Government Intervenes in “Reverse” False-Claims Case of Overpayments

For the first time, the United States has intervened in a whistleblower case under the False Claims Act that alleges not false claims per se but a failure to refund overpayments by the government within 60 days of identifying them.

To be clear, the government doesn’t allege that the defendant-hospitals were responsible for the overpayments. In fact, it alleges that, sometime in 2009, a “software compatibility issue” caused a primary payor in the New York Medicaid system to incorrectly code its remittances to the hospitals. The coding authorized the hospitals to seek additional payments from a secondary payor, which was wrong, but as a result, the hospitals’ billing programs automatically generated bills to secondary payors, including Medicaid itself, and some of these claims were paid. By September 2010, the state regulator had alerted the hospitals to the problem, and by December 2010, the software vendor had issued a corrective patch to solve it. The government’s got no beef with any of that, it seems.

Instead, the complaint alleges that the hospitals wrongly delayed in repaying the overpayments for two-plus years, violating the 60-day rule enacted by the Patient Protection and Affordable Care Act (PPACA) in 2010. The 60-day rule says, in relevant part, that providers and suppliers must report and return an overpayment within 60 days of the date on which it is identified. See 42 U.S.C. § 1320a-7k(d). Previously, the Fraud Enforcement Recovery Act of 2009 had clarified that overpayments constituted obligations to return money (or property) to the government and, thus, retaining them could give rise to liability under the False Claims Act (FCA). The PPACA set the timeframe for when that liability begins to accrue.

The complaint alleges that, by February 2011, the hospitals’ internal investigation had revealed more than 900 overpayments resulting from the software glitch, beginning in May 2009, and totaling over $1 million. The complaint further alleges that, upon this discovery, the defendants promptly terminated the employee who derived those numbers, reimbursed only five of the overpayments, dragged their feet on the others for 24 months, and never let on about their former employee’s research and findings. Well, guess who the whistleblower was.

The litigation is expected to test the bounds of the 60-day rule, including when an overpayment is “identified” by a large organization for purposes of the 60-day clock and, ultimately, what’s reasonable in terms of assessing liability.

The penalties for FCA violations include treble damages (that is, triple the government’s actual damages); statutory damages of $5,500 to $11,000 for each false claim; and reasonable attorneys’ fees and litigation costs. 31 U.S.C. § 3729(a)(1), (3). The PPACA also amended the Civil Monetary Penalties Law (CMPL) to cover overpayments under the 60-day rule. 42 U.S.C. § 1320a-7a(a)(10). Thus the CMPL authorizes a civil monetary penalty of up to three times the provider’s gross receipts, even if the provider was lawfully entitled to a portion of them, as well as exclusion, or debarment, from federal and state programs, which is a death knell for some businesses. Id. (flush paragraph).

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