Overpayment 60-Day-Rule Case Will Set Precedent

In a case that may have implications for clinical laboratories, the U.S. Department of Justice has intervened in a whistleblower False Claims Act (FCA) lawsuit related to failure to return overpayments within 60 days of discovery. The lawsuit, State of New York, ex rel. Robert P. Kane v. HealthFirst Inc. et al, was filed June 27 in the Southern District of New York. It alleges that Continuum Health Partners Inc., Beth Israel Medical Center d/b/a Mount Sinai Beth Israel, and St. Luke’s-Roosevelt Hospital Center d/b/a Mount Sinai St. Luke’s and Mount Sinai Roosevelt (Continuum) violated federal and state false claims acts when they did not return Medicaid overpayments within 60 days of knowing they existed as is required by New York state law and the Affordable Care Act (ACA). The whistleblower, Robert Kane, was an employee at Continuum and conducted the internal investigation that allegedly identified the extent of the problem. This case is noteworthy for laboratories and their compliance officers because labs file large numbers of individual claims where the possibility of errors is increased, and audits can be difficult and time-consuming when trying to figure out how much is to be refunded. An important question is when does the 60-day clock on refunding overpayments begin? Perhaps this case will bring some clarity to that question. Software Glitch Initiated the Problem Continuum and the hospitals were contracted with HealthFirst Inc. (HF), a nonprofit managed care organization that covers services for Medicaid-eligible enrollees. The New York Medicaid program paid HF under a capitated arrangement, and HF then reimbursed Continuum and other contracted providers. The providers are not allowed to seek any additional payment from the Medicaid program. The case began in 2009 when Continuum began to improperly bill Medicaid as a secondary payer after it received payment from HF because of a software glitch related to its remittance advice (RA). The glitch caused HF’s RA to generate a billing code that erroneously indicated that Continuum could seek additional payment from Medicaid and other secondary payers, which it did and was paid. Eventually, auditors from the state comptroller’s office questioned some of these secondary payments and concluded that Continuum had been overpaid. Subsequent investigation that included Continuum and the software vendor identified the cause of the problem as a translation problem between Continuum’s software and the vendor’s that caused the erroneous claims to be submitted. The vendor sent a computer software patch in December 2010 to correct the problem going forward. In January 2011, Continuum management asked Kane to analyze billing data and identify the claims involved. Kane produced a spreadsheet that identified over 900 claims totaling over $1 million that contained the billing code that caused the problem and likely were erroneous. However, Kane indicated in a Feb. 4 e-mail to management, which included the spreadsheet with a complete list of the suspect claims, that further study was needed to corroborate his findings. According to the court document, Kane had identified the vast majority of erroneous claims. Four days later, Continuum terminated Kane’s employment. Kane filed his sealed complaint 60 days after sending his e-mail to management. Meanwhile, the state comptroller identified more batches of affected claims and brought them to Continuum’s attention. Continuum allegedly failed to take any steps to repay the claims it was aware of through Kane’s investigation and did not make Medicaid aware of Kane’s spreadsheet. Continuum repaid small batches of claims over the next two years until it received a civil investigative demand from the government in June 2012, when it paid more than 300 of the claims. All of the claims were refunded by March 2013. Billing Error Vs. False Claim The FCA establishes civil penalties and treble damages for an individual or entity that “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” The ACA made a change to the FCA when it added the 60-day report-and-refund requirement to overpayments. Failure to return an overpayment within 60 days of knowing the overpayment exists constitutes a reverse false claim that is actionable under the FCA. Such an action can turn a billing error into a false claim with significantly larger fines and penalties than the original overpayment. In Continuum’s case, Kane’s spreadsheet identified each of over 900 individual claims that were potential improper payments. Under the FCA, each of these would be subject to treble the actual damages (amount of the claim) plus a civil penalty amounting to between $5,500 and $11,000 per claim. According to the complaint-in-intervention, the government is seeking the maximum civil penalty. This has the potential, if the government wins the case, to cost Continuum about $30 million instead of the $1 million identified by Kane had Continuum refunded the overpayments promptly. Conclusions and Actions Since the passage of the ACA, the 60-day report-and-return provision has been the subject of legal debate centered around when exactly does a provider know that overpayments exist since the term identified is not clearly defined. The Centers for Medicare and Medicaid Services issued a proposed regulation for the 60-day rule but it has not been finalized, leaving health care providers and their consultants and legal advisers in limbo in terms of when the 60-day clock actually starts running. This case may be the route by which questions about the 60-day reverse false claims provisions of the ACA, and state laws that include such provisions, are defined. The Department of Justice is seeking the maximum FCA penalty of $11,000 per claim. It remains to be seen what the state of New York may be able to impose as penalties also, but its law includes a per-claim civil penalty of between $6,000 and $12,000. Had the government chosen to prosecute under the civil monetary penalties provisions, the recently proposed expansion of authority by the Department of Health and Human Services, Office of Inspector General, may impose fines of $10,000 per claim, per day for refunds not returned. It is important for laboratories and other health care providers to follow this case as it may be the harbinger of things to come. Depending on how the court defines when an overpayment is identified, labs may find themselves doing a lot more internal assessments when potential overpayments are discovered. Takeaway: Laboratories should review and assess their ability to efficiently and effectively respond to suspected or reported overpayments in light of this case because they file so many claims that errors can escalate into very big problems quickly.