Increasing the use of ACA overpayment rule in DOJ enforcement actions

Robin K. Lehninger, The Daily Record Newswire

The U.S. Department of Justice recently scored victories in two False Claims Act cases involving providers' alleged failure to return overpayments as mandated by the Patient Protection and Affordable Care Act of 2010. The ACA requires anyone who receives an overpayment of Medicare or Medicaid funds to "report and return" the overpayment within 60 days of the date the overpayment is "identified."

A provider who retains an overpayment beyond the 60-day deadline is subject to FCA liability. Although the Centers for Medicare and Medicaid Services has yet to finalize a proposed rule, whistleblowers have quickly deployed the ACA provision as the basis for a number of qui tam actions filed under the FCA. The DOJ's recent cases offer important insights as to how these claims may be handled going forward.

Kane v. Healthfirst: When is an overpayment "identified?"

The Southern District of New York recently became the first court to define "identified" under the ACA's report-and-return provision. United States ex rel. Kane v. Healthfirst Inc. stems from a software glitch that caused three New York City hospitals to file improper claims for Medicaid reimbursement in 2009 and 2010. Continuum Health Partners Inc. (Continuum) operated a hospital network that participated in Healthfirst's Medicaid managed care plan, under which payment by Healthfirst would constitute payment in full for any covered services provided to Medicaid beneficiaries. The three hospitals in the case were part of the Continuum network. Due to a glitch in Healthfirst's software, electronic remittances to participating providers (including Continuum) incorrectly indicated that the providers could seek reimbursement from secondary payors for services rendered to Healthfirst enrollees. As a result, Continuum's electronic billing program automatically generated and submitted bills to Medicaid and other secondary payors on behalf of the hospitals, and the New York State Department of Health paid the hospitals for many of those claims.

Continuum became aware of potential overpayments in 2010 from the state comptroller and assigned an employee, the relator, to review the billing data and identify affected claims. In February 2011, the relator notified management of a universe of hundreds of claims with some undetermined number of claims containing erroneous billing codes. Continuum terminated the relator's employment four days later, and the relator filed suit. Continuum made payments to the government over a two-year span and fully refunded the overpayments in 2013. The DOJ and state of New York intervened in the relator's case against Continuum and the three network hospitals.

In denying Continuum and the hospitals' motions to dismiss the intervening overnments' claims, Judge Edgardo Ramos held that an overpayment is identified when a provider is "put on notice of potential overpayments." Defendants argued for a definition requiring certainty of the identification of the overpayment. The court found defendants were put on notice of the potential overpayments at least as early as the relator's report, significantly longer than 60 days before the funds were fully refunded. Therefore, the court held that the government stated a viable claim that the defendants avoided an obligation under the FCA.

While the Healthfirst case is still at an early stage, with settlement talks reportedly ongoing, it is expected that the DOJ will continue to argue for a broad definition of "identified" in similar cases. CMS' proposed rule states that an overpayment is identified if the entity

(1) has actual knowledge of the overpayment; or

(2) acts in "reckless disregard or deliberate ignorance" of the overpayment.

If the proposed rule is finalized as currently written, the Healthfirst court's definition is consistent to the extent that ignoring potential overpayments could be deemed or constitute "deliberate ignorance." If so, we can expect similar holdings in other overpayment rule cases brought under the FCA.

Pediatric Services of America and the failure to investigate credit balances

Just one day after the Healthfirst opinion was issued, the DOJ announced a $6.88 million settlement with Pediatric Services of America resolving FCA claims involving alleged fraudulent billing.

In separate qui tam actions filed under the FCA, former PSA employees alleged that PSA submitted claims without proper documentation, overstated the length of time staff provided services (prompting overpayment), and failed to disclose and return overpayments.

PSA maintained credit balances on its books relating to claims submitted to federal health care programs, balances that were eventually accounted for as revenue. The lawsuits alleged that PSA failed to investigate the balances to determine whether they stemmed from overpayments made by federal health care programs. The relators argued PSA violated the ACA report-and-return provision, triggering potential liability under the FCA and the Georgia Medicaid False Claims Act. Both the DOJ and the state of Georgia intervened in the case.


While the facts of the two cases differ, the DOJ position and lesson for providers is consistent: Once a provider is put on notice of a potential overpayment through an internal report, an outstanding credit balance, or some other means, there is an obligation to investigate and refund any overpayments within 60 days.

Unfortunately for providers, what constitutes "notice" in these circumstances remains unclear.

In Healthfirst, notice was arguably more obvious, as parties both inside and outside the organization alerted officials to the existence of overpayments in a body of claims affected by the software glitch. However, in the PSA case, the existence of the credit balances was enough to establish a responsibility to investigate. How a provider falling in the middle would fare - for example, with credit balances diligently investigated, and overpayments returned more timely - remains to be seen.

Recommended actions for providers

As the ACA's overpayment rule receives heightened attention, health care providers can take steps today to mitigate the threat of whistleblower claims and enforcement stemming from this provision.

Providers should examine their current billing and refund practices, as well as related provisions within their compliance plans, and any third-party contracts used for billing or other revenue cycle management activities to ensure the utmost accuracy in claims processing.

Providers should also confirm that any such third parties have the capacity to timely detect and report billing errors implicating the ACA report and return requirements. After all, the Healthfirst controversy started due to a glitch in billing system software, not in a hospital claims processing department. Any allegations or expressions of concern regarding billing and coding matters, whatever or whoever the source, should be diligently investigated and addressed, with any identified overpayments being returned as quickly as possible.

Looking ahead

The Healthfirst and PSA cases are only two examples of the growing number of whistleblower actions and active intervention in such cases by the DOJ as part of its broad and continuing health care fraud and abuse enforcement initiative.

At the same time, the DOJ is also intensifying its scrutiny of individual actors in both civil and criminal enforcement contexts. The combination further complicates the position of health care providers faced with the risk of FCA investigations and filings, and intensifies the pressure to settle such cases once they are filed.

Given the substantial sums to be recovered by relators and the government in such settlements, we can expect to see more overpayment rule cases coming down the pipeline.

Published: Mon, Feb 08, 2016