Two recent federal court cases show that the federal government intends to vigorously enforce the so-called “60-day Rule” for the return of overpayments enacted as part of the Affordable Care Act (the “ACA”) even though the Centers for Medicare & Medicaid Services (“CMS”) has not yet issued its final interpretative regulation for that rule. Therefore, healthcare providers should put policies and procedures in place now that comply with the 60-day Rule for returning Medicare and Medicaid overpayments to the government.

The 60-day Rule requires a healthcare provider, who has received a Medicare or Medicaid overpayment, to report and return the overpayment within 60 days from the date on which the overpayment was “identified.” An “overpayment” is defined in the ACA to mean “any funds that a person receives or retains under [Medicare] or [Medicaid] to which the person, after applicable reconciliation, is not entitled to … .” The term “identified” is not defined in the ACA. If a provider fails to report and return the overpayment within the required 60-day period it can be subject to substantial liability under the federal False Claims Act. In February of 2012, CMS issued a proposed interpretative regulation regarding the 60-day Rule as it relates to providers under Medicare Parts A and B. Under the proposed regulation, an overpayment is “identified” when a provider “has actual knowledge of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment.” In February of 2015 CMS obtained a one year extension to issue the final regulation. However, as the following two cases indicate, the failure of CMS to issue its final regulation interpreting the 60-day Rule has not prevented the federal government from enforcing that rule. Healthcare providers are now on notice that despite the delay in implementing that rule, the 60-day Rule will be vigorously enforced by the government.

The Kane Case

In United States ex rel. Kane v. Health First, Inc., a judge of the United States District Court for the Southern District of New York issued an order denying the defendants’ motions to dismiss, and in so doing interpreted the term “identified” in the 60-day Rule for the first time. In Kane a software glitch caused three New York hospitals that belonged to a hospital network named Continuum Health Partners to submit improper claims to the New York Medicaid program. After the glitch was discovered Continuum asked its employee, Robert Kane, to ascertain which claims had been improperly billed. Several months after the glitch was discovered, Kane sent Continuum’s management an e-mail along with an attached spreadsheet that contained more than 900 claims which Kane believed to have been wrongfully submitted to the Medicaid program due to the software error. His e-mail indicated that further analysis would be needed to confirm his findings. 

There was no dispute between the parties in Kane that Kane’s spreadsheet was overly inclusive and that approximately half of the claims listed in the spreadsheet were never actually overpaid. The government alleged that over the next two years Continuum failed to timely identify the claims improperly billed due to the software glitch and to timely reimburse the New York Medicaid program for the overpayments.

Four days after Kane sent his report, he was terminated by Continuum. Two months later Kane brought an action under the False Claims Act against the three hospitals and other parties. The United States and the State of New York later intervened in the case.

The defendants filed motions to dismiss the government’s complaint, and the key issue was the meaning of the word “identified”. Continuum argued that Kane’s report did not start the 60-day clock since it did not “identify” the overpayments and only described potential, but not actual, overpayments. The government replied that Kane’s report properly “identified” overpayments within the meaning of the ACA, and when Continuum did not report and return the overpayments within 60 days there arose a violation of the False Claims Act. The court rejected Continuum’s argument and denied the motions to dismiss. In its order, the court said that the 60-day clock “begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained, … .”

The PSA Healthcare Case

One day after the Kane decision, the United States Attorney’s Office for the Southern District of Georgia announced in a press release a $6.88 million settlement of two False Claims Act cases brought against Pediatric Services of America, Inc., commonly known as PSA Healthcare, a pediatric home health care company. According to the press release, one of the claims against PSA was that it wrote off and absorbed credit balances resulting from overpayments that had been on its books for several years and did not investigate the reason for the credit balances. In the press release the United States Attorney stated that the settlement was “the first of its kind”, and that “[p]articipants in the federal health care programs are required to actively investigate whether they have received overpayments and, if so, promptly return the overpayments.”

Conclusion

In light of the decision in Kane and the PSA Healthcare settlement, healthcare providers should immediately implement policies and procedures to promptly identify Medicare and Medicaid overpayments and report and return any overpayments within 60 days. Providers should not wait for CMS to issue its final interpretative regulation regarding the 60-day Rule.