UPDATED – Retention of Overpayments under FERA and the ACA


The Fraud Enforcement Recovery Act of 2009 (“FERA”) was enacted on May 20, 2009. Among other things, FERA significantly amended the False Claims Act (“FCA”) to make it easier for whistleblowers to bring claims against Medicare and Medicaid providers and other government contractors. It also created an entirely new type of “false claim,” improper retention, where none previously existed. The “improper retention” theory was further clarified in 2010 by the Affordable Care Act of 2010 (PPACA), which went into effect on March 23, 2010, and required that an overpayment be reported and returned within sixty (60) days it is identified.

The new theory created by FERA and the ACA is one of violation of the False Claims Act through retention of known overpayments. This theory is an expansion of the previously recognized “reverse false claim” theory, see, e.g. United States ex rel. Lamers v. City of Green Bay. The expansion comes first from the portion of FERA which amends the FCA to define “obligation,” in relevant part, to mean “an established duty, whether or not fixed, … from the retention of any overpayment.” The timing of what might constitute a violation under the new theory is addressed in the ACA.

The questions that must be considered, in light of the two new statutes, are the date when knowledge of an overpayment could trigger an FCA claim and the retroactivity of the two statutes.

One theory is that, once an overpayment is known, it creates an ongoing obligation and a whistleblower can therefore reach back in perpertuity to find a False Claims Act case. Such a theory argues that retention of an known overpayment is an ongoing transgression and therefore becames a violation of the FCA upon the effective date of FERA.

Defendants, on the other hand, would argue that such a retroactive application of FERA and the ACA would violate the Constitution’s prohibition of ex post facto laws and that the earliest a claim could be false under the new theory would be sixty days after the passage of the ACA.

Prior to the date of the ACA, the FCA as amended by FERA identified retention of an overpayment as a violation but gave no time limit when such retention which would trigger the Act. Congress apparently noted the omission and created the sixty day deadline in the ACA. As the sixty day deadline could run, at the very earliest, from May 22, 2010, sixty days after the passage of the PPACA, should liability be pinned down to that date? That is exactly the finding of the only court to date, which has addressed the issue, in U.S. ex rel. Stone v. Omnicare, Inc., 2011 WL 2669659 (N.D.Ill. Case No. 09-C-4319, July 7, 2011).

The Omnicare Court began its analysis by noting that the Supreme Court established a two-part test to determine the retroactive effect of a statute in Landgraf v. USI Film Products, 511 U.S. 244, 280 (1994). The first is whether Congress spoke directly on whether it intended the statute to act retroactively. If not, the default application should be prospective only.

The question of Congress’ specific direction on retroactivity is of particular interest when considering FERA, for Congress did specifically make part of FERA retroactive, but  not the part relating to retention of overpayments. In other words, Congress knowingly made part of FERA retroactive, but specifically did not make the “retention of overpayments” portion retroactive. This is more than a mere absence of language. It is an affirmative decision by Congress to not make the new definition retroactive.

The second portion of the Landgraf test is applied only where Congress has not clearly spoken. Application of the second portion should not be necessary as Congress clearly made an intentional decision not to make the “retention of overpayments” language retroactive. However, as an analysis of the second half of the Landgraf test reaches the same conclusion, there is no conflict in applying the test. The second half of Landgraf asks whether retroactivity “would impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.” Landgraf, supra. The triggering act for consideration of “retention of overpayments” is not the claim itself. Rather, it is identification of the overpayment. This is made clear by the PPACA, which required return of an overpayment within sixty days of its identification. There is no question that retroactive application of FERA and the ACA for retained overpayments would increase a party’s liability for past conduct.

Based upon this reasoning, as well as the Government’s own guidance, any overpayment identified prior to May 22, 2010 should not create liability under the FCA as amended by FERA and the PPACA.

UPDATE- The reasoning of the Omnicare Court has been cited  in the Government Contract Compliance Handbook, § 1:15, Civil False Claims Act (4th Ed.), reviewing the decision and observing that a finding of liability based upon continued retention of funds after the passage of the ACA “would impermissibly make those amendments retroactive to actions that took place prior to the enactment of the amendments.”

For more information, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447.

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