Dismissal Motions Filed In SDNY Computer Glitch Reverse False Claim Act Case
October 03, 2014
When does the 60-day clock start for an identified overpayment of federal funds to become a reverse false claim under amendments to the False Claims Act? A closely watched SDNY qui tam case may provide an answer.
In June, the United States and New York intervened in 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. Defendants have now filed motions to dismiss the Federal and New York State FCA claims.
In 2009, the Fraud Enforcement and Recovery Act defined “obligation” in the FCA to include “the retention of an overpayment.” The following year, in 2010, the Affordable Care Act provided that an overpayment of federal funds must be reported and returned within “60 days after the date on which the overpayment was identified.” In addition, the ACA amendments provided that the failure to return an overpayment in 60 days constitutes a reverse false claim, subjecting the provider to treble damages and civil penalties under the FCA.
In their motion to dismiss, Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Continuum Health Partners argued that there was never an “obligation” to the Federal government, because there must be a present, existing duty to repay. Defendants asserted that an overpayment is not “identified” unless it has been confirmed and quantified, and the 60 day period does not start until that occurs. Defendants referenced the process most providers undertake when they become aware of a potential overpayment, including an internal audit, sampling of claims, consultations with physicians and staff, and factual and legal analysis. This process ordinarily cannot occur within 60 days of initially becoming aware of a potential overpayment.
The complaint attached an internal summary, by one of Continuum’s employees, of approximately 900 Medicaid claims, totaling over $1 million, that were potential overpayments. Defendants stressed that this was not a list of actual overpayments, and in fact only 465 of the claims were paid. As further analysis was required to determine if the claims did result in overpayments, defendants argued that the summary did not “identify” overpayments, and the complaint therefore did not allege any obligation owed the government under the FCA.
Defendants also argued that the complaint failed to allege any affirmative act of concealment to prevent an overpayment from being disclosed, and that an overpayment from Medicaid is not an obligation owed to the Federal government under the reverse false claim section of the FCA. In a separate memorandum seeking to dismiss the state FCA claims, defendants incorporated their Federal FCA arguments and also argued that the state reverse false claim provision was enacted after the alleged conduct, and therefore could not be applied retroactively.
This case is being closely watched, as it raises significant issues on when the government can assert reverse false claim liability for overpayments. Significantly, in this case, there is no dispute that the overpayments resulted from a computer glitch and not fraud, and that defendants repaid the overpayment to the government. The complaint alleges that defendants did not make that payment soon enough. The government intervened to seek treble damages and civil penalties, signaling that it will be aggressively pursuing cases where providers become aware of overpayments and fail — in the government’s view — to promptly reimburse the government.
The case is pending before SDNY District Judge Edgardo Ramos, and the government opposition papers are due on October 22.