Application of the “60-Day Overpayment Rule” Under the False Claims Act

(September 14, 2016):  On March 23, 2010, the Affordable Care Act (ACA) was signed into law. Among its various provisions, §6402(a) of the ACA established new requirements under the Social Security Act.  Under §1128J(d)(1) of the Social Security Act if a person[1] receives a Medicare overpayment, it must be reported and returned to the appropriate contractor.  Moreover, the appropriate Medicare contractor must be notified in writing of the reason for the overpayment.  Importantly, an overpayment must be reported and returned by the later of:

(A)     the date which is 60 days after the date on which the overpayment was identified; or

(B)     the date any corresponding cost report is due, if applicable.[2] (emphasis added).

I.  Penalties Under the False Claims Act:

Under §1128J(d)(3) of the Social Security Act, if a Medicare overpayment were to be retained by a health care provider or supplier after the deadline for reporting and returning an overpayment, it would be considered to be an “obligation”[3] and could give rise to liability under the civil False Claims Act.[4]  A person found to have violated this statute may be liable for both civil penalties and treble damages. The amount of civil penalties that may be imposed for each false claim depends on when each was made:

(a) For claims or statements made after October 23, 1996, but before August 1, 2016, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $5,500 and the maximum penalty is $11,000.

(b) For claims or statements made on or after August 1, 2016, but before January 1, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563.[5]

II.  When is an Overpayment “Identified”?

On February 13, 2012, the Centers for Medicare and Medicare Services (CMS) first published a Proposed Rule outlining how the provisions of §1128J(d)(1) of the Social Security Act would be implemented.[6]  CMS issued its Final Rule on Final Rule on February 12, 2016.[7]  At that time, the agency commented that:

The 60-day time period begins when either the reasonable diligence is completed or on the day the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment.” [8]

The Final Rule further notes that a provider can establish that it demonstrated reasonable diligence in assessing a potential overpayment if it conducted a “timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”[9]

III.  Meaning of “Reasonable Diligence”

CMS’ final rule still leaves questions unanswered as to what exactly represents “reasonable diligence” by a provider. The final rule explains that the 60-day window starts while the healthcare provider is executing “reasonable diligence” as to whether the provider has received any overpayments and the total amount of overpayments. Furthermore, the preamble of the final rule discusses a six-month interval as a goal for providers to conduct reasonable diligence into potential overpayments absent extraordinary circumstances.

IV.  Application of the 60-Day Overpayment Rule in a False Claims Act Case:

While it has only been a little more than six months since the Final Rule on the 60-day overpayment rule has been published, the first case dealing directly with this issue, United States ex rel. Kane v. Healthfirst, Inc., et al., recently settled for $2.95 million on August 23, 2016.

The case arose out of a qui tam action, which alleged that the Mount Sinai Health System violated the False Claims Act (FCA) because it did not fulfill its repayment obligation until nearly two years after it was notified about the potential overpayments. One of the main issues in the case was the meaning of “identify” as used in the ACA. In this case, the court held that an overpayment is identified at the moment a provider is put on notice of a potential overpayment; rather then when the full extent of an overpayment is conclusively ascertained.

V.  Conclusion:

The recent Healthfirst settlement is merely the first of what will likely be many cases brought against a health care provider or supplier under the False Claims Act for the failure to report and return an alleged overpayment in a timely fashion.  Now, more than ever, it is imperative that your organization have an effective Compliance Program in place so that any potential overpayments can be promptly identified, investigated, and repaid to the government, as necessary.

Robert W. Liles, M.B.A., M.S., J.D., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law. Liles Parker is a boutique health law firm, with offices in Washington DC, Houston TX, San Antonio TX, McAllen TX and Baton Rouge LA. Robert represents physicians and other health care providers around the country in connection with Medicare revocation actions. Our firm also represents health care providers in connection with federal and state regulatory reviews and investigations. For a free consultation, call Robert at: 1 (800) 475-1906.

[1] The term ‘‘person’’ as a provider (as defined in 42 C.F.R. §400.202) or a supplier (as defined in 42 C.F.R.§400.202).

[2] Section 1128J(d)(2).

[3] As the term “obligation: is defined in 31 U.S.C. §3729(b)(3) for purposes of liability under the False Claims Act.

[4] In addition to liability under the False Claims Act (31 U.S.C. §3729), should a provider or supplier fail to properly report and return an overpayment, the provider could also be subject to civil monetary penalties and / or exclusion from participation in the Medicare program.

[5]   81 Fed. Reg. 26127, 26129 (May 2, 2016).

[6] 77 Fed. Reg. 9179 (February 16, 2012), titled Medicare Program; Reporting and Returning of Overpayments.

[7] 81 Fed. Reg. 7654 (February 12, 2016), titled, Medicare Program; Reporting and Returning of Overpayments.

[8]  81 Fed. Reg. 7654, 7661 (February 12, 2016).

[9] 81 Fed. Reg. 7654, 7662 (February 12, 2016).