Category: Reverse False Claims

60-Day Overpayment Rule Released

CMS has released its final 60-Day Overpayment Rule, providing clarity to the 2010 Affordable Care Act (“ACA”) amendment to the False Claims Act (“FCA”) that created FCA liability for failure to repay identified overpayment within 60 days. This is a long-awaited rule that provides essential clarity to an amendment that, until now, has vastly expanded FCA liability without any guidance.

The 2009 Fraud Enforcement Recovery Act amended the False Claims Act to create a new type of false claim known as the “retained overpayment false claim.” A retained overpayment false claim occurs when a government contractor identifies an overpayment from the government even if innocent at the time received. In 2010, the ACA added a 60-day time limit for repayment once an overpayment has been identified. This has been discussed extensively, both in terms of what it means and what doubts surround the application of the new rules.

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The 60-Day Vulture Comes Home to Roost


In a judicial opinion certain to rock the provider world, Judge Edgardo Ramos of the Federal District Court for the Southern District of New York denied a New York Health System’s (“Health System”) motion to dismiss the U.S.’s and New York State’s complaints in intervention under the federal False Claims Act (“FCA”) and state counterpart, holding that requiring the return within 60 days of a “potential” Medicare/Medicaid overpayment before it is “conclusively ascertained” is compatible with the legislative history of the FCA and the Fraud Enforcement and Recovery Act of 2009 (“FERA”). Accordingly, the case[1] will proceed to the discovery phase.


Three New York hospitals (“Hospitals”) were members of the Healthfirst hospital network and provided care to many patients enrolled in Healthfirst’s Medicaid managed care plan. Under a contract between the New York State Department of Health (“DOH”) and Healthfirst, Healthfirst provided hospital and physician services (“Covered Services”) to its Medicaid-eligible enrollees for a monthly payment from DOH. All Healthfirst participants, including the Hospitals, agreed that the payment they received from Healthfirst for the Covered Services would constitute payment in full (except for applicable co-pays).

Beginning in 2009, due to a software glitch, Healthfirst’s payments to participating providers, including the Hospitals, erroneously indicated vis-a-vis certain electronic codes that the participants could seek additional payment for Covered Services from secondary payors such as Medicaid or other insurance carriers. As a result, electronic billing programs used by participating providers, including the Hospitals, automatically generated and submitted claims to secondary payors including Medicaid.[2] In 2009, on behalf of the Hospitals, the Health System submitted claims to DOH seeking additional payment for Covered Services provided to Healthfirst enrollees, and DOH mistakenly paid the Hospitals for many of these improper claims.

In 2010, auditors from the New York State Comptroller’s office (“Comptroller”) questioned the Health System regarding incorrect billing. After the discovery of the billing errors, the Health System directed its employee and the whistleblower in this case to determine which claims had been improperly billed to Medicaid. In early 2011, about five months after the Comptroller alerted the Health System about the billing errors, the whistleblower emailed the Health System’s management a spreadsheet detailing more than 900 claims totaling over $1,000,000 that the whistleblower had identified as containing an erroneous billing code. In the email, he stated that “further analysis would be needed to confirm his findings” and that the spreadsheet gave “some insight to the magnitude of the issue.” There was no issue of material fact that the whistleblower’s spreadsheet was inaccurate as roughly half of the claims listed never were actually overpaid. Shortly after the whistleblower sent his email, he was terminated. The whistleblower filed a qui tam suit under the FCA and under state false claims act statutes in April, 2011. The U.S. and New York State intervened asserting violations of federal and state FCA reverse false claims provisions (i.e., retention of an overpayment).

According to the federal government and the State of New York, the Health System “‘did nothing further'” with the whistleblower’s analysis or the claims he identified. In the same month (February 2011) as the whistleblower’s termination, the Health System reimbursed DOH for five improperly submitted claims. Then in a period spanning April 2011 through March 2013, the Health System reimbursed DOH for the remainder of the improperly billed claims.

The United States and New York allege that the Health System “fraudulently delay[ed] its repayments for up to two years after the Health System knew of the extent of the overpayments.” Further, the Health System did not repay DOH over 300 of the affected claims until June 2012, when the government issued a civil investigative demand. Therefore, by “intentionally or recklessly” failing to take the necessary steps to identify the claims affected by the Healthfirst software glitch, or timely reimbursing DOH for the overbilling, the Health System violated the federal and New York FCAs and, in particular, the Affordable Care Act’s (“ACA”) 60-day repayment rule, which requires a provider to report and repay any overpayments to the federal or state government within 60 days of the “date on which the overpayment was identified.”

The Health System filed a motion to dismiss the case under FRCP Rule 12(b)(6) and under FRCP Rule 9(b) requiring a statement supporting “fraud with particularity.” The Health System argued that the U.S.’s Complaint in Intervention could not meet the high bar established by Rule 9(b) in part because it failed to allege that the Health System had an “obligation” under the FCA.

The central question in the case is whether the whistleblower’s email and spreadsheet cataloging the alleged overpaid claims (many of which turned out not to be overpayments) properly “identified” overpayments within the meaning of the ACA and whether those overpayments matured into obligations in violation of the FCA when they were not reported and repaid within 60 days. The ACA did not define the term “identify” in the Statute and CMS, to date, has not finalized the 60-day repayment rule, which, when finalized, most certainly will define the term at issue.

The Health System argued that the whistleblower’s email only provided notice of potential overpayment and did not identify actual overpayments so as to trigger the ACA’s 60-day report and return clock. The government proposed that a provider has “identified an overpayment” when it “determined or should have determined through the exercise of reasonable diligence that it has received an overpayment.” This is the first case to interpret the crucial undefined language in the ACA.

Court’s Analysis

Judge Ramos’s decision not to dismiss the complaint in intervention hinged on the definition of the term “identified.” He applied the canons of statutory construction[3] to reach his conclusion that the Health System’s failure to act quickly enough to report and return overpayments, could well have fallen outside the 60-day return and repayment rule as well as the language and intentions of the FCA, the FERA and the ACA. He wrote:

To define “identified” such that the sixty day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained, is compatible with the legislative history of the FCA and the FERA highlighted by the Government. . . Congress intended for FCA liability to attach in circumstances where, as here, there is an established duty to pay money to the government, even if the precise amount due has yet to be determined. [emphasis added]. Here, after the Comptroller alerted Defendants to the software glitch and approached them with specific wrongful claims, and after [the whistleblower] put Defendants on notice of a set of claims likely to contain numerous overpayments, Defendants had an established duty to report and return wrongly collected money. To allow Defendants to evade liability because [the whistleblower’s] email did not conclusively establish each erroneous claim and did not provide the specific amount owed to the Government would contradict Congress’s intentions as expressed during the passage of the FERA.

Judge Ramos also noted that the Health System’s interpretation of the 60-day return and repayment rule would make it “all but impossible to enforce the reverse false claims provision of the FCA” in the health care fraud context. He quoted the government as saying, “[p]ermitting a healthcare provider that requests and receives an analysis showing over 900 likely overpayments to escape FCA liability by simply ignoring the analysis altogether and putting its head in the sand would subvert Congress’s intent.”

In a nod of empathy for the universe of potential defendants in FCA qui tam cases and the difficulty of doing all the work that must be done to establish the existence of an overpayment in under 60 days, Judge Ramos suggested that prosecutors will exercise discretion in pursuing enforcement actions against well-intentioned providers working with “reasonable haste” to address overpayments. This may not reassure providers faced with the discovery of possible overpayments and the prospect of would-be whistleblowers.

Practical Takeaways

1. This opinion is the first and only judicial opinion interpreting the ACA’s 60-day report and return rule term “to identify.” It is only binding on the Southern District of New York, but it is likely that other jurisdictions will reference and consult this case for guidance in interpreting other potential FCA situations.

2. At least until the case law is better developed and CMS issues a final rule defining what it means to identify an overpayment, providers should act with all reasonable haste when they are notified of the existence of even a potential overpayment.

3. Providers should reassess their normal compliance protocols in analyzing potential overpayments and making any necessary refunds. Providers may need to consider revamping these internal processes for compliance with this new standard.

4. Providers should further recognize that under this reasoning of the court, they may need to set the 60-day alarm even where there is incomplete and underdeveloped evidence of an overpayment.

5. Hopefully, the Court’s opinion will serve as the impetus for CMS to finally issue a final rule on this subject to satisfactorily address the many challenging questions this ruling raises for providers only trying to do the right thing when potential overpayments are brought to their attention.

6. Finally, when faced with any potential overpayment situation, providers should work with their experienced compliance counsel to consider the best response and management plan that will take into account the complexity of the situation and the risks of different action plans. Particularly complex situations may in certain circumstances call for placing allegations of billing errors under the protection of the attorney-client privilege to provide enough time to reach a conclusion on the overpayment issue.

If you have any questions or would like additional information about this topic, please contact:

  • Adele Merenstein at (317) 752-4427 or;
  • David B. Honig at (317) 977-1447 or;
  • Scott W. Taebel at (414) 721-0445 or; or
  • Your regular Hall Render attorney.

Please visit the Hall Render Blog at or click here to sign up to receive Hall Render alerts on topics related to health care law.

Up the Creek Without a Regulation

by David B. Honig and Brian C. Betner

CMS Announces Further Delay of Repayment Rule

To be published in the February 17, 2015 Federal Register, CMS has extended its deadline for finalizing the Affordable Care Act’s (“ACA”) 60-day payback rule. This is the rule that requires a Medicare or Medicaid provider to return an identified overpayment within 60 days of its identification. On day 61, the overpayment becomes a violation of the False Claims Act (“FCA”).

The 60-day rule, found in the ACA[1], as well as amendments to the FCA, are the fund-raising and enforcement tools of the new law. Together, they create an entirely new type of false claim, one that is not knowingly false when submitted but only becomes “knowingly false” once identified and not repaid within a specified time. The ramifications of this change are enormous.

CMS has yet to provide a final rule giving guidance to contractors. Significant questions remain, including basic issues such as “what qualifies as an overpayment?” and “when does a provider know of an overpayment?”

Under the proposed rule[2], a provider needing time beyond the 60 days to complete a repayment may use the Extended Repayment Schedule process found in CMS’s Financial Management Manual[3]. Until the rule is final, though, providers may rely only upon the plain language of the statute, which offers no opportunity for an extension, even using the protocol established by CMS.

Specific types of providers await a final rule to explain how the new 60-day payback requirement applies to them. Disproportionate Share Hospitals get some clarification in the proposed rule about when they must perform reconciliation, but there is no such clarification in the statute. The same section of the proposed rule provides clarification for outlier reconciliation, though there is nothing about it in the statute.

Another significant question, which remains unanswered absent of a final rule, is the applicable look-back period. The statute states that an identified overpayment becomes an FCA violation if not repaid within 60 days. It does not, though, identify a limit to the look-back period beyond which a provider has a repayment obligation. As written, the statute would require an institutional provider identifying an overpayment from decades past to research it and repay it within 60 days. If a provider fails to do so, on the 61st day it becomes a FCA violation, triggering the FCA’s statute of limitations, which can stretch back as much as 10 years. Every claim, whether found on a hospital’s new computer system or in a moldering carton in the back of a physician’s rented storage space, could be a potential false claim. The proposed rule would limit the look-back period to 10 years, extending the FCA’s effective statute of limitations back more than 20 years[4].

While the government is granting itself another year to finalize the rules for the application of the new statute, there is no similar relief to providers. The government is already intervening in and actively prosecuting retained overpayment cases. The statute, the government argues, is sufficiently clear that providers can be held liable for its violation, often to the tune of millions of dollars. But the government does concede that additional time is appropriate due to “the complexity of the rule.”

This must be of significant concern to providers. The government has already intervened in retained overpayment cases, including US v. Continuum Health Partners in the Southern District of New York. Whistleblowers are bringing these actions, comforted with the knowledge that providers are crippled by CMS’s own failure to finalize rules that clarify their duties and define their rights and obligations. One court even allowed a case to go forward on a retained overpayment claim where no overpayment was identified because the provider’s actions in changing its auditing processes were sufficient to raise a factual issue whether it did so to remain willfully ignorant of prior billing errors[5].

In 2014, the government recovered almost $6 billion in FCA litigation, $1 billion more than any previous year, and announced a record 700 whistleblower filings – most of which remain under seal in federal courts. Just a few months ago, the government announced that all whistleblower cases under the FCA will be reviewed by the Criminal Division of the Department of Justice (“DOJ”). And just this month, the government asked to almost double its health care fraud litigation budget, stating that additional staff was needed to handle “the increasing number of whistleblower cases” weighing down the DOJ’s enforcement efforts. Every indication is that the whistleblower FCA actions that have been unsealed are merely the tip of the iceberg. Many more likely remain under seal awaiting first criminal then civil review. A large percentage of these are likely retained overpayment claims, which are accusations of fraud against health care providers for failing to follow rules not yet written by the government.

Until the rule is finalized, providers will be bound by the very broad and unforgiving language of the statute.

Health Care Takeaway

The retained overpayment false claim is the newest and biggest tool that the government wields in its effort to rein in the costs of its health care programs. Yet there remain no rules or guidance on how, when or where that hammer can be used. A broad statute, increased government enforcement through both the civil and the criminal divisions of the DOJ and an army of avaricious whistleblowers and their attorneys creates a daunting environment for health care providers.

When attempting to traverse this challenging landscape, providers should carefully consider the following:

  • First, normal compliance activities must be undertaken with additional care and with full appreciation that any errors discovered must be handled quickly with repayment in every case, no matter how small or inconsequential it may seem.
  • Conversely, normal compliance activities must continue, lest the government or a whistleblower allege a change indicates a willful refusal to identify overpayments, another violation of the FCA, after 60 days.
  • Third, providers may not simply rely upon their usual channels and procedure if those have not fully integrated all aspects of the retained overpayment FCA liability.
  • Finally, the assistance of qualified health care counsel is more important than ever. The penalties of the FCA can reach $11,000 per retained overpayment, treble damages and even program exclusion. These risks warrant guidance in matters that might previously have been treated as day-to-day internal matters. Involving health care counsel to advise the provider at the initial stages of tackling potential overpayments is the single most important step to ensuring an effective and efficient review.

Should you have any questions regarding this article or False Claims Act litigation, please contact:


DOJ Announces that 2014 Sees Record FCA Recoveries and Whistleblower Lawsuits

Yesterday, November 20, the Department of Justice (“DOJ”) announced that the United States had recovered almost $6 billion from False Claims Act (“FCA”) litigation in 2014 – marking the first time the DOJ has recovered more than $5 billion in a single year.

With these recoveries, the DOJ reached several milestones. Not only was this the largest recovery year for the DOJ, but it makes 2014 the third consecutive year that the DOJ has announced record recoveries. The record recoveries were bolstered by over 700 whistleblower lawsuits filed on the government’s behalf in 2014. Of the total $5.69 billion recovered, almost $3 billion was recovered in lawsuits filed by whistleblowers in qui tam actions under the FCA…. Continue Reading →

New 11th Circuit Case: Fraud with Particularity

Last week, the 11th Circuit Court of Appeals issued its unpublished ruling in US ex rel. Mastej v. Health Management Associates, Inc. At issue was whether the relator’s Third Amended Complaint adequately pled fraud with particularity, as required by Fed.R.Civ.Pro. 9(b).

Mastej was an Health Management Associate (“HMA”) executive from 2001 to February 2007. In that role, he attended monthly meetings and participated in discussions “in which Medicare and Medicaid patients and billing were discussed.” In February 2007, Mastej left HMA to work as CEO of a subsidiary facility.

Mastej alleged that the defendants violated the Stark Law and the Anti-Kickback Statute by giving free trips to golf outings on private jets and paying above-market rates for unnecessary call coverage to neurosurgeons all in exchange for Medicare and Medicaid referrals to the HMA facilities. Said violations, he alleged, made any payments, even for medically necessary services, non-payable. He alleged false claims were submitted in (a) the filing of interim claim forms for patients; (b) the filing of annual cost reports; and (c) a reverse false claim allegation based upon the submission of those forms and reports.

The defendants moved to dismiss based upon Fed.R.Civ.P. 9(b), which requires that claims of fraud be pled “with particularity.” Specifically, the defendants noted that Mastej did not identify a single specific claim for a patient or a specific date of a particular claim.

The court began its analysis by noting that an FCA relator may not merely describe a scheme to defraud but must also describe sufficient detail to show an actual false claim was submitted to the government. It then agreed with the defendants that the complaint did not show a specific false claim submitted to the government.

Having found that Mastej failed to plead fraud with particularity by identifying specific claims, the court then considered whether he otherwise offered sufficient indicia of reliability to survive the motion to dismiss. In the 11th Circuit, Rule 9(b) motions are considered “on a case-by-case basis,” and there are ways to demonstrate such reliability other than identifying specific claims.

The court found that Mastej, as a corporate insider who participated in discussions about claims to and payments by Medicare and Medicaid, pled fraud with sufficient particularity through 2007. However, the court refused to extend that knowledge beyond the time he left HMA and went to work for an HMA subsidiary. The court did not accept the assumption that HMA’s deeds were ongoing, but said he had “not provided the required indicia of reliability for his general allegation that the Defendants submitted false claims for referred patients to the government after Mastej stopped working for the Defendants.” (emphasis in original.)

The ruling is of interest for two reasons. First, it continues the 11th Circuit’s nuanced view of Rule 9(b), favoring identification of specific fraudulent claims, but allowing case-by-case analysis to demonstrate other indicia of reliability. Second, and perhaps more interesting, it did not allow a qui tam relator to claim knowledge during a specific time period then extrapolate that time beyond the actual knowledge. Given the specificity of the court’s ruling, it should be unlikely that discovery beyond the 2007 period would be permitted. This alone would place a significant limit on the ability of relators to turn a small amount of information into a large amount of recovery.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or or your regular Hall Render attorney.

DOJ Intervenes in Retained Overpayment Suit

With the passing of the Affordable Care Act (“ACA”), False Claims Act (“FCA”) observers noted the imminent filing of cases alleging violations of the ACA’s amendments to the FCA or “reverse” false claims. Such claims are per se false claims under the FCA and arise when a government contractor or health care provider becomes aware of a government overpayment and improperly fails to reimburse the government within 60 days. While these cases have remained largely out of sight – and most assuredly under seal – the Department of Justice (“DOJ”) has found its test case in the Southern District of New York and intervened: U.S. v. Continuum Health Partners, Inc., et al.

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Retained Overpayments Change the FCA Ball Game


False Claims Act defense attorneys have been warning government contractors, particularly Medicare and Medicaid providers, of increased risks and a reduced ability to defend against whistleblower complaints since the passage of the Fraud Enforcement Recovery Act of 2009 (“FERA”). The greatest risk comes from FERA’s addition of a new kind of reverse false claim: the “retained overpayment.” 1 The predictions came true recently in a Wisconsin qui tam case. US ex rel. Keltner v. Lakeshore Medical Clinic, Ltd. 2 should serve as a warning to all government contractors. It can also, more constructively, offer guidelines for how health care providers should proceed in the future.

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