A Test For Overpayment Liability

By Zack Buck

The eyes of practitioners, compliance officers, and providers have been trained on the Southern District of New York as many await a decision on a motion to dismiss in Kane v. Continuum Health Partners, No. 11-2325. Kane has grabbed recent attention because of what it could represent: a new era in fraud enforcement.

The facts are straightforward. Throughout 2009 and 2010, three hospitals operating under the Continuum Health Partners umbrella (which is now Mount Sinai Health System) submitted erroneous Medicaid claims seeking reimbursement due to what has been described as a “computer glitch.” The New York Comptroller’s Office notified Continuum of the incorrect claims in the fall of 2010, and Continuum launched an internal investigation.

Relator Robert Kane was asked to investigate any erroneously submitted claims. By early 2011, he had created a spreadsheet containing around 900 claims he thought were erroneously submitted. He emailed the spreadsheet to superiors on February 4, 2011. On February 8, 2011, Kane’s employment was terminated.

From March 2011 to February 2012, the New York State Comptroller’s Office was in touch with Continuum regarding the allegedly erroneously submitted claims, and Continuum, agreeing that the claims had been incorrectly submitted, began refunding the claims in batches. By mid-2012, most of the claims had been refunded, and all claims were returned by March 2013.

Nevertheless, on April 5, 2011—exactly sixty days from the date of the email he sent—Kane filed a False Claims Act relator’s lawsuit against Continuum for a violation of 31 U.S.C. 3729(a)(1)(g)—what has become known as the “knowing retention” prong of the FCA. This provision makes illegal the “knowing[] conceal[ment] [of] … an obligation to pay or transmit money … to the Government.” This has also become known as the “reverse” false claim provision—an entity can violate the FCA after retaining an overpayment or erroneously paid claim, no matter its original fault for the overpayment.

Both the Fraud Enforcement and Recovery Act and the Affordable Care Act made clear the obligation facing a provider or entity that receives an improper overpayment—it must be reported and returned within sixty days of its identification. However, CMS has not given meaning to the term “identified,” and has delayed the adoption of any definitional regulation until 2016.

Which brings us back to Kane. Kane is the first relator’s lawsuit in which the DOJ has intervened based upon a failure to return an identified overpayment within sixty days. Interestingly, the government intervened after all claims had been refunded—meaning that the government’s alleged theory is based upon the failure to timely refund. Both the relator and DOJ have alleged that Kane’s email “identified” overpayments, starting the sixty day clock, and that the delay in returning them was “fraudulent.” In its motion to dismiss, Continuum has argued that the email was not an identification, but preliminary, and that more time (than sixty days) was needed to investigate whether or not an improperly billed claim had been paid. A decision on the motion to dismiss is forthcoming.

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