Clarity for an “Unforgiving” and “Potentially Unworkable” Rule

By Zack Buck

In a case previously blogged about here, last week, the Southern District of New York denied Defendants’ motion to dismiss in U.S. ex rel. Kane v. Continuum Health Partners, No. 11-2325, in a major decision for health care entities unclear on the parameters of overpayment liability under the False Claims Act (FCA).

The case centers on Continuum Health Partners, Inc. (Continuum)—which operated three New York City area hospitals—and its erroneous receipt of overpayments from the New York Medicaid program based on a software glitch. The overpayments began in 2009; by September 2010, the New York State Comptroller had notified Continuum. Continuum tapped Robert Kane, an employee, to review the billing data and identify all claims that were incorrect. On February 4, 2011, Kane emailed a spreadsheet to superiors that contained 900 claims that may have been erroneously billed. The spreadsheet was “overly inclusive” and “approximately half of the claims listed therein were never actually overpaid.” On February 8, Kane was terminated.

Sixty days later, on April 5, 2011, Kane filed a relator’s lawsuit under the FCA, alleging that Continuum was in violation of the FCA—specifically for failing to report and return overpayments within sixty days of their identification. Even though Continuum had refunded all claims by 2013, DOJ intervened in June 2014, and Continuum and defendant Healthfirst, Inc.—a nonprofit insurance program that oversaw and processed the payments between the providers and the New York State Department of Health—filed a motion to dismiss last September.

The Defendants alleged three deficiencies with the complaint, but the most significant argument, and the court’s most consequential analysis, centered on when the overpayments were “identified,” as entities must report and return any overpayments within sixty days of their “identification.” Continuum argued that Kane’s spreadsheet listed only “potential overpayments,” that “identified” under the statute meant “classified with certainty,” and that it could not have practicably returned overpayments within sixty days of the Kane spreadsheet. Alternatively, the government claimed that “identification” occurred when “a person is put on notice that a certain claim may have been overpaid.” Of course, if “identification” had occurred with the spreadsheet, Continuum would be in violation of the FCA by April 5, 2011—sixty days later—for failing to report and return the overpayments in a timely manner.

Using statutory interpretation, the court defined “identified” as “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.” The court noted recent FCA amendments that strengthened “this robust anti-fraud scheme,” and was concerned that an opposite result would allow “willful ignorance to delay the formation of an obligation to repay the government money that it is due.”

Further, the court noted the importance of prosecutorial discretion in this area for “well-intentioned healthcare providers working with reasonable haste” (more on this later). Even though the court noted that the interpretation might be “potentially unworkable”—in that reporting and returning overpayments within sixty days after potential identification may be difficult to do—the court felt constrained by Congressional intent.

The impact on health care entities could be significant, and in an area already rife with risk, compliance officers must now be advised that the sixty-day clock may start as early as when a potential overpayment is preliminarily identified.

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