On August 3, 2015, in Kane v. Healthfirst, Inc., No. 1:11-cv-02325-ER (S.D.N.Y. Aug. 3, 2015), Judge Edgardo Ramos of the Southern District of New York decided an issue of first impression under the False Claims Act (FCA) requirement to return identified overpayments from Medicare and Medicaid within sixty (60) days. In denying the defendants’ motion to dismiss, the court provided some guidance on what it means to “identify” an overpayment and start the sixty-day clock created by the Affordable Care Act (ACA). At the very least, a party with an “identified” overpayment increases its risk of incurring FCA liability the longer it takes to quantify and return the overpayment beyond the first sixty days.

The ACA requires that an overpayment must be reported and returned within sixty days of the “date on which the overpayment was identified,” and any overpayment retained beyond this period is considered to be an “obligation” with the potential for FCA liability. 42 U.S.C. § 1320a-7k(d).

The alleged overpayments in Kane stemmed from a glitch in defendant Healthfirst’s computer system which caused its participating providers in a network operated by Continuum Health Partners, Inc. to seek additional payment from Medicaid based on erroneous remittance advices. In 2010, New York state auditors asked Continuum about the incorrect billing, and Continuum tasked its employee Robert Kane (the relator) with determining which claims had been improperly billed to Medicaid. Four days after Kane submitted a spreadsheet containing claims with alleged erroneous overbillings, Continuum fired him. The complaint alleged that Continuum took no further action to investigate or repay the claims until June 2012 when the government issued a Civil Investigative Demand (CID).

The court focused on the meaning of “identified” in the sixty-day rule. Defendants urged the court to adopt a definition of “identified” that means “classified with certainty,” whereas the Government urged a definition of “identified” that would be satisfied where a person is “put on notice” that a certain claim may have been overpaid. See Kane, Slip Op. at 17. The court noted that both of these views raised difficulties under the statute. The government’s view requires the “return” of something before it has been reduced to a specific amount, and the process for determining what is owed could frequently take more than sixty days to complete. On the other hand, the defendants’ alleged actions highlight the difficulty of their position, which would allow them to evade culpability by not investigating to determine what or how much is owed.

By looking at policy, legislative history, and the purpose of the FCA, the court sided with the government. It cautioned, however, that “prosecutorial discretion would counsel against the institution of [FCA] 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.” Id. at 26. In particular, the court noted that FCA liability requires knowledge, and a defendant who is diligently investigating the possibility that it was overpaid is unlikely to be liable even if its investigation takes longer than sixty days. Nonetheless, this aspect of the decision calls into question what the exact purpose of the sixty day requirement was intended to be.

For now, however, perhaps the best reading of the decision is that if someone is put on notice of a potential overpayment and does nothing at all, once sixty days elapses, they are clearly at risk for FCA liability.