11.08.2017 FCA Settlement Alert: Physician Compliance with CMS’ 60-Day Overpayment Rule
On October 13, 2017, the U.S. Attorney’s Office for the Middle District of Florida announced a settlement for over $440,000 with First Coast Cardiovascular Institute, P.A. (“First Coast”), a large cardiovascular physician practice based in Jacksonville, Florida. The settlement arose out of a lawsuit filed by a former employee of First Coast under the False Claims Act (FCA), a federal law that creates civil liability for submitting false or fraudulent claims to the federal government. While Department of Justice settlements with physician practice groups are not unusual, this settlement is noteworthy for at least a couple of reasons.
First, the alleged liability of First Coast arose out of its failure to timely refund overpayments received from multiple government health care programs, including Medicare, Medicaid, TRICARE, and the Veterans’ health program. In other words, First Coast did not submit claims that were false or fraudulent in the typical sense, meaning, for example, that the services were not rendered, were not medically necessary, or were intentionally miscoded or up-coded. Rather, First Coast had allegedly accrued credit balances owing to federal health care programs because of fairly common billing irregularities. According to the complaint filed in the suit, these irregularities occurred when government health programs were inadvertently double-billed, when the practice failed to coordinate bills among multiple insurers, when patients were improperly required to pay upfront, or when adjustments to charges were made after receipt of payment. While none of these irregularities, by itself, amounts to fraud, the lawsuit alleged that First Coast’s failure to refund the money timely nonetheless violated the FCA.
The situation described above is often referred to as a “reverse false claim,” and it does indeed implicate the FCA. In addition to prohibiting the submission of false or fraudulent claims, the FCA is also violated when a person “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G). An “obligation,” as that term is used in the statute, includes the duty to refund an overpayment of funds received from a federal health care program. See 31 U.S.C. § 3729(b)(3). Thus, if a medical practice is aware that it has received an overpayment, but nevertheless “knowingly conceals” or “knowingly and improperly avoids or decreases” its obligation to refund the money to the government, then it has potentially violated the FCA. This was the theory upon which the government pursued its case against First Coast.
Although brought in the name of the United States and the State of Florida, the lawsuit against First Coast was filed by a former employee, Douglas Malie, who served as the practice’s Executive Director. As alleged in the complaint, Mr. Malie engaged in a concerted effort beginning in May 2015 and continuing through at least June 2016 to inform and educate First Coast’s management about the practice’s large credit balance, which at the time exceeded one million dollars. Mr. Malie’s efforts began with a seemingly basic recommendation to First Coast’s management that it begin making efforts to repay the money, and ultimately ended with Mr. Malie issuing a blunt warning to management that failure to repay the credit balance owing to the government within 60 days could result in damages and fines under the FCA. First Coast allegedly took no action to refund the overpayments, which prompted Mr. Malie to file suit in August 2016.
The 60-day time period for refunding government overpayments, as referenced in Mr. Malie’s complaint, is not technically part of the FCA. Rather, the Affordable Care Act, which became effective in 2010, included amendments to Medicare and Medicaid program integrity rules expressly requiring providers to refund overpayments within 60 days. That law includes the following key requirements: (1) overpayments made by the Medicare or Medicaid programs must be refunded to the government within 60 days of being “identified,” or the date any corresponding cost report is due; (2) along with the overpayment refund, the person must provide a written explanation of the reason for the overpayment; and (3) any overpayment retained after the deadline for reporting and returning the overpayment is automatically defined as an “obligation” under the FCA. 42 U.S.C. § 1320a-7k(d). Thus, if a health care provider retains an overpayment from Medicare or Medicaid for more than 60 days after identifying the overpayment, as First Coast did, it is at immediate risk of facing a suit under the FCA.
While many FCA cases drag out for years, the suit against First Coast was resolved in the relatively short period of only 14 months. For First Coast, however, that resolution came at a steep cost. According to the government press release, the total amount of the government overpayment received by First Coast was $175,000, while the settlement amount was over $440,000, or more than 2.5 times the actual overpayment. It is also safe to assume that First Coast paid its own attorney’s fees, which were likely significant given the involvement of both the U.S. Attorney’s Office and the Attorney General for the State of Florida. Finally, Mr. Malie received roughly $90,000 of the settlement proceeds as a successful whistleblower.
There are three key lessons that may be learned from the First Coast settlement:
- Employee reports of an overpayment must be taken seriously. Providers have an affirmative obligation to diligently investigate suspected overpayments.
- The legal requirement to refund Medicare and Medicaid overpayments has teeth and will be enforced by the Department of Justice in support of a private whistleblower, even when the amount of the overpayment is modest.
- Liability under the FCA is not limited to instances of actual misrepresentation or fraud, but may also arise out of a failure to refund an otherwise innocent overpayment within 60 days of its identification.
In February 2016, the Department of Health and Human Services promulgated detailed regulations implementing the requirement that providers report and refund overpayments within 60 days. The details of those regulations are beyond the scope of this article. However, if you have questions about how to respond to a suspected or known overpayment from a federal health care program, Williams Mullen’s Health Care Team can help. I can be reached at firstname.lastname@example.org or (804) 420-6406.
 Under CMS’ 60-day rule, an overpayment has been “identified” when a “person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.” 42 C.F.R. § 401.305. “Reasonable diligence,” in this context, includes ‘‘both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.” 81 Fed Reg 7654, 7661 (Feb. 12, 2016). CMS believes that “reasonable diligence” requires a provider to complete its internal investigation of a potential overpayment within six months, except in extraordinary circumstances. Id. at 7662.
 Publicly available documents do not explain why the amount of the government overpayment was only $175,000, while First Coast’s credit balance, as alleged in the complaint, exceeded $1,000,000. We might guess that the $1,000,000 credit balance included amounts owing that were unrelated to federal health care programs or that were refunded by First Coast prior to initiation of the litigation.