The Dark Side of Health Care Reform: The First “60-Day Rule” False Claims Act Case

Although the “60-day rule” has been the law for more than four years, no state or federal agency has sought to enforce it publicly until now.

The U.S. Department of Justice and New York State Attorney General’s Office recently intervened in a federal False Claims Act case in federal District Court based on allegations that a provider failed to report and refund an identified overpayment within 60 days, as required by the federal False Claims Act and the parallel New York state statute. The case at issue, State of New York, ex rel. Robert P. Kane v. Healthfirst, Inc. et al., involves several affiliated hospitals (Mount Sinai Beth Israel, Mount Sinai St Luke’s, Mount Sinai Roosevelt, and Long Island College Hospital) operated by Continuum Health Partners (the “hospitals”). The hospitals erroneously billed New York Medicaid as a secondary payor after they had already been paid in full by Healthfirst, the patients’ Medicaid managed care plan. The billing errors were allegedly caused by a coding error in the remittances produced by Healthfirst. Although the hospitals allegedly learned of the computer coding error in February 2011, they did not make the final refund payments to New York Medicaid until March 2013.

The Healthfirst case is one of the first to test the bounds of the 60-day rule. The case may provide insights into the enforcement priorities of federal and state agencies, the interpretation of the 60-day rule by a federal court, and the willingness of courts to impose the massive civil penalty provisions potentially available for violations of the 60-day rule.

60-day rule refresher
Commonly referred to as the “60-day rule,” the law is based on a change in the definition of overpayments made by the Patient Protection and Affordable Care Act. More specifically, Section 6402(a) of the act requires a person who has received an overpayment to return the funds to the government and report the reason for the overpayment. The overpayment must be reported and returned by the later of: (1) the date which is 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable. The term “overpayment” is defined as any funds that a person receives or retains under the Medicare or Medicaid programs to which the person is not entitled.

The Affordable Care Act also created False Claims Act liability for persons who retained identified overpayments beyond the 60-day window. Because the retention of an identified overpayment is now an “obligation” under the False Claims Act, the government (or qui tam relators on behalf of the government) can pursue civil penalties against those who retain Medicare or Medicaid overpayments as “reverse false claims.” For each overpaid claim, the government can seek recovery of three times the claim’s value and a civil penalty between $5,500 and $11,000. The government can also exclude the person from participation in federal health care programs.

On Feb. 16, 2012, CMS issued proposed regulations for the 60-day rule. These regulations, however, have not been finalized.

Background on Healthfirst
Healthfirst involves the hospitals’ billing New York Medicaid as a secondary payor for Medicaid managed care patients enrolled with Healthfirst. The hospitals provided covered services to these enrollees, and were obligated to accept Healthfirst’s reimbursement as payment in full. State law prohibits the hospitals from billing New York Medicaid as a secondary insurer.

The erroneous claims submitted to New York Medicaid were caused by a computer coding issue that incorrectly indicated New York Medicaid as a secondary payment source. As a result, the hospitals balance billed New York for these services, and the state Medicaid program paid many of the claims.

The New York Office of the State Comptroller first raised the issue in September 2010. The Comptroller identified a small number of claims where New York Medicaid had been billed as a secondary insurer for services furnished to Healthfirst enrollees. The hospitals conducted an internal investigation and discovered in February 2011 that the coding error on the remittances may have affected many more claims. Robert Kane, an employee working in the revenue cycle department, was asked to investigate the error and determine the scope of potential liability. According to the pleadings on file, Mr. Kane determined that potentially 900 claims representing payments exceeding $1 million may have been wrongly submitted to and paid by New York Medicaid. He sent an email to the hospitals’ administrators describing the potential liability and, for reasons not apparent from the available court pleadings, was subsequently terminated by the hospitals. The hospitals began to make repayments to the New York Medicaid program, but did not ultimately complete the repayment process until March 2013.

On April 5, 2011, Mr. Kane filed a complaint under seal in federal district court in the Southern District of New York as a qui tam relator. Over a year later in June 2012, the United States issued a Civil Investigative Demand concerning the overpayments. On April 24, 2014, approximately three years from the date the qui tam complaint was filed, the United States filed its notice of partial intervention. On May 15, 2014, Mr. Kane filed an amended complaint on behalf of himself, the United States, and the State of New York alleging violations of the Federal and New York State False Claims Acts. Approximately one week later, the State of New York filed a Notice of Intention to Intervene. On June 27, 2014, the State of New York filed its complaint-in-intervention and, on the same day, the United States also formally intervened.

What to watch for in the Healthfirst case
As one of the first cases on point, Healthfirst will play a role in defining the contours of the 60-day rule. Some of the specific issues that the industry will be monitoring include:

• When did the hospitals “identify” the overpayments?
  
  The 60-day rule does not define when an overpayment has been “identified,” and the proposed regulatory definition of “identified” has not been finalized. Therefore, the Court may be tasked with defining when the various overpayments were “identified” by the hospitals, perhaps by focusing on when the hospitals had actual knowledge or acted in reckless disregard of the existence or amount of overpayments caused by the computing error. The Motions to Intervene include the April 5, 2011, email from Robert Kane to the hospitals’ administrators that confirms at least the scope of the billing problem. The email, however, does not discuss the issue in terms of dollars. Therefore, the court could have some difficult work ahead in determining when the hospitals’ had actually identified the overpayments, or in other words, when the 60-day clock began to tick. For example, the court may have to determine whether the hospitals are deemed to have “identified” the overpayments when a single employee concludes in an email that there has been an overpayment, or whether it is reasonable for the provider to conduct an investigation to verify the scope of the problem and the amount of overpayments at issue. In this context, the law should allow a provider at least the opportunity to conduct an investigation before the 60-day clock starts running.


• Did the hospitals act with deliberate speed to report and refund the overpayments?
  
  The available pleadings do not discuss the extent or scope of the internal investigation pursued by the hospitals to calculate the overpayment amount. The hospitals may have grounds for arguing that the internal processes followed in the wake of the Kane email constituted a reasonable inquiry into the matter. Anyone with on-the-ground experience in the industry knows that internal billing investigations take time and that accurate financial information that isolates claims based on the correct variables can be very difficult to generate. The hospitals in Healthfirst may well be able to explain the steps taken in the investigation and why the ultimate repayment of funds was a time consuming process. This aspect of the case may give the court an opportunity to assess the reasonableness of a provider’s attempts to investigate and “identify” overpayments, and what effect that investigation has on the 60-day clock. Providers should keep in mind that the timeliness of any internal investigation, the credibility of the reviewers and their conclusions, and the contemporaneous documentation of the processes could be important factors in defending against an alleged violation of the 60-day rule.


• What damages will be assessed?
  
  The arsenal of damages available under the 60-day rule is daunting. If liability is established, how aggressively will the court assess damages? Will the court assess the full damages available under the 60-day rule and the FCA—treble damages + $11,000 per claim + civil money penalty for each day that the overpayment was retained? Or might the court exercise a degree of leniency based on mitigating factors, such as that the fact that the overpayment was caused by Healthfirst’s computing error, and that the hospitals had already repaid the money by the time the state and federal governments moved to intervene.


• Does your state’s false claim act contain a reverse false claim provision?
  
  In Healthfirst, the New York State False Claims Act is sufficiently broad for the state’s attorney general to attempt recovery of damages and penalties resulting from the hospitals’ alleged retention of an identified overpayment. Like its federal counterpart, the New York law establishes civil penalties and treble damages liability for the retention of any overpayment. Therefore, the hospitals in Healthfirst may face treble damages and civil penalties under two separate statutes. Providers need to be aware of their own state’s false claim laws and whether such laws create liability for the retention of known overpayments. False claim statutes vary widely from state to state, and many do not include a “reverse false claim” provision.

Conclusion
The Healthfirst case could be extremely influential on the interpretation of the 60-day rule and the application of the reverse false claims provision. Regardless of the outcome of Healthfirst, however, this case is likely a harbinger of things to come.  The 60-day rule provides the government with a new weapon in its war on so-called health care “fraud,” enabling it not only to recover identified Medicare and Medicaid overpayments, but also to collect hefty civil penalties.