Department of Justice wins federal court ruling on 60-day overpayment rule

On August 3, 2015, a federal court issued the first court opinion interpreting the False Claims Act’s (FCA) 60-day overpayment rule since it was enacted by the Affordable Care Act (ACA) in 2010. 

The 60-day overpayment rule requires an overpayment by Medicare or Medicaid to be returned within 60 days of the date on which the overpayment is “identified.” The statute, however, does not specifically define the term “identified,” which has left health care providers uncertain about when the 60-day time period for repayment begins. Until the U.S. District Court in the Southern District of New York court’s ruling in Kane v. Healthfirst, Inc. et al., there was no guidance on the issue, because the Centers for Medicare & Medicaid Services (CMS) had not issued final regulations on the overpayment rule, and no federal court had ruled on the issue. 

Agreeing with the government’s view, the Kane court found that the term “identified” in the 60-day overpayment rule refers to the date when a health care provider is “put on notice of a possible overpayment,” and health care providers cannot postpone the running of the 60-day period until the amount of the overpayment has been conclusively determined.    

Kane involved three hospitals that billed incorrect claims to the New York Medicaid program due to a software problem. In 2011, Kane, a hospital employee, prepared a spreadsheet listing over 900 claims, totaling more than $1 million, that were incorrectly billed. While the hospitals repaid the Medicaid program portion of the total amount due in installments, they did not repay the full amount until two years later in 2013. The government claimed that the hospitals had fraudulently delayed repayment by not paying in full within 60 days. By contrast, the defendant hospitals argued that Kane’s 2011 report had not “identified” any overpayments but, rather, had merely listed claims that were potentially in error. Therefore, they claimed that the overpayment was not “identified” for purposes of starting the 60-day repayment period under the rule. 

In its analysis, the court considered the plain meaning of the word “identified,” and the legislative history of the ACA and the Fraud Enforcement and Recovery Act, as well as the practical impact of each party’s interpretation. In conclusion, the court agreed with the government in part because adopting the defendant’s interpretation would render it impossible to enforce the overpayment rule and the FCA’s reverse false claims provision. The court acknowledged that its decision would set a high bar for health care providers to swiftly identify and repay overpayments within the 60-day deadline, which some would undoubtedly miss despite diligent efforts. However, prosecutorial discretion could temper inappropriate enforcement of the rule in those cases where providers act diligently.

Since the enactment of the 60-day rule in 2010, the health care industry has been waiting for further guidance about the meaning of “identified” to clarify when the 60-day period begins to run. In February, 2015, CMS delayed its release of final regulations on the 60-day overpayment rule. The Kane decision is the only court opinion to date addressing the issue. Of concern is that in the absence of CMS regulations, other courts may follow the Kane court’s rationale in similar cases.