By: Harry Silver

The Affordable Care Act ("ACA") requires healthcare providers and suppliers to report and return overpayments made by Medicare or Medicaid within 60 days after they have been "identified" ("the 60-Day Rule"). The ACA does not define "identified," administrative regulations intended to do so were proposed in 2012 but have not yet been finalized, and there has been no guidance from the government regarding what it means to have "identified" an overpayment in order to start the 60-day clock.

The U.S. District Court for the Southern District of New York has attempted to fill this vacuum in Kane v. Healthfirst Inc., No. 11 Civ. 2325, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015),the first case to grapple with the issue of what it means to identify an overpayment. Unfortunately, the court went beyond what was necessary to decide the case and determined the 60-day window to be an unreasonably narrow one. While acknowledging the practical problems inherent in identifying and quantifying an overpayment within 60 days, the court ruled that an overpayment has been "identified" once a provider receives information indicating that there is the possibility of an overpayment. This interpretation starts the 60-day clock much earlier than would regulations proposed by the Centers for Medicare & Medicaid Services ("CMS"), the agency that administers the Medicare and Medicaid programs. The 2012 CMS proposal would define an overpayment as being "identified" when a person has actual knowledge of the existence of an overpayment, or acts in reckless disregard or deliberate ignorance of the overpayment. Under the proposed regulations, a provider's receipt of information about a possible overpayment would not mark the start of the 60-day period.  Rather, it would create a duty to undertake a "reasonable inquiry" promptly ("with all deliberate speed") into the source and cause of the suspected overpayment. The 60-day clock would not start (i.e., an overpayment would not be "identified") until after the provider has an opportunity to conduct a "reasonable inquiry."

 The Kane Case

 Kane involved a software glitch that caused three New York City hospitals to submit erroneous claims to New York Medicaid, which paid many of them. After discovery of the glitch, an employee of one of the defendants was assigned to identify the affected claims. The employee, Robert Kane, prepared a spreadsheet identifying 900 claims, erroneously submitted because of the glitch that may have resulted in overpayments.  Kane sent the spreadsheet to management attached to an email that recommended further analysis to determine which of the 900 claims actually resulted in overpayments. Kane's employment was terminated four days later, and he promptly filed a whistleblower action alleging that his former employer violated the 60-Day Rule. The government intervened in the case, took over its prosecution, and filed an amended complaint alleging that (1) Kane's spreadsheet "identified" possible overpayments; (2) the defendants delayed conducting an inquiry to determine which of the "identified" possible overpayments resulted in actual overpayments and; (3) as a result the overpayments were not fully repaid until two years after they had been "identified."The defendants moved to dismiss the complaint, arguing that Kane's spreadsheet did not "identify" overpayments for purposes of the 60-Day Rule.

The allegations that defendants delayed in both conducting and concluding an analysis of the possible overpayments, if proven at trial, would constitute a violation of the 60-Day Rule under the CMS proposed regulations.  Rather than simply denying the motion to dismiss on this basis, the court decided that an overpayment has been "identified," and the 60-day clock starts, once a provider has been made aware of a possible overpayment. The court acknowledged that, in many instances, it may be impossible to determine which claims resulted in overpayments, and to quantify and repay the overpayments within 60-days, but found no flexibility in the 60-Day Rule.  According to the court, even if a provider initiated an internal audit immediately upon receiving notice of a possible overpayment, and advised the government on the 60th day that every overpayment had not yet been identified and returned, the provider would be in violation of the 60-Day Rule as of the 61st day.

The Effect of the Kane Decision

The government has aggressively used settlements reached with providers as "precedent" in persuading other providers to settle similar cases, even if no court has yet ruled on the validity of the government's position. There is little doubt the government and whistleblowers will attempt to use the published Kane decision in this manner.

The Kane decision, however, was issued by one federal trial court judge deciding a pretrial motion to dismiss the complaint. As a result, the Kane definition of "identified" is not governing law anywhere, except perhaps in the Southern District of New York (Manhattan, the Bronx and six upstate counties).

On the other hand, the CMS definition of "identified" is still only a proposed definition.  In February 2015, CMS published a notice that "extends the timeline for publication of the final rule . . . until February 16, 2016."  CMS' notice also reminded providers "that even without a final regulation they are subject to the statutory requirements found in [the APA's 60-Day Rule]." There is, of course, no guarantee that CMS will issue a final rule by February 16. Unless and until CMS issues a final rule defining "identified," providers must make an educated guess about when the 60-day clock has starts. A wrong guess can have severe consequences because a failure to meet the 60-day deadline constitutes a violation of the federal False Claims Act ("FCA").

The FCA imposes a civil penalty of $5,500-$11,000 per claim, plus treble damages. The sheer number of Medicare and Medicaid claims submitted by a hospital or health system can result in potential civil penalties in the tens, and even hundreds, of millions of dollars.  This has persuaded most providers to settle cases brought against them under FCA, even cases which allege conduct that does not violate the FCA. The FCA's potential liability has also created an incentive for whistleblowers that are permitted to initiate an FCA action on behalf of the United States, and are entitled to 15% - 30% of any recovery.  A defendant's former employee initiated the Kane case in this manner.

Providers Can, and Should Protect Themselves

The risks inherent in the 60-Day Rule underscore the necessity of taking self-protective measures.  An effective compliance program is a good first step, especially because such programs are required by the ACA.  Regular self- audits are an essential component of an effective compliance program. Self-audits can detect possible overpayments allowing a provider to address them promptly.

In the event a provider does receive information suggesting possible overpayments, there are self-protective steps that can -- and should -- be taken to avoid FCA liability.  Liability under the FCA requires actual knowledge, reckless disregard or deliberate ignorance of a false claim. A provider that, in good faith, promptly conducts a thorough investigation of a possible overpayment, but does not complete the investigation within 60 days, simply cannot be acting with the knowledge, reckless disregard or deliberate ignorance necessary to establish FCA liability.  Accordingly:

  • Immediately undertake an investigation, or self-audit, as contemplated by the proposed regulations. This investigation can involve legal counsel and/or accountants.
  • Prepare a memo to file specifying the date on which the information was initially received, the nature of the information, the steps undertaken to initiate an investigation, and the date on which the steps were taken.
  • If CMS has not yet issued a final rule, state in the memo that these actions have been taken in reliance on the guidance provided in the proposed regulations.
  • Prepare a monthly updated memo to file documenting the progress that has been made, and the status of the investigation.

Until CMS takes further action, the proposed rule, not the Kane decision, constitutes the only guidance from the government on the meaning of "identified" for purposes of determining when the 60 day clock starts to run.

In addition, the self-audits that can detect potential overpayments should, if possible, be performed in a way that minimizes the chances of an employee, like Kane, initiating a whistleblower action before a provider has had the opportunity to address the issue.  One way to do this is by using an outside service, such as Potomac Law Group's CleanClaim, for self-audits.  CleanClaim is designed to minimize employee involvement and to furnish management with confidential recommendations and advice that is very cost effective.  CleanClaim may also be able to assist providers in performing an analysis after receipt of information about a possible overpayment.

Note: This Bulletin is not intended as legal advice. Readers should seek professional legal counseling before acting on the information it contains.

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