New York 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). “Therefore, prosecutorial discretion would counsel against the institution of enforcement actions aimed at 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 addition, the court interpreted “avoidance” as used in § 3729(a)(1)(G) to include both “the act of evading or escaping” and “behavior where an individual is put on notice of a potential issue, is legally obligated to address it, and does nothing.” Given that the procedural posture of this case was a motion to dismiss, the court did not make a determination about whether the facts supported a conclusion that the defendants “avoided” the obligation. The court simply found that the government alleged sufficient facts to adequately plead this claim.
This decision—particularly until CMS issues its final rule, which could help to clarify this issue—shows that how providers address and investigate whether they have received an overpayment is coming under increasing scrutiny by the government under the auspices of the FCA. Furthermore, given the court’s recognition of the practical difficulties with its approach to the meaning of “identified”—and its reliance on the amorphous concept of “prosecutorial discretion” to alleviate such difficulties (discretion which, in any event, does not apply to relators)—this decision is by no means the last word from the courts on this issue, which will continue to be hotly contested in overpayment cases at the district court and, ultimately, appellate level.