for each claim that the government contends was not timely refunded. Through his initial review, relator believed 900 claims contained overpayments, which would yield damages totaling anywhere from $4,950,000 to $9,900,000. Yet the magnitude of the potential civil penalties remains an open issue. Relator’s amended complaint alleges that, if his initial calculations are extrapolated from the claims of the three hospitals he reviewed to all hospitals at issue, the number of claims tainted by overpayments would be much higher (although he does not provide an estimate of the number of claims). Additionally, the State of New York has elected to intervene, based on violations of the New York State False Claims Act. Violations of this state law carry a civil penalty of between $6,000 to $12,000 per false claim.

Had the government chosen to pursue enforcement under the Civil Monetary Penalties (“CMP”) Law instead of the FCA, the financial consequences could potentially have been catastrophic. Under the Department of Health and Human Services, Office of Inspector General’s (“OIG”) recently proposed approach to implementing the parallel overpayments provision of the CMP Law, OIG may impose fines of $10,000 per claim for each day an identified overpayment is not returned. 79 Fed. Reg. 27,080, 27,086 (May 12, 2014). Whereas even a belated but eventual cure mitigates financial penalties for overpayments under the FCA, under the CMP Law this may not be the case.

DOJ’s intervention in this case heightens the necessity of a timely internal assessment and response to complaints regarding overpayments. Given this relator’s filing on the first possible day that FCA liability could be incurred, companies may have little leeway in determining whether they have identified an overpayment.