Kane v. Healthfirst, Inc.

District Court, S.D. New York
120 F. Supp. 3d 370, 2015 WL 4619686 (2015)

ELI5:

Rule of Law:

Under the False Claims Act and Affordable Care Act, an overpayment is "identified," triggering the 660-day repayment period, when a healthcare provider is put on notice of a potential overpayment, obligating them to exercise reasonable diligence, rather than requiring conclusive ascertainment. The New York False Claims Act's reverse false claims provision can be applied retroactively given clear legislative intent.

Facts:

Healthfirst, Inc., a private, non-profit insurance program, experienced a software glitch that caused its electronic remittances to Participating Providers to erroneously indicate they could seek additional payment from secondary payors like Medicaid for Covered Services.
Beginning in 2009, Continuum Health Partners, Inc. (on behalf of its network hospitals Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Long Island College Hospital) submitted claims to the New York State Department of Health (DOH) seeking additional payment for Covered Services rendered to Healthfirst enrollees, and DOH mistakenly paid many of these improper claims.
In September 2010, auditors from the New York State Comptroller’s office approached Continuum with questions regarding the incorrect billing.
On December 13, 2010, approximately two years after the problem arose, the software vendor provided a corrective software patch and an explanatory memorandum to Continuum.
Continuum tasked its employee, Robert P. Kane, with ascertaining which claims had been improperly billed to Medicaid.
On February 4, 2011, Kane sent an email to several members of Continuum’s management, attaching a spreadsheet identifying more than 900 claims from Beth Israel, SLR, and LICH (totaling over $1 million) as containing the erroneous billing code, noting that further analysis would be needed.
On February 8, 2011, four days after sending his email and spreadsheet, Continuum terminated Kane.
The United States and New York allege that Continuum did nothing further with Kane’s analysis, reimbursed DOH for only five improperly submitted claims in February 2011, and fraudulently delayed its repayments for up to two years, only reimbursing more than 300 affected claims after the Government issued a Civil Investigative Demand in June 2012, and never brought Kane’s analysis to the Comptroller’s attention.

Procedural Posture:

Robert P. Kane filed a qui tam action on April 5, 2011, under the FCA, NYFCA, and NJFCA, on behalf of himself, the United States, New York, and New Jersey, naming numerous hospitals and healthcare organizations as defendants in the U.S. District Court for the Southern District of New York.
Kane filed an Amended Complaint on May 15, 2014.
In June 2012, the United States Government issued a Civil Investigative Demand (CID) to Continuum Health Partners, Inc. in connection with its investigation of Kane’s allegations.
The United States and the State of New York elected to intervene as plaintiffs against Continuum, Beth Israel Medical Center, and St. Luke’s-Roosevelt Hospital Center (the "Defendants") on June 27, 2014, while New Jersey declined to intervene.
The United States and New York filed Complaints-in-Intervention on June 27, 2014, asserting violations of the FCA's reverse false claims provision (31 U.S.C. § 3729(a)(1)(G)) and NYFCA's reverse false claims provision (State Financial Law § 189(l)(h)), respectively.
On September 22, 2014, Defendants filed motions to dismiss both Intervenor-Complaints under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure.

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Issue:

Does a healthcare provider "identify" an overpayment, triggering the Affordable Care Act's 60-day repayment period and potential False Claims Act liability, when put on notice of a potential overpayment requiring reasonable diligence, or only when the overpayment is conclusively ascertained? Additionally, can the New York False Claims Act's reverse false claims provision be applied retroactively?

Opinions:

Majority - Ramos, District Judge

No, a healthcare provider does not need to conclusively ascertain an overpayment for it to be "identified" and trigger the 60-day repayment period under the Affordable Care Act (ACA), and yes, the New York False Claims Act's reverse false claims provision can be applied retroactively. The court found the term "identified" in 42 U.S.C. § 1320a-7k(d)(2) to be ambiguous, with dictionary definitions not definitively resolving its meaning. Consulting legislative history, the court determined that Congress, through the False Claims Act (FCA) and its amendments (particularly the Fraud Enforcement and Recovery Act, FERA), intended for FCA liability to attach even when the precise amount of an obligation (including overpayments) is not yet fixed. This interpretation avoids an absurd result where providers could delay repayment through willful ignorance, which would undermine the robust anti-fraud purpose of the FCA, FERA, and ACA. The court supported its reasoning by noting that the Centers for Medicare and Medicaid Services (CMS) also interprets "identified overpayment" as when an entity "has determined, or should have determined through the exercise of reasonable diligence" that it received an overpayment. The court also concluded that the Government's complaint adequately alleged that the defendants "knowingly and improperly avoided" an obligation, as "avoid" includes failing to act when put on notice, and the facts pleaded (e.g., firing Kane, not acting on his analysis, delaying repayment) are consistent with reckless disregard or deliberate ignorance, which satisfy the FCA's knowledge standard. Finally, the court held that Medicaid overpayments implicate the federal government due to joint funding, and the New York False Claims Act's reverse false claims provision can be applied retroactively because the New York State Legislature explicitly directed such application in its 2013 amendments, and the civil penalties imposed do not violate the Ex Post Facto Clause under the Kennedy v. Mendoza-Martinez factors.

Analysis:

This case establishes a critical interpretation of "identified" under the ACA's 60-day overpayment rule, making it clear that healthcare providers cannot avoid False Claims Act liability by deliberately ignoring or recklessly disregarding credible information of potential overpayments. The ruling reinforces the proactive duty of providers to exercise reasonable diligence in investigating and returning overpayments, thereby strengthening the government's ability to combat healthcare fraud. By rejecting a "conclusive ascertainment" standard, the court prevents a perverse incentive for providers to delay investigations and highlights the broad remedial purpose of the FCA and NYFCA. The explicit affirmation of the NYFCA's retroactivity also significantly broadens the scope of state-level false claims litigation in New York.

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