The DOJ Intervenes in ‘Reverse False Claims Act’ Case

The threat of False Claims Act liability based on the failure to promptly return overpayments is a relatively new phenomenon. As background, in 2009, Congress enacted the Fraud Enforcement and Recovery Act of 2009, which modified the False Claims Act to enable the federal government to pursue False Claims Act liability against persons who knowingly retain overpayments of government funds (also known as reverse false claims). In 2010, Congress passed the ACA, which established that any person who receives an overpayment from the Medicare or Medicaid programs — and who does not report and return an overpayment within 60 days after “identification” — will be subject to potential False Claims Act liability. 42 U.S.C. § 1320a-7k(d). In 2012 and 2014, the Centers for Medicare and Medicaid Services (CMS) issued proposed rules describing how CMS thought overpayments should be identified, reported, and returned to the Medicare program in order to comply with the ACA and avoid False Claims Act liability. Various provisions in the proposed regulations were controversial and CMS has not yet finalized those rules.

There is considerable confusion in the industry as to what it means to “identify” an overpayment; i.e., when does the 60-day period begin to run. This may partially explain why, until now, the DOJ has not aggressively enforced the ACA’s rule to report and return identified overpayments within 60 days. However, the DOJ’s complaint-in-intervention against Continuum Health Partners and the Mount Sinai System may signal an unwelcome change in the DOJ enforcement priorities.

According to the complaint, from 2009 through 2010, hospitals within the Mount Sinai Health System allegedly submitted improper claims to a New York Medicaid managed care plan. The DOJ is not asserting that the hospitals intentionally misled or defrauded the state Medicaid program with the submission of false claims; rather the improper claims submissions occurred as a result of a software glitch. Continuum, which handled billing for the hospitals, was first notified by the State Comptroller of New York (the Comptroller) in September 2010 that Medicaid had been wrongly billed for a small number of claims. Once put on notice of possible overpayments, Continuum commenced an internal investigation, which concluded in February 2011, and uncovered an additional 900 potentially-problematic Medicaid claims totaling over $1 million. Continuum began repaying these claims in small batches, including a first batch of five claims in February 2011, and made final repayments in 2013.

According to the DOJ, Continuum and the hospitals moved too slowly to repay what was owed, failing to abide by the ACA’s 60-day repayment window by making final repayments more than two years after the overpayments were initially identified. The DOJ is alleging that the health care providers “intentionally or recklessly failed to take the necessary steps to timely identify the claims affected by the software issue or to timely reimburse [the government] for those affected claims that resulted in overbilling to Medicaid.”

While the DOJ’s motivation for pursuing False Claims Act liability against Continuum and the Mount Sinai Health System is unclear, there are several interesting aspects to the DOJ’s complaint:

• There are no allegations that the providers’ submissions of improper claims were knowing, intentional, or willful. The complaint reads that the providers made an honest billing mistake that triggered an overpayment.

• The matter involves managed care claims which typically are far less likely to be subject to fraud and abuse enforcement actions.

• The providers did make periodic repayments to the Medicaid program, albeit over a two-year period, and often in response to notifications of additional improper claims from the Comptroller.

• Likely one of the most important factors in the government’s decision to intervene is the fact that the health care providers did not repay one-third of the affected claims until after the DOJ issued a Civil Investigative Demand related to these claims.

Nevertheless, the providers apparently had returned all overpayments to the government before the DOJ filed suit, so there is no outstanding balance due to the Medicaid program. Yet the DOJ still filed a False Claims Act complaint against Continuum and the Mount Sinai Health System seeking False Claims Act treble damages and civil penalties.

This is a case to watch. Arent Fox’s Health Care and False Claims Act teams will continue to monitor the Continuum case and other relevant False Claims enforcement actions, court decisions, and guidance. If you have any questions or need assistance, please contact David S. Greenberg, Linda A. Baumann, or the Arent Fox professional who handles your matters.