Attorneys Predict More Cases Arising From CMS Overpayment Rule

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By John Herzfeld

Aug. 26 — A recent $2.95 million settlement by a New York hospital group in a whistle-blower case involving Medicaid overpayments may be a harbinger of more cases to come, health-care attorneys said.

State and federal officials said Aug. 24 that the Mount Sinai Health System agreed to settle a whistle-blower case alleging that three of its hospitals unlawfully kept $844,000 in Medicaid overpayments (165 HCDR, 8/25/16). The whistle-blower, Robert P. Kane, alleged violations of an Affordable Care Act requirement that Medicaid overpayments be returned within 60 days.

A year ago, Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York issued an opinion allowing the case to proceed (150 HCDR, 8/5/15). The judge's decision laid out an interpretation of the ACA’s 60-day requirement in denying the defendant hospitals’ motion for dismissal.

The precedential value of that decision, however, “has been largely supplanted” by a Centers for Medicare & Medicaid Services rule providing guidance on the requirement, Tony Maida, an attorney with McDermott Will & Emery LLP in New York, said. Maida is also a former official in the Health and Human Services Office of Inspector General.

The CMS rule came out in February (29 HCDR, 2/12/16).

Practitioners Not Surprised

“It’s not surprising to me when [False Claims Act] cases settle, given the large financial penalties and potential exclusion consequences,” Maida told Bloomberg BNA Aug. 25.

W. Bradley Tully, an attorney with Hooper Lundy & Bookman PC in Los Angeles who advises providers on compliance issues, also found “the relatively expensive settlement” not surprising.

“While there are two sides to every story, the government believed that the defendants were stonewalling on their repayment obligations, rather than acting in good faith, and there was sufficient evidence for a jury to have agreed with that view,” he told Bloomberg BNA in an Aug. 25 e-mail message.

Once the district court denied the hospitals’ motion to dismiss, Tully said, “settlement became the better part of valor.”

Frank Sheeder, an attorney with Alston & Bird in Dallas, said Aug. 26 about the settlement: “Given the involvement of the Department of Justice, this case sets legal and regulatory precedent for how the federal government will enforce the ACA’s identified overpayment requirement.”

Kenneth Marcus, an attorney with Honigman Miller Schwartz & Cohn LLP in Detroit, who advises providers, called the United States ex rel. Kane v. Healthfirst case “the ‘poster child’ for how not to conduct a potential overpayment situation.”

In an Aug. 26 e-mail message, Marcus told Bloomberg BNA that, in the Kane case, “the provider terminated the employee who identified and quantified the overpayment, delayed in reporting the overpayment and did not fully disclose the underlying information regarding the overpayment.”

Shows Wrong Way

If providers follow that approach, Marcus said, it would be to their detriment, “as we saw in the Kane case.”

Being prepared for government or litigation inquiries into possibly noncompliant retention of overpayments is “easier said than done,” Marcus said.

“But providers clearly have a duty to establish and conduct a rigorous compliance program that enables overpayments to be identified, quantified, reported and refunded,” he continued.

That’s especially true since the concept of a reverse false claim (i.e., keeping the overpayment) became “enshrined” in the ACA, now interpreted and implemented through the February CMS final rule, Marcus said. “And, as Kane illustrates,” he added, “don’t kill the messenger!”

Typically, he said, “an internal employee expressing concern is not seeking to become a whistle-blower and to reap a financial benefit” but rather “has a good faith belief that there is a problem and simply desires management to address and resolve it.”

Only when the employee is rebuffed does he or she become a whistle-blower, he said.

The CMS regulation “contains a more detailed, although still amorphous, definition of when an overpayment has been ‘identified’ to start the 60-day clock,” Maida said, adding that he expects to see more attention to 60-day rule issues from regulators and FCA whistle-blowers, known as qui tam relators.

New Allegations Coming

“I see no reason to think that litigation won’t increase on 60-day rule and reverse false claims allegations,” he said. “Relators and DOJ have already begun adding allegations of a knowing failure to return overpayments in FCA complaints.”

That should grow more common with the release of the regulation, as allegations focus on a failure to satisfy the rule’s “should have determined” standard, Maida said.

Marcus suggested that, while the regulation in itself won’t lead directly to more cases, “certainly the enforcement agencies now have a rulebook by which to play.”

Ambiguity Still Seen

He added that, although the final rule “provides a degree of guidance that was lacking for nearly six years” since the March 2010 passage of the Affordable Care Act, “it contains sufficient ambiguity that inevitably providers will be charged with violations.”

It would be speculative to assess whether the provider in the Kane case “would have behaved differently with the benefit of the final rule,” Marcus said.

But clearly the final rule provides an additional six months for the internal investigation before the 60-day disclosure and repayment deadline runs, he said.

“At a minimum, the final rule provides guidance, such as it is, regarding the provider’s rights and responsibilities,” Marcus said.

The CMS rule is at least “more helpful to providers” than the court’s Kane opinion and offers “a better reading of the term ‘identify,'” Maida said.

“In Kane, the court said that the 60-day clock ‘begins ticking when a provider is put on notice of a potential overpayment,' ” Maida said. “CMS rejected this ‘put on notice’ interpretation in the final rule.”

Under the CMS regulation, he said, “identified” is defined as when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.

Reasonable Time

“The definition confirms that providers have the ability to take the time reasonably needed to review a potential issue to determine whether it both received an overpayment and to quantify the amount before the 60-day clock starts,” Maida said.

Although some people “interpreted ‘put on notice’ too literally—suggesting that the day the hotline complaint comes in on a potential overpayment starts the 60-day clock—the Medicare rule flatly rejects this interpretation,” he said.

Maida said that the Kane opinion had “correctly confirmed that missing the 60-day window does not itself establish an FCA violation.” Instead, he said, a relator or the government must also prove knowing concealment or knowing and willful avoidance or decreasing of the repayment obligation under the FCA’s reverse false claims provision.

“In many situations, providers continuing to work on the issue in good faith would still have valid defenses against a reverse false claim allegation, including when the provider is in the process of preparing a disclosure to the government.”

Compliance Reviews Urged

In general, Maida said, the regulation “suggests that it may be advisable for providers to re-examine” their compliance program, internal investigation and complaint review process “to ensure that issues are reviewed and resolved within a reasonable time.”

The CMS final rule is “probably somewhat more liberal than was the standard” used by the Kane court, but it probably wouldn’t have led to a different result under the facts presented, Tully said.

It’s useful for providers to get legal help in determining what to do under “often uncertain” rules for determining whether they’ve been overpaid and, if so, by how much, he said.

“Generally, we are finding that our clients are taking their obligations under the 60-day rule very seriously,” Tully said.

Added Sheeder: “The rule requires a lot of internal oversight, and wise providers will ensure that they have robust processes in place to address the substantial risk it poses.”

To contact the reporter on this story: John Herzfeld in New York at

To contact the editor responsible for this story: Brian Broderick at

For More Information

The 2015 opinion is at

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