09.02.2015 The Definition of Identify: The 60-Day Rule
The Patient Protection and Affordable Care Act (“PPACA”) established that any person who receives an overpayment from the Medicare or Medicaid programs and who does not report and return the overpayment within 60 days after it is identified will be subject to potential False Claims Act (“FCA”) liability. This is known as the “60-day rule.”
The 60-day deadline to report and refund begins when an overpayment is “identified.” There is considerable confusion and lack of clarity as to what it means to have identified an overpayment. The term itself is not defined by the PPACA. In 2012 the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule describing how overpayments should be identified, reported, and returned to the Medicare program. In May, 2014, CMS did issue a final rule defining “identified” in the context of Medicare Parts C and D as when the Medicare Advantage organization or prescription drug plan sponsor “has determined or should have determined through the exercise of reasonable diligence that it has received an overpayment.” 42 C.F.R. §§ 422.326(c), 423.360(c). However, this final rule only applies to the retention of an overpayment from Medicare Parts C and D. Health care providers and suppliers as well as enforcement agencies expected a final rule addressing payment from Medicare Parts A and B to be issued this year; however, in February, CMS announced a one year extension. Although the regulation will be delayed, the extension does not mean that providers may wait to comply with the 60-day rule.
”Identified” is not specifically defined by CMS in the 2012 proposed rule. Instead, CMS presents the standard in the context of several examples that contemplate a “reasonable inquiry” with “deliberate speed” in order to assist providers and suppliers, such as:
[i]n some cases, a provider or supplier may receive information concerning a potential overpayment that creates an obligation to make a reasonable inquiry to determine whether overpayment exists. If the reasonable inquiry reveals an overpayment, the provider then has 60 days to report and return the overpayment. On the other hand, failure to make a reasonable inquiry, including failure to conduct such inquiry with all deliberate speed after obtaining the information, could result in the provider knowingly retaining an overpayment because it acts in reckless disregard or deliberate ignorance of whether it received such an overpayment….
77 FR 9182. Thus, the standard for “identified” in the proposed rule is similar to the standard for acting with “knowledge” under the FCA. FCA § 3729(b)(1). The report and return provision under PPACA does not actually use the term “knowing” or “knowingly,” but the provision contains its own “Definitions” section which states that “knowing” and “knowingly” should “have the meaning given those terms in [the FCA].” 42 U.S.C. § 1128(d)(4).
CMS has not issued guidance concerning whether the 60-day rule applies to Medicaid claims. However, in June 2014 the Department of Justice (“DOJ”) intervened in one of the first “reverse” FCA cases brought under Section 3729(a)(1)(G) of the FCA for a provider failing to return Medicaid overpayments within the 60-day deadline: United States ex rel. Kane v. HealthFirst Inc., Civil Action No. 11-CV-02325 (S.D.N.Y June 27, 2014).
In HealthFirst, hospitals within the Mount Sinai Health System operated by Continuum Health Partners (“Continuum”) submitted improper claims to a New York Medicaid managed care plan. The submissions occurred as a result of a software glitch by their billing company, HealthFirst, which created an incorrect code that automatically caused claims to be submitted to Medicaid for services that were not provided. Continuum was notified by the State Comptroller of New York in September 2010 that Medicaid had been wrongly overbilled for a small number of claims. Between September 2010 and February 2011, Mr. Kane, a Continuum employee whom Continuum asked to investigate the extent of the overpayment, discovered 900 potential claims totaling over $1 million that he indicated in a memo to management may have been wrongly submitted. Four days after Mr. Kane notified Continuum of the claims, he was fired. About two months after his termination, Mr. Kane filed a qui tam complaint, initiating this litigation. The Government intervened in June, 2014. It was not until June 2012 that the Defendants began repaying the claims, initially in small amounts. Payments were made in small batches, and final repayment was made in March 2013. According to the DOJ, the Defendants moved too slowly to determine the total overpayment after Mr. Kane’s initial notification, thus failing to comply with the 60-day rule. Importantly, Continuum only refunded overpayments in response to inquiries by the Comptroller and after receiving a Civil Investigative Demand from the DOJ, thereby “fraudulently delaying its repayments for up to two years after Continuum knew of the extent of the overpayments.” Order Denying Mot. to Dismiss, at 6.
In the first week of August 2015, Judge Edgardo Ramos, the trial judge in HealthFirst, acted where CMS and PPACA have failed, by defining “identified” as “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained….” Order, at 23. The court rejected the Defendants’ argument that identification occurs only when a specific overpayment is determined conclusively. The hospital Defendants argued that the PPACA did not intend to impose such an unforgiving rule, pointing out that, when “faced with an internal audit that suggests some percentage of sampled claims for certain procedures have been improperly coded, a provider would likely review the findings by retrieving and reviewing the medical records involved….” Def’s Mem. Law Supp. Mot. to Dismiss Gov’t Compl., at 10-11. The court acknowledged the burden that this standard places on providers and suppliers, but also reiterated that “identified” is a fact-specific inquiry. Order, at 14. In HealthFirst, the analysis was relatively simple: either the claim was one improperly submitted due to the incorrect computer code, or it was not. Other cases may require a more in-depth and time consuming analysis of records and reimbursement protocols by experts to determine if an overpayment really has occurred. Thus, the type of review for which the Defendants unsuccessfully argued in HealthFirst potentially may apply to such complex cases.
In denying the Defendants’ Motion to Dismiss, Judge Ramos made clear that he believed that the Defendants’ position would permit health care providers to avoid liability by purposefully failing to establish the specific amount of the overpayment. Thus he applied a definition that appears to be consistent with CMS’ “reasonable diligence” standard for “identified” from the Medicare Parts C and D final rule. However, what constitutes “reasonable diligence” is also circumstantial. Despite HealthFirst, health care providers and suppliers are still left without a bright-line rule as to when an overpayment is deemed “identified” and what level of “diligence” will be deemed “reasonable.” It will depend on the facts of the case.
Some commentators believe that the CMS final rule was delayed until Judge Ramos’ decision on the Defendants’ Motion to Dismiss in order for CMS to have the opportunity to define “identified” consistent with the court’s ruling. Pending the CMS final rule or any final decision in HealthFirst, health care providers and suppliers still must act diligently to identify, report and return an overpayment within 60 days.
If Judge Ramos’ decision carries the day, perhaps Mr. Webster should change his definition of “identified” from “to know what something is” to “to be put on notice of what something might be.”
 A violation of the FCA can result in civil penalties of between $5,500 and $11,000 and treble damages. See 42 U.S.C. § 1128(d).
 A “proposed rule” allows for interested parties to comment on the proposed language of the rule prior to its adoption as a final rule. A proposed rule has no legal effect. See Sweet v. Sheahan, 235 F.3d 80, 87 (2d Cir. 2000) (noting that it is an “established point of law that proposed regulations . . . have no legal effect”).
 See HealthFirst Def. Mem. Law Supp. Mot. to Dismiss Gov’t. Compl., Section I(B).
 The current status of HealthFirst is as follows: On August 3, 2015, Judge Edgardo Ramos entered an Order denying the Defendant hospitals’ Motion to Dismiss. The initial pre-trial conference in HealthFirst was extended to August 25, 2015. No information on a trial date is available.
 See HealthFirst, Complaint in Intervention of the United States of America (“Complaint in Intervention”), ¶¶ 8, 36 and 38.
 An internal investigation by Continuum following Mr. Kane’s initial review of claims conclusively identified a total of 465 claims that were erroneously paid, totaling $871,000. See HealthFirst, Complaint in Intervention, Ex. A.
 See Eric Topor, CMS Might Be Waiting on N.Y. Court Ruling In Delay of 60-Day Overpayment Final Rule, 19 HCFR 235 (April 1, 2015); Jeff Overly, Judge Backs DOJ in FCA Suit Over 60-Day Overpayment Rule, Law360 (August 4, 2015).