United States of America ex rel. Kane v. Continuum Health Partners Inc.
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District Court Denies Motion to Dismiss in Government’s First Reverse False Claims Case

On August 3, 2015, the United States District Court for the Southern District of New York issued  an opinion interpreting the Affordable Care Act’s (ACA) so-called “60-day rule.”  In United States of America ex rel. Kane v. Continuum Health Partners, Inc., Case No. 11-2325.  The court denied the defendants’ motion to dismiss the government’s False Claims Act (FCA) complaint alleging failure to timely report and refund overpayments pursuant to the 60-day rule, in violation of the FCA’s “reverse false claims” provision.  In doing so, the district court provided the first guidance on what it means for an overpayment to be “identified” by a provider, thereby triggering the ACA’s 60-day repayment period under 42 U.S.C. § 1320a-7k(d).  The court held that the 60-day clock for an “identified overpayment” starts running “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”

Continuum Health became closely-watched after the government decided to intervene—a first for reverse false claims cases based solely on the ACA’s 60-day rule—and after the Center for Medicare & Medicaid Services (CMS) decided in February to delay further guidance on the meaning of “identified” under Medicare Parts A and B for at least another year.  In a previous post, we set out the case’s statutory and factual background, the arguments advanced by the defendants in their motion to dismiss and the government’s responses.

On Monday, the court rejected the defendants’ argument that the relator’s e-mail did not “identify” overpayments within the meaning of the ACA (and thus that they did not mature into an “obligation” under the FCA), because the e-mail only described potential, not actual, overpayments.  In holding that notice of potential overpayments is sufficient to trigger the 60-day clock, the court acknowledged the practical difficulties this interpretation presents:

[I]t is certainly the case that the Government’s interpretation of the ACA can potentially impose a demanding standard of compliance in particular cases, especially in light of the penalties and damages available under the FCA. Under the definition of “identified” proposed by the Government, an overpayment would technically qualify as an “obligation” even where a provider receives an email like Kane’s, struggles to conduct an internal audit, and reports its efforts to the Government within the sixty-day window, but has yet to isolate and return all overpayments sixty-one days after being put on notice of potential overpayments. The ACA itself contains no language to temper or qualify this unforgiving rule; it nowhere requires the Government to grant more leeway or more time to a provider who fails timely to return an overpayment but acts with reasonable diligence in an attempt to do so.

Nonetheless, the court held these concerns were mitigated because merely establishing an overpayment does not itself establish an FCA violation—a relator or the government must also prove knowing concealment or knowing and willful avoidance or decreasing of the repayment obligation under the FCA’s reverse false claims provision, 31 U.S.C. § 3729(a)(1)(G).  [...]

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FCA Enforcement Action to Watch: Government Intervened in Reverse False Claims Case

With a motion to dismiss pending in the United States District Court for the Southern District of New York, United States of America ex rel. Kane v. Continuum Health Partners, Inc., Case No. 11-2325, is the False Claims Act (FCA) case to watch in 2015.  It is the first “reverse false claims” case where the United States intervened, and its only allegation involves a failure to timely report and refund overpayments to the government.

In 2010, the Affordable Care Act (ACA) modified the FCA’s reverse false claims provision (31 U.S.C. § 3729(a)(1)(G)), making a party liable for failing to report and return an overpayment within 60 days of the date it is “identified.”  See 42 U.S.C. § 1320a−7k(d).  Five years after the passage of the ACA, however, it remains unclear what it means for an overpayment to be “identified,” thereby triggering the 60-day clock.  The Centers for Medicare and Medicaid Services (CMS) has not issued any guidance concerning refunding overpayments to Medicaid.  In February 2012, CMS issued proposed regulations on this topic for Medicare Parts A and B, which it has yet to finalize.  In fact, CMS just announced, on February 13, 2015, that it will delay its final guidance until at least February 2016—likely well after the district court issues its decision in Continuum Health.

According to the government’s complaint, filed on June 27, 2014, three hospitals in New York City operated by Continuum Health (which is now part of Mount Sinai Health System) submitted improper claims to Medicaid in 2009 and 2010, as a result of a glitch with its billing software. The New York State Comptroller first notified Continuum Health in September 2010 that it had erroneously billed Medicaid for a small number of claims.  Continuum Health then conducted an internal investigation.  On February 4, 2011, the relator e-mailed a spreadsheet to his superiors at Continuum Health with what he believed to be about 900 improperly-submitted claims resulting from the same software issue.  Four days later, Continuum Health terminated the relator.

Over the next two years, Continuum Health refunded the overpayments associated with the initial list of 900 claims.  The government alleges that Continuum Health made these refunds largely in response to continued inquiries from the NYS Comptroller about additional claims. And, it claims that Continuum Health refunded 300 of the overpayments only after it received a Civil Investigative Demand from the U.S. Department of Justice.  Nonetheless, the government did not intervene in the case until a year after Continuum Health refunded all overpayments to Medicaid.

In its motion to dismiss, Continuum Health makes three arguments:

First, it contends that it had no “obligation” to report and refund the overpayments.  The relator’s February 4, 2011, e-mail did not “identify” any overpayments, thereby triggering the 60-day clock.  Rather, the e-mail was a preliminary list of potential overpayments that, by the relator’s own admission, required “further analysis to corroborate his findings.”  According to Continuum Health, the government’s position that “mere notice of a potential but unconfirmed overpayment” will “identify” [...]

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