On August 3, 2015, a federal judge in New York issued an important opinion regarding the False Claims Act and what it means to “identify” an overpayment for purposes of starting the 60-day clock in which Medicare and Medicaid overpayments must be returned. The decision underscores the importance of taking overpayment allegations seriously, and makes clear that deliberate ignorance is not a viable defense. Providers should take note of this decision, and update their compliance plans accordingly.

The case, Kane v. Healthfirst, et. al., arose out of a software glitch in a managed care company’s billing system. The glitch caused providers to submit additional bills to secondary payors, above and beyond what is permitted under the New York Medicaid program. Eventually, the managed care company identified the glitch, and alerted its contracted providers, including the hospital, of the problem. The hospital tasked an employee, Mr. Kane (who eventually became the relator), with investigating the issue. Mr. Kane identified approximately 900 claims that could be affected by the software glitch, and stated that “further analysis would be needed to confirm his findings.” Shortly thereafter, Mr. Kane was terminated.

Subsequently, the hospital reimbursed the State of New York for five improperly submitted claims, but did nothing with Mr. Kane’s analysis or the rest of claims for two years. The DOJ alleged that this delay violated the Affordable Care Act requirements that Medicare/Medicaid overpayments must be reported and returned within 60 days of the date “on which the overpayment was identified.” Failure to comply with such a requirement constitutes a violation of the False Claims Act.

The instant action centers upon what it means to “identify” an overpayment. The term “identify” was not defined by Congress in the Affordable Act. The DOJ argued that the hospital acted intentionally or recklessly and “fraudulently delay[ed] its repayments for up to two years after [the hospital] knew of the extent of the overpayments.” The hospital, on the other hand, argued that Kane’s email only provided notice of potential overpayments, and did not identify actual overpayments so as to trigger the 60-day clock.

Ultimately, the district court rejected the hospital’s position, and concluded that identification occurs when health care providers are “put on notice” of potential overpayments. For providers, this means that when you receive information which suggests that an overpayment(s) may exist, you need to take action. Further, this action should be documented in an organized manner specifying the actions being taken to track down the overpayment. While it is yet to be seen whether such efforts could serve as a defense, the decision of the district suggests that good intentions could be a viable defense.