AMARILLO, TX – Under the Affordable Care Act, a person or entity that has received a payment from a Medicare or Medicaid program to which the person or entity is not entitled (i.e., an overpayment) is obligated to refund the overpayment to the government and report the reason for the overpayment.
The overpayment has to be returned and refunded within 60 days of the identification of the overpayment (or the date any corresponding cost report is due, if applicable, whichever is later). Failure to comply with this report and return requirement within the specified time frame subjects the person or entity to liability under the federal False Claims Act. Under the False Claims Act, a “false claim” allows the government to seek damages of three times each claim’s value, plus penalties of up to $11,000 per claim.
CMS proposed regulations in 2012 regarding a number of items, including this 60-day rule, but, at this time, those regulations have not been finalized. This has left providers and suppliers in a quandary about what “identifying” an overpayment means. Well, now we have an idea.
On August 3, 2015, a district court in New York issued the first opinion in the country addressing this issue. In Kane v. Healthfirst, Inc. et al., the court denied the hospital defendants’ motion to dismiss the case after finding that the government had stated a claim against the hospitals under the False Claims Act. The hospitals in this case are several affiliated hospitals in New York that erroneously billed New York Medicaid as a secondary payor due to a software glitch. The hospitals assigned an employee to investigate the potential software problem in 2011, and it was that employee (Kane) who later brought a qui tam suit against the hospitals alleging violations of the False Claims Act.
Kane sent an email to certain hospital executives in February 2011 detailing a list of 900 claims totaling over $1 million that were potentially improperly billed. The hospitals started making some repayments of those claims after receiving Kane’s email, but did not repay the majority of those claims until 2013 after being served with a Civil Investigative Demand from the U.S. Department of Justice.
Kane filed a qui tam complaint under seal in 2011, and the government chose to intervene in the case in 2014.
At issue in this opinion was a motion to dismiss the case filed by the defendant hospitals. The hospitals argued that they had not identified the overpayments at the time of Kane’s email in 2011 because the email was only a list of potentially erroneous payments, which were not classified as overpayments with any certainty. Thus, the defendants argued that the potential overpayments were not “identified” in the email. The government’s argument, which the court ultimately accepted, is that overpayments are identified when “a person is put on notice that a certain claim may have been overpaid.”
The court arrived at this conclusion after a long analysis of a number of items, including the plain meaning of the words at issue, legislative history, and the potential ramifications of adopting each party’s proposed definition. The court noted that its decision imposed a demanding standard on providers and suppliers. Ultimately, in adopting the government’s position on the definition of “identified,” the court determined that the defendant hospitals were not entitled to have the case dismissed and that the parties would have to proceed with litigation.
This is the first opinion addressing this issue in the country, and providers and suppliers should continue to watch developments in this case. One thing that is important to note is that this litigation is proceeding against hospitals that ultimately reported and refunded the overpayments. However, they may still be subject to liability under the False Claims Act because of timeframe in which those overpayments were reported and refunded. We continue to wait for CMS to finalize its proposed regulations on this issue, but, in the mean time, it is clear that the government is willing to pursue a hard-line stance on overpayments while it waits on final guidance from CMS.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or firstname.lastname@example.org.
Elizabeth H. Jepson, JD, is an attorney with the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. She represents HME companies, pharmacies, hospitals, and other health care providers throughout the United States. Jepson can be reached at (806) 345-6312 or email@example.com.