Overview of 60-Day Rule
The PPACA amended the Social Security Act to require providers, suppliers, and plans that receive payments from the Medicare and Medicaid programs to report and return any overpayments received from the government within 60 days after the overpayment is identified or, where applicable, the date any corresponding cost report is due. If a payment is not properly returned within the 60-day window, the payment becomes an “obligation” and can result in FCA liability. Violating the FCA can result in treble damages and an $11,000 penalty for each improperly retained overpayment. Given that each unreturned overpayment may be deemed a separate violation, FCA damages could escalate quickly for what may be relatively minor overpayments.
The 60-day rule is enforceable by the federal government, state governments (if the overpayment involves a state health care program), private “whistleblowers,” or a combination of all three. Under the FCA, a whistleblower may file a qui tam complaint as a “relator” on behalf of the government to recover for the false claim. Such complaints remain under seal while the government determines whether to intervene and take over prosecution of the action from the relator. If the government declines to intervene, a relator may nevertheless proceed with the litigation.
A relator receives a share of any recovery from the qui tam action—typically between 15 and 25 percent if the government intervenes and between 25 and 30 percent if not. This creates a strong financial incentive for those who may be aware of unreported overpayments to file a qui tam action. This risk is particularly acute if a current or former employee is disgruntled and sees litigation as a golden opportunity to both take revenge against his or her employer and receive a large litigation award.
Looking Ahead: HHS Regulations
In February 2012, HHS issued a proposed rule implementing section 6402(a) for overpayments received under Medicare Parts A and B. The proposed rule includes a detailed discussion of the circumstances in which overpayments may arise and the information that should be reported to the government once an overpayment is identified. The proposed rule also includes several provisions that would impose significant and potentially burdensome requirements on recipients of applicable funds. For example, the proposed rule provides that a party will be considered to have “identified” an overpayment—triggering the 60-day return period—not only if the party has actual knowledge of an overpayment but also where a recipient acts with reckless disregard or deliberate ignorance of a potential overpayment.
The proposed rule further provides that parties should use “reasonable diligence” to determine whether any overpayments exist, which includes conducting an investigation with “all deliberate speed” if the provider or supplier receives information about a potential overpayment, for example, from an anonymous call to a compliance hotline. The proposed regulations also provide for a 10-year “look-back” period—the duration of the FCA’s statute of limitations for claims brought by the government—pursuant to which overpayments identified within 10 years of the date received would be subject to the 60-day rule.
HHS has stated that it plans to issue a final rule for overpayments arising under Medicare Parts A and B by early 2016.
In May 2014, HHS issued final regulations implementing the 60-day rule for payments under Medicare Advantage and Medicare Part D. There are some key differences between these final regulations and the proposed rule for Medicare Parts A and B. For example, the look-back period applicable to Medicare Advantage and Medicare Part D overpayments is 6 years, rather than 10 years. Under the Medicare Advantage and Medicare Part D regulations, a party is considered to have “identified” an overpayment when it has “determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.”
HHS had originally proposed a broader standard that mirrored the proposed rule for Medicare Parts A and B, but it revised the language in order to “increase clarity” in response to a number of comments. It is possible that the same changes will be implemented for the final rule under Medicare Parts A and B, although this is by no means certain given the significant differences between the programs.
Enforcement of the 60-Day Rule
In April 2011, Robert Kane, a former employee of Continuum Health Partners, a system of New York not-for-profit hospitals, filed a qui tam action alleging violations of the 60-day rule against his former employer, a number of its constituent hospitals, and Healthfirst, a not-for-profit managed care organization that offered Medicaid-sponsored managed care plans. The complaint remained under seal until June 27, 2014, when the U.S. Attorney’s Office for the Southern District of New York and the New York State Comptroller intervened in the action and filed a superseding complaint.
The government’s complaint, reportedly the first such complaint seeking to enforce the 60-day rule, alleges that a coding error by Healthfirst caused the Continuum hospitals to begin submitting claims to Medicaid in approximately 2009 that resulted in overcharges for services rendered to Medicaid patients. Under the Medicaid managed care plans at issue, all health care providers in the Healthfirst network agreed that the payments they received from Healthfirst would constitute payment in full for those services. Aside from copayments, health care providers could not seek any other reimbursement for those services.
The error at issue in the litigation resulted from remittance statements provided by Healthfirst to providers that erroneously informed them that they could seek additional payments from secondary payers—including Medicaid. As a result, Medicaid was improperly invoiced on some occasions. The defendants allegedly discovered the coding error the following year after questions were raised by the New York Comptroller. Although a software patch was developed to remedy the coding error, the defendants allegedly made no effort to repay past overpayments.
In early 2011, Continuum and its hospitals allegedly became aware of the extent of the overpayments as a result of an internal investigation conducted by Kane. Kane sent an email to management containing a list of more than 900 claims, worth more than $1 million in total, that purportedly contained the erroneous billing code. He wrote in his email that further analysis would be needed to confirm his findings. Kane allegedly was fired, and according to the complaint, no further action was taken with respect to the identified overpayments. The following year, the government issued a Civil Investigative Demand seeking information about 300 alleged overpayments. Although Continuum returned the alleged overpayments identified by the government, it allegedly failed to inform the government of additional overpayments identified by Kane’s investigation.
After the government’s complaint was unsealed, the defendants answered it and filed a motion to dismiss, which the government opposed. The crux of the dispute between the parties was whether Kane’s email and spreadsheet properly “identified” overpayments—thereby triggering the 60-day rule. The defendants argued that the term “identified” meant “classified with certainty.” They claimed that Kane’s email and spreadsheet did not meet that standard because even Kane recognized that further analysis was required, and it turned out that some (although not all) of the allegedly improper claims were in fact proper. The government, by contrast, argued that an entity “identified” an overpayment when “it has determined, or should have determined through the existence of reasonable diligence, that [it] has received an overpayment.”
Judge Ramos sided with the government and denied the defendants’ motion to dismiss. He held, based on the legislative history, that Congress intended for the recipient of an overpayment to be subject to FCA liability even if the precise amount of the liability had not been determined. Kane’s email and spreadsheet were sufficient to put the defendants on notice that they had likely received overpayments. The defendants could not avoid liability simply because Kane’s analysis was not conclusive and did not identify the specific amount owed to the government.
The opinion recognized that the definition of “identified,” as proposed by the government and adopted by the court, created an “unforgiving” rule that could impose significant burdens on health care providers. It stated that
an overpayment would technically qualify as an “obligation” even where a provider receives an email like Kane’s, struggles to conduct an internal audit, and reports its efforts to the Government within the sixty-day window, but has yet to isolate and return all overpayments sixty-one days after being put on notice of potential overpayments.
Judge Ramos, however, concluded that the 60-day rule might not be as onerous as it might otherwise seem because the existence of an “obligation” resulting from a 60-day rule violation does not automatically trigger FCA liability. An “obligation” can result in FCA liability only where the overpayment is “knowingly concealed or knowingly and improperly avoided or decreased.” In such circumstances, “prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments” and “[s]uch actions would be inconsistent with the spirit of the law and would be unlikely to succeed.”
The Risk of an Explosion in Qui Tam Actions Relating to the 60-Day Rule
Judge Ramos’s assumption that the impact of an “unforgiving” 60-day rule will be tempered by prosecutorial discretion and the likelihood that a defendant would prevail if a reasonable investigation takes more than 60 days is based on a fundamental misunderstanding of how qui tam actions have been prosecuted in recent years. As discussed below, there has been a surge in health care–related qui tam actions resulting in large settlements that have allowed relators to profit handsomely. Providers have little reason to assume that the government will act with restraint.
Since the beginning of the Obama administration, there has been an explosion in the number of qui tam actions—a large percentage of which are related to health care. According to statistics released by the DOJ earlier this year regarding health care–related qui tam actions, between 1987 and 2009, the most actions brought in any given year was 315, and in many years, fewer than 200 were brought. U.S. Dep’t of Justice, Civil Div., Fraud Statistics Overview 3–4 (Nov. 23, 2015).
In 2010, there was a spike to 385 health care–related qui tam actions. In 2013 and 2014, the two most recent years for which statistics were available, there were 503 and 469 such actions, respectively. This increase in qui tam actions has led to a corresponding surge in the size of total annual settlements of health care–related qui tam cases. Between 2010 and 2014, health care–related qui tam settlements totaled about $12 billion, double the amount of such settlements in the preceding five years. The DOJ has publicly praised the rise in qui tam actions brought in recent years and the billions of dollars in recoveries by the government that have resulted from them.
During this period, relators also have become more aggressive in their pursuit of qui tamactions. Whereas in earlier years, relators often dropped cases after the DOJ declined to intervene, relators now routinely pursue qui tam actions even without the DOJ. Such cases have proven to be highly profitable to relators. According to DOJ statistics, prior to 2009, the total annual awards issued to relators in health care actions in which the DOJ declined to intervene never exceeded $4 million. By contrast, since 2009, total annual relator rewards in health care–related matters where the DOJ declined to intervene have often exceeded $10 million, and in one year, they exceeded $25 million.
These recent trends in qui tam actions belie the notion that any health care provider that has been notified—even preliminarily—of potential overpayments can safely delay the return of those overpayments for more than 60 days while conducting a diligent investigation. There is little reason to believe, as Judge Ramos concluded, that the DOJ will give the benefit of the doubt to companies that delay returning a potential overpayment while they investigate. The DOJ has given every indication that it strongly supports aggressive prosecution of qui tam actions and is likely to be further emboldened by Judge Ramos’s adoption of its aggressive interpretation of the 60-day rule. Providers that do not return potential overpayments within 60 days are likely to find that they and the DOJ have very different understandings of what constitutes purposeful misconduct.
Even if a health care provider that takes longer than 60 days to investigate overpayments can convince the DOJ to not intervene, there remains a significant likelihood that the relator will nevertheless proceed with the action. Relators typically do not shoulder the cost of qui tam actions themselves; instead, they are represented by counsel operating on a contingency-fee basis. Well-financed contingency-fee counsel have a strong incentive to bring lucrative qui tam actions even where the prospect of ultimate success at trial is highly uncertain. Counsel are fully aware that if the relator can plead a significant FCA violation with facts sufficient to overcome a motion to dismiss, many companies will eventually agree to enter into a settlement rather than risk losing at trial and being saddled with enormous damages awards. The result is that a relator and his or her contingency-fee counsel may reap significant rewards even in borderline cases.
Judge Ramos’s interpretation of the 60-day rule may cause further proliferation of health care–related qui tam cases. For a lower-level employee who becomes aware of a billing malfunction that leads to an “overpayment” from the Medicare or Medicaid programs, the prospect of a relator award far greater than his or her salary may be very inviting.
Avoiding Liability for a Violation of the 60-Day Rule
Judge Ramos’s opinion highlights the need of all health care providers who receive payments from Medicare and Medicaid to have robust internal controls in place that are designed to ensure compliance with the 60-day rule and other government regulations related to proper billing practices. Such controls should focus both on triggering a timely investigation once potential knowledge of an overpayment arises and ensuring rapid reporting and repayment once an overpayment is confirmed. In addition, those with knowledge of potential billing issues over the past decade (or six years, in the case of Medicare Advantage and Medicare Part D payments) should consider conducting a thorough investigation to identify and remediate any past overpayments.
The Continuum litigation underscores that regulators will take a draconian position toward providers who do not act promptly and completely. Ironically, returning known overpayments may trigger a heightened obligation to review, report, and repay other potential overpayments.
To minimize future issues and diligently remediate identified issues, providers, suppliers, and plans should consider the following measures to ensure that their compliance programs can effectively manage the requirements of the 60-day rule:
- Implement processes to ensure that when potential overpayments are identified, a thorough review is conducted to ensure that there are no other overpayments that have not been returned and that appropriate steps are taken to remedy whatever deficiency led to the overpayments.
- Notwithstanding the fact that Continuum’s alleged misconduct resulted from a coding error, implement automated billing systems to minimize the need for manual data entry—typically a major source of billing errors. The automated billing systems should be properly designed and updated to ensure accurate and legally compliant billing.
- Establish multiple layers of billing oversight, including regular reviews by senior billing personnel and external auditors.
- Appoint designated compliance personnel whose core function is to oversee billing. Such personnel should be authorized to investigate and remediate potential issues promptly.
- Establish dedicated phone and email hotlines that allow employees to report potential compliance issues. These hotlines should be monitored on a regular basis, and reports of potential wrongdoing should be quickly investigated.
- Monitor patient or customer complaints relating to billing, as they may lead to discovery of a more systemic issue.
- Set a strong “tone at the top” that highlights regulatory compliance—including billing integrity—as high priorities for the company.
- Establish a code of conduct and provide employee training that emphasizes the importance of accurate billing.
These specific measures should go a long way toward minimizing FCA liability for violations of the 60-day rule.
Keywords: litigation, health law, Patient Protection and Affordable Care Act, PPACA, False Claims Act, FCA, whistleblower, 60-day rule
Maura K. Monaghan, Kristin D. Kiehn, Jacob W. Stahl, and Young-Hee Kim are attorneys in the New York City, New York, office of Debevoise & Plimpton, LLP.