Midsummer Nightmare: Opinion in Continuum Health Partners Case Suggests We Can Identify the Unknown

In its ruling, the court denied a motion to dismiss a False Claims Act action alleging a reverse false claims violation, finding that the government’s assertions that the defendants failed to timely return “identified” overpayments back to Medicaid stated a plausible claim.  The court’s ruling relied on its interpretation of “identified,” holding that providers “identify” overpayments when they are “put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained … .”  Emphasis added.

The Arent Fox Fraud and Abuse team has been tracking the False Claims Act case against Continuum Health Partners Inc. (Continuum) and three New York hospitals initiated by former employee and whistleblower Robert Kane for more than a year.  Both the U.S. Department of Justice and the New York State Office of the Attorney General intervened and filed their own complaints in June of 2014, asserting that Continuum and the other co-defendants violated the Fraud Enforcement and Recovery Act’s (FERA) reverse false claims provision by failing to report and return Medicaid overpayments within sixty days from the date on which the overpayment was identified.  The government intervened even though Continuum paid the overpayments back to the Medicaid program.  (See blog post:  The DOJ Intervenes in ‘Reverse False Claims’ Case.)  Continuum filed a motion to dismiss the complaints last October.  (See blog post Hospital System Responds in ‘Reverse False Claims Act’ Overpayment Suit.)

The Affordable Care Act (ACA) mandates the report and return of overpayments within sixty days from the date the overpayment is identified.  The Continuum court’s ruling that notice of a potential overpayment means “the sixty day clock begins ticking …” creates a potential nightmare for providers (and their compliance officers and legal counsel).  Some of the dilemmas for providers who identify a “potential” overpayment subject to the sixty day rule:

• What to do if the complexity of the investigation and/or the lack of sufficient information on the total number of claims and amount of overpayment makes repayment within sixty days impossible?
• What is expected if a self-audit uncovers overpayments, other than the repayment of those identified in the audit sample?  When is there a duty to expand an audit if overpayments are identified in the initial audit sample?  Will it be possible to extrapolate audited claims to determine payments owed the government?
• Do anonymous or vague reports to the compliance officer that may or may not have an impact on claims or the receipt of overpayments start the sixty day report and pay clock?
• What are the impacts of the “rolling” identification of overpayments based upon separate samples or batches of claims/records under review?

Acknowledging that such an interpretation of the sixty-day rule “can potentially impose a demanding standard of compliance” and that the ACA “contains no language to temper or qualify this unforgiving rule,” the judge concluded that a more lenient interpretation would “create a perverse incentive to delay learning the amount due.”   The judge suggested that enforcement actions against “well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments” would be “inconsistent with the spirit of the law” and “unlikely to succeed.”  Although the court’s sentiments are welcome, even if this dicta influences government prosecutorial discretion in other cases where the report and repayment take longer than sixty days, it would likely not impact the Qui Tam relators in False Claims Act cases where the government declines to intervene.

If that’s not enough to keep providers up at night, the court also referenced proposed CMS Medicare regulations on when an overpayment is identified and the Wisconsin District Court opinion in United States v. Lakeshore Medical Clinic Ltd.^[1]   Commentary in the proposed regulations state that the failure of a provider upon receipt of information related to a “potential” overpayment “to make a reasonable inquiry to determine whether an overpayment exists” could result in a finding that the provider violates FERA “because it acted in reckless disregard or deliberate ignorance of whether or not it received such an overpayment.”  The Lakeshore opinion determined it was sufficient for a False Claims Act relator to allege that the provider defendant ignored audit reports disclosing a high rate of upcoding and intentionally refused to investigate the “possibility” it was overpaid, thereby unlawfully avoiding an obligation to return money owed to the government.

The Continuum court’s ruling is not binding on other courts handling other cases. Even so, there is no doubt that whistleblowers and the Department of Justice will encourage other courts to adopt the same conclusion in similar False Claims Act cases.  Perhaps more worrisome, CMS may decide to proceed with final regulations based upon the court’s statutory interpretation of the term “identified” as it applies to the sixty day rule, which could make challenges to this ruling and similar arguments in other courts in the future nearly impossible.