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Some Good News for Providers: The Impact of COVID-19 National State of Emergency on Investigations into “Retained Overpayments”

April 14, 2020 - David M. Eskew

April 13, 2020

As we discussed in some of our past updates below, Attorney General Barr has directed the Department of Justice (DOJ) to prioritize the detection, investigation, and prosecution of illegal conduct related to the COVID-19 pandemic.  DOJ has already announced a number of enforcement actions related to COVID-19 fraud, including action against a company selling fake coronavirus “vaccine kits” on the internet, and all indications are that the federal government will continue to vigorously investigate and prosecute Coronavirus-related fraud.

Along with increased government-initiated actions, we also expect an increase in whistleblower, or “private attorney’s general” actions under the federal False Claims Act (FCA) as a result of COVID-19-related healthcare fraud and abuse.  While there has already been much written on increased “direct” FCA activity stemming from COVID-19 related fraud, precious little has been written on the potential for provider liability under the “reverse” false claims provisions of the FCA for failure to timely investigate, report, and return overpayments to the government during the current state of emergency. In this post, we briefly explore the concept of “reverse” false claims in the healthcare context, and explain how the current “state of emergency” appears to automatically extend providers’ deadlines for investigating, reporting, and returning “retained overpayments.”

Reverse False Claims in the Healthcare Context

In typical “direct” FCA claims regarding healthcare services, a whistleblower alleges that a healthcare provider submitted claims to the government for services that were either: (i) not performed or (ii) were performed so deficiently, that payment should not have been made to the provider for the services.  “Reverse” false claims, or “retained overpayment claims,” however, are premised not on the submission of claims to the government, but rather, on providers’ allegedly retaining and failing to repay payments that were improperly made to them by the government.  The most common example in the healthcare context is when the government inadvertently or accidentally overpays the provider for healthcare services provided to covered patients and the provider does not return the overpayments to the government. Prior to 2009, the “reverse” false claims provisions of the FCA imposed liability on a person who “knowingly made, used, or caused to be made or used” a “false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the [g]overnment.” Under this standard, claims could only be the subject of FCA claims if they were knowingly false at the time they were submitted to a government payor – which required that a party either falsify information during a reconciliation period or otherwise act knowingly and improperly to avoid a repayment and thus precluded liability under the FCA for unintentional “retained overpayments.” This significantly limited the ability of the government and whistleblowers to hold providers liable for “retained overpayments” under the FCA.

FERA Amendments to the FCA – the “60 Day Rule

So, in 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”) which, inter alia, extended and broadened the scope of those provisions by creating the “60 Day Rule” under which overpayments can become “false claims” if not repaid within 60 days of “identification.” Under the 60 Day Rule, if such funds are not repaid within 60 days of “identification,” on the 61st day the failure to repay becomes a “false” claim” under the FCA.

Unfortunately, Congress did not define the term “identification” in FERA or the ACA, which left whistleblowers, the government, and providers uncertain as to when a potential overpayment would be considered “identified” for purposes of the FCA. Specifically, while the government and whistleblowers proposed that an overpayment was “identified” at the first indication there might be an overpayment, providers proffered that an overpayment could not be “identified” until it had been expressly verified with the exact amount of the overpayment determined.  This debate ultimately came to a head in U.S. ex rel. Kane v. Continuum Health System, an FCA case brought in the Southern District of New York in which the whistleblower claimed that the Continuum Health System (Continuum) failed to timely “identify” certain overpayments that had been accidentally made to Continuum as a result of a software glitch. In that case (in which, in full disclosure, your author was one of the attorneys representing Continuum), SDNY District Judge Ramos held, in denying Continuum’s Motion to Dismiss, that an overpayment is “identified” (so as to start the 60-day clock) when a provider is put “on notice” of a potential overpayment and that where there is an “established duty” to pay money to the government, FCA liability will attach even if the precise amount due has yet to be determined. In so holding, the Court held that Continuum’s alleged failure to act quickly enough to report and return overpayments could have fallen outside the “60-day” period, and thus, that the case could not be dismissed pre-discovery.

CMS Issues “Provider Friendly” Final Rule That Broadens Definition of “Identified” and Extends Time For Returning Overpayments in “Extraordinary Circumstances

A few months after the Court’s decision in the Continuum case, in February 2016, CMS issued a new final rule (42 C.F.R. § 401.305) that adopted a more provider-friendly interpretation of the term “identified.” In the Final Rule, CMS expressly disavowed the “all deliberate speed” benchmark that had previously been proposed for adoption, and instead established that providers must refund overpayments no more than 60 days after the amount of the overpayment is quantified if the entity acted with “reasonable diligence, which is demonstrated through the timely, good faith investigation of credible information which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”  If an entity does not act with “reasonable diligence,” however, overpayments must be returned within 60 days after the entity “learned” that an overpayment “may have” occurred.”

Critically for our current purposes, CMS’s comments to the Final Rule go on to state that “a total of 8 months (6 months for timely investigation and 2 months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances affecting the provider, supplier, or their community.”  Id. at 7662 (emphasis added). According to CMS, “[w]hat constitutes extraordinary circumstances is a fact specific question” but that it “may include . . . natural disasters or a state of emergency.”  Id.

Given this explicit language, savvy healthcare attorneys (like the partners of AEL, for example) will argue that the present circumstances – a global pandemic and a declared national state of emergency – constitutes “extraordinary circumstances” permitting providers additional time beyond the ordinary “8 month period” for investigating, reporting, and returning overpayments, without fear of “reverse” false claims act liability.  We think that a reasonable interpretation under the circumstances would be that the 8-month period was “tolled” as of March 13, 2020, the day “President” Trump announced the state of emergency, and that once that declaration is lifted, the period for investigating, reporting, and returning overpayments would resume.

So, fear not, healthcare provider friends — for while the potential liability for “reverse” false claims can be quite high, there is an argument that the time periods you have to investigate, report, and return overpayments appear, by the plain language of the applicable rule, to be extended during the current state of emergency.  Those ongoing internal investigations into overpayments can thus go on the “back burner” while you focus on the more pressing matters of coronavirus response and direct patient care, and can come back to the fore once the current state of national emergency is lifted (at which point, if you need the assistance of expert outside counsel experienced in internal overpayment investigations and disclosures, AEL will be happy to assist!).