Failure To Promptly Return Overpayments Arising From Computer Glitch Leads To False Claims Act Complaint

July 18, 2014

At the end of June, the U.S. Attorney’s Office in Manhattan filed a False Claims Act complaint against Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Continuum Health Partners, United States v. Continuum Health Partners, Inc., alleging that defendants had knowingly failed to return overpayments owed to Medicaid arising out of a computer glitch. 

In 2010, the Affordable Care Act amended the False Claims Act to provide that overpayments of federal funds must be paid within 60 days after they are identified, and that the failure to timely return an overpayment constitutes a reverse false claim, subjecting a party to liability for three times the amount of the claim and a penalty of between $5,500 and $11,000 for each claim. 

Under the Medicaid regulations applicable to this case, the defendant providers were not permitted to receive additional payments from Medicaid above amounts paid by a managed care organization.  A computer glitch caused defendants to erroneously seek additional payments from Medicaid. 

According to the complaint, defendants became aware of the problem in September 2010, when the State Comptroller identified a small number of improper payments.  A review by defendants in February 2011 revealed a more significant problem, involving approximately 900 claims totaling over $1 million that were wrongly submitted to Medicaid.  Nevertheless, defendants only repaid the small amount of claims identified by the Comptroller. 

The employee who identified the significant overpayment problem was terminated, and later filed the qui tam case in which the government intervened.  The State Comptroller continued to investigate, and defendants made certain payments when they were identified by the Comptroller.  The complaint alleges that defendants dragged their heels on making all the repayments, however, and sought to conceal the true extent of the problem.  Defendants only finished returning the overpayments in 2013, more than two years after they were identified.  In addition, many of the repayments were not made until after June 2012, when the government issued a Civil Investigative Demand to defendants. The government now seeks to recover treble damages and a penalty of up to $11,000 for each claim. 

There is no question that the overpayments in this case resulted from a mistake, a computer glitch.  Nevertheless, this case shows that the government will aggressively seek to recover False Claims Act damages and penalties for the failure to timely return overpayments once they have been identified, even if the original overpayment was due to mistake or inadvertence rather than fraud.  The allegations of this complaint seem particularly egregious, with defendants allegedly being aware of significant overpayments and making only minimal efforts to repay the government.  The law, however, only requires a failure to return an overpayment within sixty days after identification for False Claims Act liability to attach. 

This case highlights a serious problem for providers who become aware that they may have been overpaid on claims to the United States.  In that situation, providers will have to promptly assess whether an overpayment has in fact occurred, and then determine what next steps are in order to avoid False Claims Act liability.  The government can be expected to aggressively prosecute these cases.  In addition, False Claims Act investigations into allegedly improper claims will likely include investigation into whether providers were aware of problems with certain claims, and whether they let more than sixty days lapse before addressing them.