Software Glitch Sparks FCA Suit Against Hospitals for Late Repayment of Medicaid Reimbursements

by Akin Gump Strauss Hauer & Feld LLP

On June 27, the New York Attorney General’s Office and the U. S. Attorney’s Office for the Southern District of New York intervened in a qui tam suit against Continuum Health Partners, Inc., Beth Israel Medical Center and St. Luke’s-Roosevelt Hospital Center alleging that they violated the federal and New York False Claims Act (FCA) statutes, 31 U. S. C. § 3729, et seq., N. Y. State Fin. L. § 187, et seq. by retaining erroneous Medicaid payments triggered by a software glitch. Significantly, both the US AG and NY AG cited a provision of the Social Security Act, which added a 60-day clock to return overpayments.

The New York FCA prohibits “knowingly conceal[ing] or knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the state.” N. Y. State Fin. Law § 189(1)(h). “Obligation” includes “retention of any overpayment.” Id. § 188(4). The rule is the same under the federal FCA. See 31 U. S. C. § 3729(a)(1)(G), (b)(3). The Patient Protection and Affordable Care Act toughened the Government’s ability to crack down on overpayments by amending the Social Security Act to provide that “[a]n overpayment must be reported and returned” no later than “60 days after the date on which the overpayment was identified. ” 42 U. S. C. § 1320a-7k(d)(2).

The hospitals had contracted with Healthfirst, Inc., a non-profit managed-care organization that covers healthcare services to Medicaid-eligible enrollees. The hospitals billed their patients’ Medicaid-covered expenses to Healthfirst and then the New York State Department of Health (DOH), which administers New York’s Medicaid program, reimbursed these expenses. Hospitals that receive Medicaid payments from Healthfirst may not double-bill Medicaid for those same services.  

On or about 2009, the hospitals began to submit improper claims to DOH because a software glitch indicated that providers could seek additional payment from Medicaid. After Continuum discovered a small number of the errors, it asked an employee, Robert P. Kane, to determine how many claims had been improperly billed. In February of 2011, Kane reported 900 improper claims, totaling over $1 million, to Continuum’s Vice President for Patient Financial Services. Continuum terminated Kane later that month, and Kane then sued the hospitals and Healthfirst on behalf of the United States, New York and New Jersey. Over the following year, the New York State Comptroller brought these claims to Continuum’s attention. Continuum did not fully reimburse the State for these claims until March 2013, two years after Kane concluded his investigation. Continuum did not notify the Comptroller about Kane’s analysis during this time period. See U. S. Compl. in Intervention at 9-12, U. S. v. Continuum Health Partners, Inc., No. 11-cv-2325 (ER) (S. D. N. Y. June 27, 2014); N. Y. Compl in Intervention at 9-12, N. Y. v. Continuum Health Partners, Inc., No. 11-cv-2325 (ER) (S. D. N. Y. June 27, 2014). New York State and the United States intervened against the hospitals. Earlier this week, Kane voluntarily dismissed the bulk of his claims.

The government alleges that Continuum violated the federal and state FCAs by “fail[ing] to take the necessary steps to timely identify the claims affected by the software issue or to timely reimburse DOH for those affected claims that resulted in overbilling to Medicaid.” See U. S. Compl. in Intervention at 12; N. Y. Compl. in Intervention at 12. And more specifically, that Continuum violated the amended Social Security Act by failing to return the overpayments within the 60-days allotted.

We will monitor this case and the government’s application of the Affordable Care Act’s 60-day clock to return Medicaid overpayments in FCA actions. Health care companies should know that their failure to comply with the 60-day clock may expose them to liability under both federal and state FCA actions.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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