Knowing Retention of Overpayments May Now Be a False Claims Act Violation

05 April 2010 Publication
Author(s): Lawrence W. Vernaglia Judith A. Waltz

Legal News Alert: Health Care

Providers, suppliers, and Medicare and Medicaid managed care plans must now take much more expeditious action when they discover they have been overpaid by the Medicare or Medicaid programs. Congress made significant changes to the Medicare and Medicaid enforcement arsenal in the Patient Protection and Affordable Care Act of 2010 (PPACA) —   the Health Care Reform Law. The change that may be the most important to broad segments of the industry is the treatment of Medicare and Medicaid overpayments. Under PPACA Section 6402, providers (hospitals, skilled nursing facilities, home health agencies, and others) and suppliers (physicians, ambulatory surgery centers, labs, and others) must now report and refund any overpayment within 60 days of the date the overpayment is "identified." Failure to do so could result in a False Claims Act (FCA) violation, a civil monetary penalty, or other penalties. While the government has long taken the position that overpayments, once discovered, must be refunded to the federal health care programs, and a change to the FCA under last year's Fraud Enforcement and Recovery Act (FERA) clearly strengthened the government's hand by expressly referencing the improper retention of "obligations," PPACA directly places the affirmative duty on providers, suppliers, and others that identify an overpayment to disclose and refund it.

What does this mean to providers, suppliers, and Medicare and Medicaid plans? Most importantly, once the overpayment has been identified, these entities will be on a very short timetable to make a refund and disclosure. However, while the duty to refund is clear, exactly when the overpayment has been ”identified” and even what may be considered an ”overpayment” remains open to consideration. It is likely that the mere report, allegation, suggestion, or concern that an overpayment has been received would not be deemed to have started the 60-day period. However, once the provider "knows" that it has been overpaid and is able to calculate the amount of the overpayment, the duty likely will be viewed to be triggered.

The impact of this change in the law is already being felt in the day-to-day operations of finance and compliance departments. Prior to this change, providers and suppliers had advantages to refund promptly overpayments, including the possibility to limit FCA damages to double rather than triple damages as well as garnering favor with enforcement officials. Now, however, this flexibility is constrained with the 60-day window being an outside date for refund. A 60-day timeframe is a very short time to refund overpayments, particularly for large organizations and when large refunds are due. Identification of the nature of the overpayment, how it happened, the scope of the overpayment, and other related issues usually require internal review and analysis through several organizational components. Often, sizeable refunds must be discussed and approved by several corporate committees and various levels of management (and sometimes even the board of directors) before an organization can make a refund. We recommend that organizations develop internal operating policies to "fast track" such decisions once legal counsel or designated internal experts have concluded that an overpayment has been identified.

There are several other defensive arguments that must be kept in mind by organizations considering the impact of this law, including whether various offsets may be "reconciled" prior to when a duty to refund arises and what standard of "knowing" actually triggers liability under the new law. Moreover, it is not yet clear how the various states will implement the Medicaid requirements for their providers and suppliers.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Lawrence W. Vernaglia
Boston, Massachusetts

Judith A. Waltz
San Francisco, California