Affordable Care Act’s “60-Day Rule” Creates False Claims Act Liability for Healthcare Providers

The first Lady-Justice-150x150False Claims Act decision regarding the “60-day rule” created by the Affordable Care Act (ACA), was recently decided by the United States District Court for the Southern District of New York. The Department of Justice (DOJ) intervened in the False Claims Act (FCA) lawsuit which was pursued by whistleblower Robert Kane against his former employer Healthfirst MCO. The DOJ alleges that Healthfirst committed fraud against the government when they attempted to retain over $1 million dollars in overpayments made by Medicare and Medicaid to the healthcare provider. In U.S. ex rel Kane v. Healthfirst, Inc., NO. 11-2325 (S.D.N.Y), the district court denied Healthfirst’s motion to dismiss and clarified what constituted “identification” under the “60-day rule”.   

The ACA of 2010 is an extremely broad statute that brings significant reforms to healthcare. One of these requirements is the “60-day rule”, under which a person who has received an overpayment from Medicaid or Medicare must report and return that overpayment to the issuing party. The report and return must occur no later than sixty days after the initial date on which the overpayment was first identified. Any person who fails to return an identified overpayment has defrauded the government and faces liability under the FCA.

The key issue under the “60-day rule” is determining what constitutes identification of an overpayment by a health provider. The court’s examination of “identification” first looked at the plain meaning of the word as Congress had failed to provide a definition; multiple vague definitions left the court without a clear plain meaning. The court then determined the meaning by conducting an exhaustive review of the statutory scheme as a whole and the context in which identification appears. The court held that the “identification” requirement is met any time a health care provider is placed on notice of the possibility of overpayments.

The DOJ alleges that the hospital network Healthfirst, along with the hospitals Beth Israel Medical Center and St. Luke’s Roosevelt Hospital Center, committed fraud against the government by failing to report and return overpayments which had been identified by former employee and whistleblower Robert Kane. It is alleged that from early 2009 and continuing late into 2010, the hospitals submitted improper claims for Medicare and Medicaid reimbursement, using incorrect billing codes which resulted in overpayments to the hospitals. Healthfirst is a non-profit insurance company that has these two New York City hospitals within its network. The use of improper billing codes was unintentional and the result of a faulty computer program. When the two hospitals submitted claims for Medicare and Medicaid reimbursement, the computer program inserted the incorrect codes for the completed procedures.

Healthfirst became aware of a small number of overpayments in September of 2010 when the New York Office of the State Comptroller conducted an audit and discovered that Healthfirst had used the wrong billing codes for repayment. The company then assigned its employee, Robert Kane, to sift through the records and determine which claims had been overpaid. Kane identified some 900 separate claims that had overcharged the government by over $1 million dollars. In February of 2011, Kane consolidated the overpayments in a report which he sent to Healthfirst management. Less than a week after sending the report to management, Healthfirst terminated Kane’s employment. The reporting and return of 300 identified overpayments didn’t occur until two years after Healthfirst was first alerted to the overpayments by Kane. The DOJ claim states that since the sixty day limit was surpassed, Healthfirst has violated the FCA. Under the FCA damages are tripled and whistleblowers may receive as much as thirty percent of those total damages.

This case illustrates the several ways in which hospitals may face liability under the FCA. Hospitals which contract with insurance providers for Medicare and Medicaid billing are liable for overbilling by that provider, even when such mistakes are unintentional. The “60-day rule” of the ACA expands this risk because once the provider is “put on notice” of the overpayments, they have only sixty days in which to report and return the funds. The FCA continues to serve as an important tool for whistleblowers who fight to prevent fraud committed against the government.  

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