On August 3, 2015, a federal judge in the Southern District of New York ruled that the United States’ and state of New York’s complaints in intervention can move forward against a group of hospitals, under the federal False Claims Act (“FCA”) and New York’s FCA corollary. The hospitals allegedly failed to report and return Medicaid overpayments that were brought to their general attention over two years before all of the relevant repayments were made.

The judge’s opinion denying the defendants’ motions to dismiss in Kane v. Health First, et al. and U.S. v. Continuum Health Partners Inc. et. al., should be of particular note to providers because it contains extensive discussion and guidance as to how at least one federal judge interprets the Affordable Care Act’s (“ACA”) “60 day rule.” Specifically, the ACA’s rule requires any provider who receives an overpayment from Medicare or Medicaid to repay such overpayment within 60 days of the “date on which the overpayment was identified.” Further, retention of such an overpayment beyond the sixty-day period can result in liability under the FCA.

In these cases, a third party vendor’s software caused the defendant hospitals to improperly bill New York’s Medicaid program as a secondary payer. In September 2010, New York’s Comptroller’s office identified an issue with the hospitals’ billings. This led to the discovery that the problem resulted from a glitch in the vendor’s software system, and in mid-December 2010, the vendor issued a patch to fix the problem. The hospitals, through their parent organization, then tasked an employee, Robert Kane (who eventually became the relator in the FCA cases) with determining the amount of overpayment as result of the glitch.

On February 4, 2011, in an email to the parent company’s management, Mr. Kane reported that over 900 claims were involved totaling over $1,000,000, but indicated that “further analysis would be needed to confirm his findings.” The parties to the litigation agree that Kane’s findings were over inclusive. The District Court noted that “approximately half the claims listed were never actually overpaid,” but it noted that the report “correctly included ‘the vast majority of the claims that had been erroneously billed.’” Mr. Kane was fired four days after sending his email.

The hospitals reimbursed the state of New York for five improperly billed claims in February 2011. The plaintiffs alleged that the hospitals did nothing else with Mr. Kane’s analysis. They further alleged that repayments by the hospitals began only after the New York Comptroller identified “several additional tranches of wrongful claims” in March 2011. In June 2012, the hospitals were also served by the United States with a civil investigative demand. All of the affected claims were not paid until March 2013.

The plaintiffs alleged that (i) the hospitals “fraudulently . . . [delayed] . . . repayments for up to two years after the [the hospitals] knew the extent of the overpayment”; and (ii) they “intentionally or recklessly” failed to timely identify the overpayments in violation of the FCA and its New York corollary. The District Court rejected the arguments contained in the defendants’ motion as requiring the government to show that the defendants had determined the precise amount of the overpayments at issue in order for the 60 day clock to start ticking.

In rejecting the defendants’ argument, the District Court found that the legislative history of the FCA indicated Congress’ intent for “FCA liability to attach when, as here, there is an established duty to pay money to the government, even if the precise amount is not determined.” To find otherwise, the District Court reasoned, would create an absurd result and “a perverse incentive to delay learning about the amount due and relegating the sixty-day period to merely the time within which [the hospitals] would have to cut the check.”

The District Court recognized that its interpretation of the ACA’s “60 day rule” would impose a “stringent—and in certain cases potentially unworkable—burden on providers.” It did note however, “that prosecutorial discretion would counsel against the institution of enforcement actions against well intentioned healthcare providers working with reasonable haste to address erroneous overpayments.  Such actions would be inconsistent with the spirit of the law and would be unlikely to succeed.” In further support of this proposition, the District Court referred to a government lawyer’s statement during a pre-motion conference: “This is not . . . a case where the hospital is diligently working on the claims and it’s on the sixty-first day and they’re still scrambling to go through their spreadsheets, you know, the government wouldn’t be bringing that kind of claim.”

In light of the timeline in this case and the plaintiff’s position, one could credibly argue that it was Mr. Kane’s email that identified the substantial nature of the overpayment, but not the precise amount, that set the clock ticking on repayment. Alternatively, one might argue that given the facts, the District Court’s opinion does little to address where the line is between “well intentioned healthcare providers working with reasonable haste to address erroneous overpayments” and providers that intentionally or recklessly fail to precisely identify overpayments of which they are generally on notice. Regardless, the decision makes it absolutely clear that the distinction is a critical one, which courts will no doubt be making more often in the future. In the meantime providers are well advised to move quickly towards repayment when they are alerted to overpayments from Medicare or Medicaid.

For further information regarding the recent District Court ruling, contact Chris Raphaely or any member of Cozen O’Connor’s health care team.