New York Federal Court Issues First Interpretation of “Identified” Under the Affordable Care Act’s 60-Day Rule

In Kane v. Healthfirst, Inc. et al., a New York federal court became the first court to interpret when the clock starts running on the 60 days allowed to report and return an overpayment of Medicare and Medicaid funds under the Affordable Care Act. The Affordable Care Act requires a person who receives an overpayment of Medicare or Medicaid funds to report and return the overpayment within 60 days of the “date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(2)(A). Any overpayment that is kept beyond the 60 days may be a reverse false claim under the False Claims Act, which imposes liability for any person who “knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).

Kane is significant for health care providers because the Affordable Care Act does not define the term “identified,” nor has the Centers for Medicare and Medicaid Services (CMS) defined this term in the Medicaid context. However, CMS has issued a final rule that applies to Medicare Advantage and the Medicare Part D Prescription Drug Program stating that an overpayment is identified when there is actual knowledge of the existence of an overpayment or if a person or entity acts in deliberate ignorance of, or with reckless disregard to the overpayment’s existence. 79 Fed. Reg. 29,844 (May 23, 2014). CMS has also issued a proposed rule applicable to Medicare providers and suppliers that adopts the same definition of “identified” that the agency adopted for Medicare Parts C and D. 77 Fed. Reg. 9,179 (Feb. 16, 2012). In this proposed rule, CMS noted that a provider or supplier may receive information about a potential overpayment that creates an obligation to inquire about whether or not there is an overpayment. If the inquiry reveals an overpayment, the 60-day deadline to report and return the overpayment runs from the date that the inquiry reveals the overpayment. CMS cautions that a failure to make a reasonable inquiry after receiving information about a potential overpayment could result in the provider knowingly retaining an overpayment. Id.

The Kane litigation arose out of a software glitch that mistakenly generated codes telling providers that they could seek additional payment from secondary payors such as Medicaid. The providers should have been told that they could not seek secondary payment for the services, except for co-payments from certain patients. As a result of this software glitch, three hospitals that were part of a network of non-profit hospitals incorrectly submitted claims to Medicaid.

Approximately 21 months after the hospitals began to bill improperly for Medicaid services, the New York State Comptroller’s office approached the hospitals with questions about the incorrect billing, ultimately revealing that there was a software problem. After the problem was discovered, an employee, relator Kane, was assigned to investigate what claims had been improperly billed to Medicaid. Five months after the Comptroller told the hospital network about the software problem, Kane informed management about 900 potential claims that contained the erroneous billing code. Kane indicated that further analysis would be needed to confirm his findings. The parties did not dispute that Kane’s listing of the incorrect billings was overly inclusive and included claims that were improperly billed as well as some claims that were billed appropriately.

Acknowledging that CMS’ rules do not technically apply in the context of Medicaid, the Kane court nonetheless adopted CMS’ interpretation of the term “identified” that the agency adopted for Medicare Parts C and D and proposed to adopt for Medicare suppliers and providers. Thus, the court concluded that Kane’s e-mail triggered the 60-day timeframe to report and return overpayments. The court reasoned that Kane had put the hospital network on notice of potential overpayments, rejecting the hospitals’ argument that the court should adopt a definition of “identified” that means “classified with certainty.”

As the first court to interpret the term “identified” under the 60-day rule, Kane is an important decision for health care providers. It is possible that other courts will also side with CMS’ interpretation of “identified.” Thus, absent further guidance from CMS or the courts, health care providers should proceed to investigate carefully and quickly all allegations of alleged overpayments and document their efforts, in order to defend against any possible violation of the 60-day rule.

U.S. Supreme Court Issues False Claims Act Ruling of Interest to Health Care Providers

The United States Supreme Court recently issued a ruling in a False Claims Act case with mixed implications for the health care industry. Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, No. 12-1497, decided May 26, 2015. In this qui tam lawsuit brought under the False Claims Act, a former employee of a defense contractor during the Iraqi conflict alleged that defense contractors and related entities had fraudulently billed the government for water purification services that were not performed or not performed properly. Although this was not a health care case, the Court’s ruling will impact False Claims Act matters involving health care providers.

The case involves two restrictions on qui tam lawsuits under the False Claims Act. The first restriction is the “first-to-file” bar which prohibits a qui tam lawsuit “based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b). The second restriction involves the statute of limitations: the False Claims Act requires that a qui tam action must be brought within six years of the violation or within three years of the date the United States should have known about the violation, but cannot be brought more than ten years after the date of a violation. 31 U.S.C. § 3731(b). The Court had to decide whether the Wartime Suspension of Limitations Act, which suspends the statute of limitations involving fraud whenever Congress authorizes the use of the armed forces as described in section 5(b) of the War Powers Resolution, is limited to criminal actions or whether it extends to civil claims.

In a unanimous decision, the Court issued a ruling that has both good and bad consequences for health care providers. The Court declined to extend the qui tam statute of limitations under the Wartime Suspension of Limitations Act to civil claims. After analyzing the statutory language, the Court concluded that the Wartime Suspension of Limitations Act applies only to criminal charges. Thus, the Wartime Suspension of Limitations Act did not suspend the time for filing civil claims under the False Claims Act.

Adopting the ordinary meaning of “pending,” the Court also decided that the False Claims Act’s first-to-file bar does not keep new claims out of court once the related suit is dismissed because a qui tam suit ceases to be “pending” once it is dismissed. The first-to-file bar does not forever prevent a subsequent lawsuit from being filed. Thus, an earlier suit bars a later suit only while the earlier suit remains undecided. However, the Court noted that the issue of claim preclusion, which may protect defendants if the first-filed action is decided on the merits, was not before it. Thus, a subsequent lawsuit may nonetheless be barred if it was decided on the merits under the doctrine of claim preclusion, which generally speaking, bars relitigation of a claim that was already decided on the merits.

Medicare Advantage Risk-Adjustment Fraud – Where’s the False Claim? (Part I)

I recently saw this article discussing a False Claims Act (FCA) case pending in federal district court in Florida.  The theory is an interesting one involving the Medicare Advantage program.  The full story is available here and here, but I’ll provide a brief synopsis.

In 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), which required the Centers for Medicare and Medicaid Services (CMS) to initiate the formal implementation of a fully risk-adjusted capitation reimbursement model for Medicare Advantage.  Essentially, a risk-adjusted model recognizes that many Medicare Advantage beneficiaries experience health conditions that can be very costly, to the point where a single hospitalization can wipe out the entire amount of premiums the Medicare Advantage managed care organization received over the course of the year.  Therefore, it pays higher premiums for those beneficiaries who have been diagnosed with conditions that make them more likely to use significant health care resources over the course of the year (e.g., diabetics, people suffering renal failure, etc.).

You can see the potential for fraud and abuse.  If Medicare Advantage plans get paid more for covering high-risk beneficiaries, then they’ll have an incentive to exaggerate the poor health of their beneficiaries.  Doctors will err on the side of diagnosing their patients with the more serious conditions in borderline (and perhaps not-so-borderline) cases.  That’s what the plaintiff alleges the provider did in the case linked above (I won’t name the company, but you can click through).  In related news, CMS recently announced that it intends to scrutinize Medicare Advantage risk-adjustment data submitted by plans to ensure its accuracy, primarily in an attempt to deter this potential practice.

But there’s a problem from the government’s point of view.  Where’s the claim?  The FCA only covers false claims submitted to the government for payment, or false records or statements material to false claims.  It is not a general HC BLOG_HHSfraud statute.  And it is at least debatable whether a trumped up diagnosis submitted for risk-adjustment purposes falls within the “false claim” category.  Now, it’s probably inarguable that if a Medicare Advantage plan knowingly included false or exaggerated diagnosis data when it submitted its capitated reimbursement request, that conduct would be a false claim.  But that’s unlikely to happen.  Instead, the plans normally will just aggregate the data they receive from their doctors without investigating its accuracy (which would be impossible on any large scale).  And in the absence of any direct connection between the receipt of false data and the submission of the reimbursement request, it’s hard to cite any specific false claim.

Now, it’s important to note that the Department of Health and Human Services (HHS) rejects this analysis.  It takes the position that the FCA encompasses risk-adjustment fraud (see note 12 for FCA actions brought by HHS).  But all of the matters involving this theory have settled before a court can opine on the issue, so we have no judicial pronouncement on whether HHS’s interpretation is a viable one.

And there’s one more thing.  The Medicare Advantage program seems to be growing, despite cuts made in the Affordable Care Act (ACA).  (It is only used by 30 percent of the population eligible for Medicare, tallying about 15.7 million beneficiaries.)  But it is not the only federal health care program that uses a risk-adjustment model.  In fact, the ACA contains a virtually identical concept to help offset insurance plans that cover high-risk individuals through the state and federal insurance exchanges.  These plans theoretically will have the same incentive as the Medicare Advantage plans to exaggerate – or even lie about – their enrollees’ health conditions.  There is an important difference between the two risk-adjustment approaches though – how Congress has decided to treat them for FCA purposes.  That difference may be crucial to the question of whether and how false or exaggerated risk-adjustment data is covered by the ACA.  More on that in my next post.

Expanding on an Interesting False Claims Act Proposal

This article popped up on one of my news feeds recently.  It discusses a proposal by a few Washington, D.C., law firms to drastically revise the federal False Claims ActHere is the proposal in its entirety.  As you can see, it’s a hodgepodge of proposed defendant-friendly fixes, most of which (1) reduce the amount that can be recovered under the FCA; (2) reduce the share of qui tam relators; or (3) make it more difficult to prove an FCA charge.  I’m not going to spend much time on those.  Instead, I want to focus on a really interesting suggestion involving whistleblowers and corporate compliance departments.

HC BLOG_filesFirst, though, a bit of background.  Those who are familiar with the FCA can skip ahead.  The FCA is a Civil War-era statute initially designed to stop wartime fraud on the government.  (Incidentally, the linked article by Professor Krause is very short and – like virtually all of her stuff on health law, and especially the FCA – worth a read.  In fact, the background that follows is heavily based on her article.)  From the outset the FCA contained a unique qui tam provision that allowed private citizens, called “relators,” to bring suit on the government’s behalf and share in the proceeds.  In 1943, it was amended to bar so-called “parasitic” lawsuits based on information or knowledge already in the government’s possession.

Then came the rise of our labyrinthine administrative state.  In the face of massive allegations of fraud (especially in the defense industry), Congress significantly amended the FCA in 1986 to make it a more useful fraud-combatting tool.  It raised the statutory penalties from $2,000 to $11,000 plus treble damages per violation, increased whistleblower protection, and expanded the qui tam provision to include a bigger relator share and liberalize who may sue.

Given the emergence of Medicare and Medicaid as major – and growing – parts of the federal budget (for example, Medicare has gone from 8.5 percent to a projected 16.9 percent in 2020), it probably isn’t surprising that the FCA increasingly has been used to combat health care fraud.  By the late 1990s, the clear majority (61 percent) of FCA qui tam lawsuits involved those sorts of claims.  In 2008, for example, there were 228 qui tam lawsuits resulting in nearly $10 million in recoveries for the relators alone.  In 2009, total health care fraud recoveries by the government reached $1.6 billion.  Common theories of recovery under the FCA include:

  • outright mischarges (where providers bill for services that were not provided – so basically quintessential fraud);
  • medical necessity fraud (where providers submit bills for services provided but not medically necessary);
  • certification fraud (where providers bill for services improperly certified as compliant, often because they violate the federal Anti Kickback Statute or Stark Law anti-referral provisions);
  • substandard services fraud (where the provider bills the government for worthless or near-worthless services);
  • reverse false claims fraud (where a provider lies to the government to reduce any amounts it would otherwise owe); and
  • a host of other creative types of claims.

So what is the problem with an aggressive anti-fraud regime, particularly in the health care context?  Perhaps the most prominent criticism involves the lack of basic fairness inherent in a system where federal prosecutors can bring a “corporate death penalty” to the table by threatening the imposition of monetary penalties and (oftentimes) the exclusion altogether from the Medicare and Medicaid programs.  Put simply, when facing that sort of existential dilemma, many – if not most – health care providers decide to “roll over” and pay whatever the government is asking.  In that way, FCA claims become less of a deterrent against wrongful conduct, and more of an occasional but unpleasant cost of doing business.

That takes us back to the article and proposal linked at the top.  As I noted, the authors argue for a number of changes to narrow the FCA. They would make it harder for qui tam plaintiffs to bring FCA suits; make it harder for FCA plaintiffs to win the suits that are brought; and reduce the amount recoverable in successful suits, for the relators and the government.

I don’t think these proposals are very interesting.  Don’t get me wrong; some or even all of them probably are advisable as a policy matter.  I suspect that a lot of health care providers facing FCA claims would probably think so.  But are they really going to result in a productive discussion?  It’s going to be a purely political quagmire, in which we’ll see whether a motivated special interest group can overcome the inevitable demonization of what will be painted as a “pro-fraud” proposal.  I’ll just say that this sort of realpolitik analysis isn’t exactly in my bailiwick.

There is one aspect, however, that is more intriguing, at least to me.  The proposal’s authors include a recommendation to expand the qui tam provision to go beyond lawsuits brought in court.  Instead, they argue, qui tam recoveries (they suggest 10 percent) should be permitted when relators bring the alleged deficiency to the attention of internal compliance departments, and that deficiency results in a voluntary self-disclosure.  This is really clever.  One obvious impediment to whistleblowers is the fear that they will ruin their careers by running to law enforcement with allegations of wrongdoing on the part of their employers.  (Yes, there are legal protections against this.  They aren’t always effective, and maybe more importantly, they aren’t always perceived by whistleblowers to be effective.)  By incentivizing them to go to internal compliance departments, that barrier is largely removed.

But why stop at the FCA?  There are a number of (nonfraud) situations in which an overpayment has been received by a provider and it must pay back the money.  Why not expand the proposed qui tam internal reporting regime to those?  I understand that all of this is easier on paper than it is in real life.  The original FCA proposal, for example, contemplates what might happen if the compliance department refuses to take action (the relator would be able to bring an FCA lawsuit in that case).  In the broader overpayment context, there would need to be some safeguard against the relator becoming aware of overpayments and letting them rack up before informing the compliance department.  There also would need to be hypervigilance about a plan among two or more employees whereby one would permit the overpayment and the other (or others) would report it.

The bottom line remains the same, though.  The insight that everyone benefits from an internal reporting process – employees because they don’t risk alienating their employers (as much), providers because they can manage and disclose the conduct on their own terms, and even the government because it will encourage more reporting – is a valuable one.  It’s certainly worth pursuing further.

Image courtesy of Flickr by Andrew Michael Nathan