A common feature of False Claims Act (FCA) litigation is the pursuit of liability under the FCA’s so-called “reverse” false claims provision, 31 U.S.C. § 3729(a)(1)(G). Reverse false claims liability applies when a person or entity knowingly does either of the following:
The reverse false claims provision of the FCA is especially significant for healthcare providers, in part because the 2010 Affordable Care Act (ACA) (as well as associated regulations) expressly linked the knowing retention of overpayments from federal healthcare programs to reverse false claims liability under the FCA. Specifically, the relevant statutory provision of the ACA defines the term “obligation,” as used in the FCA, to include any overpayment that is not “reported and returned” within 60 days after it is “identified,” a term courts and Centers for Medicare & Medicaid Services (CMS) have interpreted somewhat broadly. See 42 U.S.C. § 1320a-7k(d). Thus, by “improperly avoid[ing]” this “obligation”—i.e., knowingly or recklessly failing to return the overpayment within the ACA’s 60-day timeframe—a provider violates the FCA.
The upshot for providers is that a failure to diligently investigate and appropriately address a potential overpayment may lead to a host of problems, including whistleblower lawsuits, intrusive government scrutiny, and ultimately, FCA liability for treble damages and civil penalties. What’s more, this may be true even in cases where the receipt of the overpayment was not itself the result of any fraudulent conduct. Indeed, as the cases discussed below demonstrate, that risk is far from just hypothetical.
In at least two cases decided this past year, courts held that defendants could potentially be liable for FCA violations for failing to return alleged overpayments identified through internal audits or other reviews, even if they had not definitively quantified the full amount of the overpayments.
In U.S. ex rel. Kuriyan v. Health Care Services Corp., a whistleblower alleged that various Medicaid managed care organizations had unlawfully retained overpayments by failing to spend at least 85% of their capitated Medicaid payments on healthcare costs, as their Medicaid contracts required. Holding that the whistleblower had pleaded viable claims under the reverse false claims provision of the FCA, the district court expressly rejected the defendants’ argument that retention-of-overpayment liability requires the identification of a “fixed monetary obligation.”
The court explained that such a rule “would be inconsistent with the broad remedial purpose of the [FCA],” holding instead that the defendants’ obligation to investigate and return any overpayments was triggered as soon as they finalized certain financial statements from which the overpayments could have been calculated, even if they had not done the calculation.
In U.S. ex rel. Ormsby v. Sutter Health, the district court denied the defendants’ motion to dismiss FCA claims predicated on alleged overpayments received by a nonprofit health system and its affiliate through the submission of flawed risk-adjustment data, which was alleged to have inflated the defendants’ capitated payments under the Medicare Advantage program. In finding the government’s reverse false claims theory adequately pleaded, the district court cited allegations that the defendants had knowingly ignored red flags about the integrity of their risk-adjustment data, lacked appropriate compliance procedures, and failed to appropriately follow up on a series of internal and external reviews and audits that identified specific unsupported diagnosis codes. Moreover, the court permitted the relator to pursue liability for all potential overpayments associated with the health system’s flawed risk-adjustment data, not just overpayments associated with the specific unsupported diagnosis codes identified in the previous audits and reviews.
Complicating matters for providers, whistleblowers often attempt to plead a retention-of-overpayments theory as an alternative basis for liability on facts they allege also support traditional FCA liability. In other words, whistleblowers will allege that providers have knowingly submitted false claims for payment, but have also violated the reverse false claims provision of the FCA by failing to return the resulting reimbursement.
For the most part, courts have appropriately rejected this pleading strategy as redundant, holding that reverse false claims liability requires independent allegations or evidence beyond those offered to support traditional FCA claims. See, e.g., U.S. ex rel. Kuzma v. N. Ariz. Healthcare Corp., 2020 WL 5819571, at *8 (D. Ariz. Sep. 30, 2020) (noting that courts “have consistently dismissed” reverse FCA claims lacking additional allegations or evidence as “redundant of false statement and presentment claims”).
Still, however, a few courts have allowed such tag-along claims to proceed, at least through the pleading or summary judgment stages. For instance, in April 2020, a Minnesota district court denied summary judgment for the defendants on relators’ reverse FCA claim even while acknowledging that the relators had not identified “specific facts”—separate from those supporting their traditional FCA claim—to show that “Defendants knowingly and improperly retained an overpayment.” Likewise, a district court in the Northern District of Alabama recently held that relators had necessarily pleaded viable reverse FCA claims—on top of traditional FCA claims—where they alleged only that a hospital and an orthopedic surgeon knowingly submitted false claims to Medicare and had not returned the resulting reimbursement.
Although relative outliers, these decisions only further heighten providers’ risk when it comes to the receipt of potential overpayments. After all, they suggest that reverse FCA liability may in some cases provide whistleblowers (or the government) a second bite at the FCA apple even if they fail to establish traditional FCA liability with respect to particular payments.
Finally, even in cases where overpayments do not ultimately result in FCA liability, failing to promptly investigate and address them may still cause major FCA-related headaches, including precipitating whistleblower lawsuits and triggering burdensome government investigations.
Consider, for example, a recent settlement in the Middle District of Florida. In July 2020, Florida Cancer Specialists & Research Institute, a Fort Myers oncology practice, agreed to return more than $2.3 million that it was allegedly overpaid by the Department of Veterans Affairs for certain physician-administered drugs. Although the settlement did not accuse the practice of wrongdoing or purport to resolve any FCA liability, it resulted from what appears to have been a roughly three-year government investigation prompted by a whistleblower lawsuit filed by a former employee. The whistleblower’s qui tam complaint accused the practice of failing to act with reasonable diligence after she brought the overpayment to the attention of her superiors. While the complaint did not ultimately lead to FCA liability, the effort required to respond to the whistleblower lawsuit and the related government inquiry almost surely imposed costs on the practice well beyond the amount of the overpayment itself.
Together, these recent developments only reinforce a lesson many providers have learned already—and some the hard way: when potential overpayments are brought to a provider’s attention, the issue must be promptly and reasonably investigated and remediated. Providers ignore this lesson at their peril, as failing to take appropriate action can quickly turn what might otherwise be a routine payment error into the proverbial federal case.