Moving the HME Industry Forward

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The 60-Day Rule and the Kane Case – The Epilogue

August 29, 2016

AMARILLO, TX – Section 6402 of the Affordable Care Act states that any provider or supplier that receives an overpayment must (i) report to CMS and (ii) provide written notice of the reason for the overpayment. The overpayment must be reported and returned no later than 60 days after it is identified. Failure to do so may result in civil monetary penalties under the Federal False Claims Act.  

In a final rule, CMS provides guidance regarding the obligations of providers and suppliers to report and repay overpayments.

• The final rule addresses the “lookback period.” This is the time period for which a DME supplier must examine its patient files for overpayment obligations. CMS originally proposed a 10 year lookback period. However, the final rule has shortened the lookback period to six years.

• The final rule states that, as a general rule, a supplier will have six months to investigate possible overpayments before the 60 day clock starts running. Compare this to the proposed rule which said that the investigation should be conducted with “all deliberate speed.”

• The final rule addresses what it means to “identify an overpayment.” According to the final rule, identification occurs when a supplier “has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.” The word “quantified” is significant. In including “quantified,” CMS responded to commentators who argued that an overpayment must be quantified before it can be reported and repaid. According to the final rule: “We agree and have revised the language…..to clarify that part of identification is quantifying the amount, which requires a reasonably diligent investigation.” The “reasonable diligence” requirement differs from the proposed rule which stated that identification occurs when a supplier “has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”

Look at the third bullet. Under the final rule, a DME supplier will have identified an overpayment (i) if the supplier conclusively knows about it or (ii) if the supplier would have known about it by acting with “reasonable diligence.” Although the term “reasonable diligence” gives flexibility to CMS, CMS is unlikely to punish a good faith compliance effort. As stated in a recent court ruling involving the 60 day rule: “[E]nforcement actions aimed at well-intentioned health care providers working with reasonable haste to address erroneous overpayments……would be unlikely to succeed.” It is important to note that the 60 day rule requires “proactive compliance activities…..to monitor for the receipt of overpayments.” Said another way, the DME supplier must be proactive, not reactive. Lastly, the final rule states that it is “certainly advisable” for suppliers to create a paper trail that serves as evidence of reasonable diligence.

What does this mean for the DME supplier?
• The supplier must be proactive not reactive. It is not an option for the supplier to “bury its head in the sand.”
• There may be various reasons as to why a supplier should not have received payment for a claim. For example: (i) the supplier incorrectly used a modifier; (ii) the supplier’s documentation is deficient and cannot be rehabilitated; or (iii) the claim results from actions that violate the Medicare anti-kickback statute…..or the Stark physician self-referral statute…..or the beneficiary inducement statute…….or the telephone solicitation statute. If a claim should not have been paid to the supplier, then it is likely that a person knows about it. That person might be a mid-level employee in the billing department…..or an intake person…….or a sales rep.
• An employee who knows that a claim should not have been paid is a potential “whistleblower.” If the supplier engages in “reasonable diligence,” discovers claims that should not have been paid, and reports and repays them, then (depending on the timing involved) the whistleblower will likely not be able to proceed with a whistleblower (or “qui tam”) lawsuit.
• If a supplier knows that it should not have been paid for certain claims, or if the supplier “buries its head in the sand” and does not exercise “reasonable diligence” to determine if some claims should not have been paid, then the supplier is racking up potential liability under the False Claims Act. Note that under the FCA, the supplier can be liable for actual damages, treble damages, and up to $11,000 per claim. Plus, if claims result from violations of one of the federal statutes referenced above, then the supplier will have failed to comply with Supplier Standard #1, which can place the supplier’s PTAN in jeopardy.
• And so all of this boils down to the fact that the DME supplier needs to (i) have a robust compliance program, (ii) conduct internal audits, and (iii) have an outside auditor come in periodically to conduct audits. When I say “robust compliance program,” I mean that the supplier should (i) examine its document retention, (ii) examine how claims are submitted, (iii) determine if any of its operations violate the anti-fraud laws referenced above, and (iv) provide regular training to employees.

Kane v. Healthfirst, Inc. et al.
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.

The Kane case was recently settled. New York City-based Mount Sinai Health System will pay $3 million to resolve the allegations against it. Approximately $1.8 million of the settlement will go to the state of New York and approximately $1.2 million will go to the federal government. Whistleblower Robert P. Kane, who was allegedly fired after reporting the overpayments, will receive roughly $350,000. Mount Sinai’s payout is more than triple the nearly $850,000 that its hospitals took two years to repay after learning about inadvertent double-billing of Medicaid.

“We will not allow hospitals to drain important resources from the system, and will continue to ensure that the program is properly reimbursed for the funds that it is owed,” New York Attorney General Eric T. Schneiderman said.

In the settlement agreement, Mount Sinai accepted responsibility for the conduct. However, in a statement sent to the media, Mount Sinai pointed out that Continuum Health Partners, Inc. (a health system that later became part of Mount Sinai) “worked diligently” to refund overpayments after learning of the improper billing. “The process for identifying the refunds was complicated and time-consuming, but Continuum continued with the process in good faith until all the refunds were finally identified and repaid, well before it became aware of this lawsuit,” Mount Sinai wrote.

Attribution: A portion of this article is attributed to (i) two articles written by Jeff Overley, Senior Reporter for Law360, on February 11, 2016, entitled “Medicare Eases 60-Day Overpayment Rule” and “6 Policies in Medicare’s 60-Day Overpayment Rule” and (ii) article written by Jeff Overley on August 24, 2016, entitled “Hospital’s 60-Day Overpayment Case Ends In $3M FCA Deal.”

Jeff Baird will be presenting the following webinars:
Webinar sponsored by Mediware Information Systems, Inc.
How the Losing Bidder Can Enter the DME Bid Arena
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Wednesday, August 31, 2016
1:00-2:00 p.m. CENTRAL TIME
Far too often, a well-run DME supplier finds itself without a competitive bid contract.  If the losing bidder (“non-contract supplier”) is dependent on Medicare fee-for-service, then this will be financially challenging. However, there are legal ways that the non-contract DME supplier can enter the competitive bidding area after the fact. This webinar will outline those tactical strategies that can open doors for revenue growth while staying within the law.

This presentation will outline key strategies including:
• Purchasing 100% of a contract supplier’s assets
• Engaging in partial asset purchases
• Achieving 100% stock acquisition
• Establishing a 5% or more common ownership
• Examine the liability that may be imposed as a result of one of these transactions

Sign up now for “How the Losing Bidder Can Enter the DME Bid Arena” on Wednesday, August 31, 2016, 1:00-2:00 pm CT, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

This webinar is free for attendees.
AAHOMECARE’S EDUCATIONAL WEBINAR
Joint Ventures and Other Arrangements with Referral Sources
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, September 6, 2016
2:30-4:00 p.m. EASTERN TIME
In the real world one business can enter into an arrangement with another business without worrying about pesky government regulations.  Unfortunately, DME suppliers are not in the real world……they are in an alternative universe known as “health care world.”  Unlike auto parts suppliers and widget manufacturers, DME suppliers must be careful in entering into arrangements with other providers.  This is because of federal and state anti-fraud statutes and regulations.  For example, the Medicare anti-kickback statute makes it a crime for a person/entity to receive compensation for referring (or arranging for the referral of) Medicare/Medicaid patients to a health care provider.  All states have anti-kickback statutes that are similar to the federal statute.  The federal Stark physician self-referral statute prohibits a physician from referring Medicare/Medicaid patients to a provider in which the physician has a compensation or ownership interest.  These are but two examples of the many anti-fraud laws that are on the books.  This program will discuss the relevant state and federal anti-fraud statutes and regulations that govern the types of arrangements that a DME supplier can enter into with another provider, such as a physician, home health agency or pharmacy.  The program will discuss the types of arrangements that are clearly legal, the types of arrangements that fall within the proverbial “gray area,” and the types of arrangements that must be clearly avoided.

Register for Joint Ventures and Other Arrangements with Referral Sources on Tuesday, September 6, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.
Please contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.

FEES: Member: $99.00    
Non-Member: $129.00

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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.