July 07, 2014

The Government Intervenes In False Claims Act Case Alleging Failure To Return Overpayments Within 60 Days

By Jesse A. Witten, Mark H. M. Sosnowsky and Adam Scott Kunz

On June 27, 2014, the United States intervened in a qui tam action under the False Claims Act alleging that certain New York hospitals failed to refund Medicaid overpayments within 60 days of identifying them, as required by the Affordable Care Act.  See United States ex rel. Kane v. Healthfirst, Inc., et al., No. 11-2325 (S.D.N.Y.).  The Government does not allege that the hospitals were in any way responsible for causing the overpayments; the overpayments were allegedly caused by errors of a Medicaid managed care plan administrator.  Rather, the Government’s allegations are solely that the hospitals did not timely return the overpayments after they were identified.  This appears to be the first time in which the Government has intervened in a qui tam case based entirely on the 60-day repayment requirement. 

According to the Government’s Complaint, the defendant hospitals were providers in a Medicaid managed care network operated by Healthfirst, Inc.  Under the terms of participation, for patients enrolled in the Healthfirst Medicaid managed care program, the hospitals were permitted to receive reimbursement only from Healthfirst or from permitted patient co-payments.  A billing system error by Healthfirst, however, caused it to send remittances to hospitals that erroneously authorized the hospitals to seek additional payments from secondary payors.  As a result, Defendant hospitals automatically generated and submitted bills to New York Medicaid. 

Beginning in January 2009, the New York Department of Health Comptroller’s Office allegedly made an inquiry of Defendants regarding a small number of these claims that were erroneously submitted for reimbursement.  As a result of the inquiry, Defendants undertook an internal investigation to determine the reasons for the improper claims and the scope of the problem, even as the Comptroller’s Office identified more claims.  By February 2011, Defendants had allegedly identified more than 900 claims erroneously submitted to Medicaid, leading to over $1 million wrongfully paid by Medicaid as a secondary payor.  According to the Government’s Complaint, Defendants allegedly delayed repaying the majority of these claims for more than two years and that repayments were made only after further pressing by the Comptroller’s Office. 

According to the DOJ, this failure to act promptly violates the ACA’s 60-day repayment provision, which requires Medicare and Medicaid overpayments be reported and returned within “60 days after the date on which the overpayment was identified.”  42 U.S.C. §1320a-7k(d)(2).  The ACA further provides that the failure to make a timely refund can serve as the basis for False Claims Act liability.  Id. § 1320a-7k(d)(3). 

The False Claims Act imposes liability of treble damages plus penalties of $5,500 to $11,000 per false claim, and the Government’s Complaint seeks “treble the United States’ damages, in an amount to be determined at trial, plus an $11,000 penalty for each overpayment retained in violation of the FCA.”  Here, the hospitals eventually did repay the alleged Medicaid overpayments before the Government intervened.  It is not apparent that Medicaid incurred any actual damages to treble, aside from potentially foregone interest. 

The Government’s intervention in Healthfirst illustrates the need for health care providers to diligently investigate potential Medicare and Medicaid overpayments that come to their attention and to take appropriate remedial action.

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