DOJ Intervenes In False Claims Act Case and Alleges Violation for Failure to Return Medicaid Overpayment Within 60 Days of “Identification”

by Leonardo M. Tamburello and John Zen Jackson

The need to investigate and “identify” potential Medicare and Medicaid overpayments promptly and diligently after they have come to the attention of hospitals and health care providers was underscored by recent action of the Department of Justice (DOJ). On June 27, 2014, DOJ intervened in a qui tam whistleblower lawsuit pending in the United States District Court for the Southern District of New York. It joined in claims under the federal False Claims Act against New York City’s Continuum Health Partners and its constituent hospitals based on the defendants’ failure to return Medicaid overpayments within sixty (60) days of identifying them, as required by § 6402(d) of the Affordable Care Act (ACA). United States ex rel. Kane v. Continuum Health Partners, Inc., et al, (Civil Action No. 11-2325 (ER)) (Complaint in Intervention filed June 27, 2014). These allegations are based solely on the fact that repayment did not occur within the 60-day timeframe required by the ACA and were brought despite defendants’ repayment of all amounts in dispute.

 The qui tam lawsuit that had been filed under seal in the Federal Court for the Southern District of New York included claims against the Healthfirst MCO, its affiliate entities, a large number of New York hospitals and also 20 New Jersey hospitals.  On June 26, 2014 the United States Attorney for the Southern District of New York and the New York Attorney General intervened in part of the case involving New York hospitals.  That same day, the qui tam Amended Complaint was unsealed.  It includes allegations that the 20 New Jersey hospitals had also erroneously billed Medicaid and attempted to unlawfully retain the overpayments in an aggregate amount of approximately $125 million.  In the Third Count, the qui tam Plaintiff asserts claims against the New Jersey hospitals under the New Jersey False Claims Act, N.J.S.A. 2A:32C(g), based on the hospitals’ alleged knowing failure to report and return the overpayments.  The State of New Jersey has not yet indicated whether it will intervene or not.

 Section 6402(d) of the ACA requires any “overpayment” to be reported, explained and returned within 60 days after the date on which it is identified or any corresponding cost report was due, as applicable. 42 U.S.C. § 1320a-7k(d). 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 under such title.” 42 U.S.C. § 1320a-7k(d)(4)(B).  Although to date CMS has not issued expected final regulatory guidance, the statutory text indicates that any overpayment retained past this deadline can lead to liability under the False Claims Act (FCA) in the form of treble damages, civil monetary penalties between $5,000 to $11,000 per violation, attorney’s fees and/or exclusion from Medicare participation. 31 U.S.C. § 3729; 42 U.S.C. § 1320a-7.

 In Kane, the overpayments were not the fault of any of the providers involved, but rather the result of coding errors by Healthfirst, the MCO which contracted with the Continuum providers for services to New York Medicaid managed care enrollees. Starting around early 2009, these errors caused Healthfirst to erroneously authorize the hospitals to seek additional payments from secondary payers. As a result, Continuum impermissibly submitted claims to New York Medicaid on behalf of its constituent providers

 The complaint alleges that in September 2010, the State of New York identified a small number of claims submitted by Continuum on behalf of its hospitals as having been wrongly submitted to Medicaid as secondary payer. Less than six months later, according to the DOJ, an internal investigation at Continuum revealed that approximately 900 specific claims totaling over $1 million may have been submitted to, and paid by Medicaid as a secondary payer, in error. While Continuum eventually made final repayment of all amounts in issue, that process was not completed until March 2013 and only after the Government issued a Civil Investigative Demand concerning these payments in June 2012.

 The DOJ is seeking treble damages in an amount to be determined, penalties of $11,000 for each overpayment retained beyond the 60-day deadline created by the ACA, and costs of suit. This is believed to be the first instance where damages under the FCA are sought solely as a result of failing to comply with the ACA’s requirement that overpayments be returned within 60 days.

 When exactly each alleged overpayment was “identified” by the defendants will be a crucial issue in Kane. This ambiguity concerning the “identification” of overpayments under § 6402(d) has been the source of industry concern since the ACA’s enactment. In February 2012, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule addressing this, at least in part. See 77 Fed. Reg. 32, 9179-9187 (Feb. 16, 2012) (the “Proposed Rule”). In speaking to Medicare, (leaving “[o]ther stakeholders, including, without limitation… Medicaid MCOs … [to] be addressed at a later date”), CMS advocated a knowledge requirement similar to that which exists under the FCA, stating that an overpayment has been identified for purposes of the ACA when “the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate indifference of the overpayment.” Id. at 9180, 9187 (proposed 42 C.F.R. § 401.305(a)(2)).

Concerning “identification,” of overpayments, the Proposed Rule states that a provider “may receive information concerning a potential overpayment that creates an obligation to make a reasonable inquiry to determine whether an overpayment exists.” Id. at 9182. Failure to make such a “reasonable inquiry” with “all deliberate speed after obtaining the information could result in the provider knowingly retaining an overpayment because it acted in reckless disregard or deliberate ignorance of whether or not it received such an overpayment.” Ibid.

Illustrative examples of wrongfully retained overpayments, apropos of Kane, provided in the Proposed Rule include instances where a provider “is informed by a government agency of an audit that discovered a potential overpayment, and… fails to make a reasonable inquiry.” Ibid. In CMS’s view, “[w]hen government agency informs a provider or supplier of a potential overpayment, the provider or supplier has an obligation to accept the finding or make a reasonable inquiry. If the provider’s or supplier’s inquiry verifies the audit results, then it has identified an overpayment and, assuming there is no applicable cost report, has 60 days to report and return the overpayment.” Ibid.

Though the Proposed Rule was never enacted, that is not of any significance in light of the plain language of the statute. Confirming this, CMS warned “all stakeholders that even without a final regulation they are subject to the statutory requirements found in… [Section  6402(d) of the ACA] and could face potential False Claims Act liability, Civil Monetary  Penalties Law liability, and exclusion from Federal health care programs for failure to report and return an overpayment.” Id. at 9180-81.

 By intervening in Kane, the DOJ has signaled its expansive view of what constitutes “identification” of these overpayments and its willingness to seek the draconian remedies permitted by the FCA.