While there has been discussion of the potential proliferation of telemedicine for quite some time, telemedicine is finally positioned to take off thanks to the latest federal budget. The Bipartisan Budget Act of 2018 incorporated the text of the CHRONIC Care Act,[1] which facilitates Medicare reimbursement for telemedicine services by – among other things – allowing Medicare accountable care organizations to build broader telehealth benefits into Medicare Advantage plans and expand the use of virtual care for stroke and dialysis patients. While many providers are eager to take the leap into telemedicine, there are still some things to look out for:

Not all states have caught up – while the vast a majority of states have enacted legislation mandating private insurers provide some degree of parity of insurance coverage between in-person and telehealth services, at least a dozen states have enacted no such legislation at all.

Beware of Stark, Anti-Kickback and private inurement violations, as telemedicine often involves complex arrangements between physicians and healthcare facilities. To that end, make sure the terms of any compensation arrangement are commercially reasonable and/or consistent with fair market value. And be vigilant when evaluating market data, as pricing may vary widely due to participants coming into a market at low cost for strategic reasons. Market data may also be impacted by accessibility to healthcare services in certain localities. The Office of Inspector General of the Department of Health and Human Services (OIG) has issued Advisory Opinions related to telemedicine compensation arrangements that should be considered when reviewing such arrangements. Additionally, in April of this year OIG issued a report highlighting instances of improper billing for telemedicine services.

One area on which practitioners have particularly set their sights is telemedicine for opioid addiction treatment. However, unlike the popular telemedicine practices of dialysis and stroke treatment, substance abuse treatment via telemedicine has its own set of constraints.

  • Providers of Medication-Assisted Treatment to reduce opioid use disorders have restrictions on the number of patients they may treat at any given time, with a limitation of 30 patients for their first certification year and the opportunity to increase to 100 in the subsequent year upon fulfilment of certain criteria.
  • Additionally, restrictions on a provider’s ability to prescribe certain controlled substances used to treat opioid use disorder over telemedicine exist under both state and federal laws.

In sum, while the CHRONIC Care Act facilitates further foray into the expanding world of telemedicine, there are many pitfalls to be aware of in both ensuring compliance with applicable laws and ensuring the ability to set up a profitable business.  Always consult with an experienced professional before expanding your practice.

[1] The Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act.

The New York State Department of Health (DOH), in consultation with the Department of Labor (DOL), recently announced a Request for Applications for the Health Workforce Retraining Initiative (HWRI).  This program was established pursuant to NYS Public Health Law §2807-g and is funded through the State’s Health Care Reform Act.  The 2018-19 Enacted New York State Budget included $9 million for this initiative and DOH anticipates an additional $9 million to be available for this grant in SFY 2019-20.

The DOH is soliciting applications from eligible organizations that seek to train or retrain health industry workers for new or emerging positions in the health care delivery system.  The purpose of this initiative is to:

  • Assist health care workers in the development of new skills to maintain employment and achieve licensing/certification requirements;
  • Enable health care workers to pursue new career opportunities created due to market changes, new employment for displaced health care workers and those at risk of displacement;
  • Provide health care workers with the education and training necessary to utilize emerging health technologies and data analytics to support population health management and delivery of high quality, cost effective care;
  • Address current and future occupational shortages;
  • Provide expertise to support integrated and interdisciplinary team-based care;
  • Meet increased demand for home and community-based long-term care services; and
  • Ensure health care workers can effectuate appropriate care transitions, reduce avoidable hospital readmissions and emergency room visits.

Funding is based on the total amount available in each region and will be awarded on a competitive basis by project and region.  Interested organizations may submit up to 50 applications for multiple projects.  Below please find further information regarding the counties included in this initiative, as well as the amount of funding available per region.

Maximum Funding Levels by Region

Western

Rochester

Central

Utica/ Watertown

Northeastern

Northern Metropolitan

New York City

Long Island

Allegany

Livingston

Broome

Chenango

Albany

Columbia

Bronx

Nassau

Cattaraugus

Monroe

Cayuga

Franklin

Clinton

Delaware

Kings

Suffolk

Chautauqua

Ontario

Chemung

Hamilton

Essex

Dutchess

New York

Erie

Seneca

Cortland

Herkimer

Fulton

Orange

Queens

Genesee

Wayne

Schuyler

Jefferson

Greene

Putnam

Richmond

Niagara

Yates

Steuben

Lewis

Montgomery

Rockland

Orleans

Tioga

Madison

Rensselaer

Sullivan

Wyoming

Tompkins

Oneida

Saratoga

Ulster

Onondaga

Otsego

Schenectady

Westchester

Oswego

Schoharie

St.

Warren

Lawrence

Washington

$526,458

$1,045,833

$561,481

$66,643

$483,425

$861,535

$12,866,527

$1,908,098

Maximum Regional Funding Amounts

$67,784

$135,110

$73,280

$8,015

$63,662

$109,920

$1,588,115

$244,114

The following organizations may apply for funding under this initiative:

  • Health worker unions;
  • General hospitals;
  • Long term care facilities;
  • Certified home health agencies, licensed home care services agencies, long term health care programs, hospices, ambulatory care facilities, diagnostic and treatment facilities;
  • Office of Mental Health or the Office of Alcohol and Substance Abuse Services licensed providers;
  • Health care facilities trade associations;
  • Labor-management committees;
  • Joint labor-management training funds established by the Federal Taft-Hartley Act; and
  • Educational institutions.

Additionally, applicants must:

  • Be a legally established organization located in NYS;
  • Have a minimum of two years of training experience with health care workers;
  • Be capable of entering into a master contract with DOH; and
  • Identify a need for training in one or more areas:
    • Occupations with known shortages;
    • Educational opportunities in shortage occupations;
    • Provide training to affected health care workers who have experienced or will likely experience job loss/displacement due to changes in health care delivery;
    • New job certification or licensing requirements; and
    • Knowledge and use of emerging technologies.

Applicants that are able to thoroughly demonstrate a need for such training will be given higher scores.  Additionally, preference points will be provided to projects that increase workforce supply in the following professions:

    • Clinical laboratory technologists;
    • Registered Nurses and Licensed Practical Nurses;
    • RN Care coordinators;
    • Certified Nursing Aides;
    • Nurse Practitioners and Psychiatric Nurse Practitioners;
    • Nurse Managers and Directors;
    • Physician Assistants;
    • Licensed Master Social Workers and Licensed Clinical Social Workers;
    • Minimum Data Set Coordinators;
    • Home Health Aides;
    • Emergency Technicians and Paramedics;
    • Physical Therapists;
    • Occupational Therapists; and
    • Diagnostic Medical Sonographers.

Applicants must also clearly demonstrate an ability to:

    • Develop and manage the structure necessary to implement proposed projects;
    • Develop project curriculum and select program participants within three months of contract execution;
    • Ensure assessment, training and placement services for proposed program participants;
    • Provide DOH with monthly or quarterly outcome and expenditure reports, as well as a two year final report; and
    • Cooperate with DOH and DOL during the program review process and provide supporting documentation regarding outcomes, expenditures and any other information required to evaluate programmatic progress.

Interested organizations must submit applications via the NYS Grants Gateway on or before June 22, 2018 by 4:00 pm.

*  *  *  *  *  *  *  *  * * *

For additional information on this and other DOH initiatives, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

Governor Cuomo's 2018-19 Healthcare Budget
New York State Healthcare Budget 2018-19

In the wee hours of the morning on March 30, almost two days ahead of the April 1 deadline, the Legislature passed and the Governor signed a $168.3 billion State Budget for the 2018-19 fiscal year. The Enacted Budget maintains a self-imposed cap of 2% on spending increases, and averts a predicted $4.4 billion spending gap.  As in prior years, a significant portion of this year’s spending has been devoted to healthcare, and particularly Medicaid.

One of the key issues faced by the healthcare sector in New York State during budget negotiations this year was whether and how to address potential future cuts in federal financial support. The Enacted Budget addresses that general concern in two ways.  First, at the prompting of the Greater New York Hospital Association and 1199SEIU (the health care workers union), the Enacted Budget creates a new “Health Care Transformation Fund.”  The fund will be supported in part by a portion of the proceeds of the sale of Fidelis, a not-for-profit Medicaid managed care plan acquired by Centene, a national for-profit insurer, as well as a portion of Fidelis’ excess reserves, for a total expected amount of around $2 billion.  Moneys in the fund will be available for transfer to any other fund in the State to “support health care delivery, including for capital investment, debt retirement or restructuring, housing or other social determinants of health, or transitional operating support to health care providers.”  This amounts to a very significant source of funds which can be deployed by the State in a very flexible manner.

Second, the Enacted Budget includes language providing that, where federal legislation, regulation or other executive or judicial action in federal fiscal year 2019 is expected to reduce federal financial participation in Medicaid or other federal financial participation by $850 million or more in state fiscal years 2018-19 or 2019-20, the Director of the Division of the Budget must submit a plan to the Legislature identifying the resulting cuts to be made in State spending. The Legislature will then have 90 days to adopt an alternative plan; if it does not, then the Division of the Budget’s plan will go into effect immediately.  In short, this language could, in effect, completely undo the budget just adopted by the Legislature, with minimal legislative input.

The 2018-19 Enacted Budget includes a plethora of other financial and policy reforms affecting virtually every segment of the healthcare sector. Some highlights include:

  • Health Care Facility Capital Funds: The Enacted Budget includes $525 million for the latest iteration of the Statewide Health Care Facility Transformation Program, which provides capital grants to healthcare providers.
  • Pharmacy: The Enacted Budget makes a variety of changes to address the opioid crisis, including establishing a $100 million “Opioid Stewardship Fund” to be supported by manufacturers and distributors of opioids, which will be used to support a variety of opioid-related programs.
  • Mental Hygiene: The Enacted Budget expands and clarifies the ability of mental health, substance use disorder and developmental disabilities services providers to offer integrated services, and provides $1.5 million for the creation of a new Independent Substance Use Disorder and Mental Health Ombudsman to assist individuals in receiving appropriate health insurance coverage.  It also includes a variety of provisions related to the transition of developmental disabilities services to managed care.
  • Long Term Care: The Enacted Budget sets out a plan for limiting the number of licensed home care services agencies that a managed long term care plan may contract with, effectively forcing consolidations in that sector.  It also allows the Commissioner of Health to reduce reimbursement to poor-performing nursing homes.  At the same time, it makes a significant number of additional assisted living program beds available at the discretion of the Commissioner.
  • Hospitals: The Enacted Budget establishes a new category of “Enhanced Safety Net Hospitals” that would be eligible for additional reimbursement.
  • Managed Care: The Enacted Budget includes a variety of reforms related to health homes, and makes a variety of changes to the rules governing managed long term care eligibility and enrollment.

These highlights are just the tip of the iceberg. Over the next several days, we will provide additional detail on each of the areas outlined above.  In the meantime, any questions about the 2018-19 New York State Healthcare Budget can be addressed to Farrell Fritz’s Regulatory & Government Relations Practice Group at (518) 313-1450 or NYSRGR@FarrellFritz.com.

Few, if any, in the medical industry are unfamiliar with the federal Anti-Kickback Statute (“AKS”).  Under AKS, those giving or receiving compensation for referrals for items or services reimbursed by the federal healthcare programs are subject to criminal prosecution.  The statute is intended to prevent exploitation of the federal healthcare system, avoid unnecessary inflation of program costs and encourage fair competition in the industry.

AKS prohibits, among other things, the knowing and willful payment or receipt of any form of compensation to induce or reward referrals involving any item or service payable by federal healthcare programs.  “Federal healthcare programs” include more than just Medicare and Medicaid – “any plan or program providing health care benefits, whether directly through insurance or otherwise, that is funded directly, in whole or part, by the United States government (other than the Federal Employees Health Benefits Program), or any state health care program” is included.  This means that remuneration for referrals in connection with items and services that are reimbursable under TRICARE, the Veterans Administration, Federal Employees’ Compensation Act, and block grant programs are all subject to prosecution under AKS.

 

Where items or services are not reimbursable by a federal healthcare program, providers and referring parties are not subject to AKS prosecution.  However, due to an emerging trend in prosecution, the absence of reimbursement from federal healthcare programs should no longer leave providers and referral sources with a sense of security that they cannot be prosecuted for kickback arrangements.

 

Prosecutors are increasingly bringing charges against payers and recipients of remuneration for referrals in the medical arena under the Travel Act.  The Travel Act criminalizes the use of the United States mail and interstate or foreign travel for the purpose of engaging in certain specified criminal acts.  The Travel Act typically enforces two categories of state laws – laws prohibiting commercial bribery (i.e. corrupt dealings to secure an advantage over business competitors) and laws addressing illegal remuneration, including specific provisions regarding improper payments in connection with referral for services.

 

In two very recent high profile cases, prosecutors brought charges against those allegedly involved in kickback schemes under the both AKS and the Travel Act – Biodiagnostic Laboratory Services in New Jersey and Forest Park Medical Center in Texas.  Both cases have resulted in several plea bargains, yet both have charges under AKS and the Travel Act that are still pending.  While no court has directly ruled on the merits of prosecuting kickback schemes for medical services and items under the Travel Act, it is noteworthy that, in the Forest Park Medical Center case, the charges under the Travel Act survived a motion to dismiss at the district court level just last month.

 

All parties involved in referral arrangements for medical items or services should be on heightened alert as a result of this development.  Whereas AKS can only be used to prosecute parties to a kickback arrangement where federal healthcare program funds are at issue, the use of the Travel Act may broaden prosecutors’ reach to the private payor sector, even where federal healthcare programs are not involved.

In our July 10, 2017 post, Concierge Medicine – Is it for you?, we cautioned that Medicare compliance concerns do not fall away when moving to a concierge or direct-pay model.  HHS has determined that concierge-style agreements are permitted as long as Medicare requirements are not violated.  Unless a physician has opted out of Medicare, the predominant requirement is that an access or membership fee cannot be charged to a Medicare patient for services that are already covered by Medicare.  But how does a concierge physician know where to draw the line?  The relevant authorities have issued very limited guidance in this area.

In March 2004, an OIG Alert was issued reminding Medicare participating providers that they may not charge Medicare patients fees for services already covered by Medicare.  OIG used, as an example, a case involving physician’s charge of $600 for a “Personal Health Care Medical Care Contract” that covered, among other things, coordination of care with other providers, a comprehensive assessment and plan for optimum health, and extra time spent on patient care.  Because some of these services were already reimbursable by Medicare, the physician was found to be in violation of his assignment agreement and was subjected to civil money penalties.  The physician entered into a settlement with OIG and was required to stop offering these contracts.

In 2007, OIG settled another case involving a physician engaged in a concierge-style practice.  There, the physician, who also had not opted out of Medicare, asked his patients to enter into a contract under which the patients paid an annual fee. Under the contract, the patient was to be provided with an annual comprehensive physical examination, coordination of referrals and expedited referrals, if medically necessary, and other service amenities.  The physician was similarly found to have violated the Civil Monetary Penalties Law by receiving additional payment for Medicare-covered services and agreed to pay $106,600 to resolve his liability.

As demonstrated by these settlements, violations of a physician’s assignment agreement results in substantial penalties and exclusion from Medicare and other Federal health care programs.  It would behoove a concierge physician to tailor contracts offered to Medicare patients.  Fees charged under such contracts should relate only to noncovered services and amenities.  For example, fees could relate to additional screenings by the concierge physician that are not covered by Medicare or amenities such as private waiting rooms.

According to the GAO’s 2005 Report on Concierge Care Characteristics and Considerations for Medicare, HHS OIG has not issued more detailed guidance on concierge care because its role is to carry out enforcement, not to make policy.  However, physicians with specific concerns regarding the structure of their concierge care agreements or practices may request an advisory opinion from HHS addressing their concerns.  Advisory opinions are legally binding on HHS and the party so long as the arrangement is consistent with the facts provided when seeking the opinion.

Next week, look for the release of Medical Marijuana 105, the fifth post in a series of posts discussing the current state of law in New York regarding medical marijuana.  To read the latest post in the series, Medical Marijuana 104:  Responsibilities of Health Insurers, click here.

Health care fraud prosecutions in the Second Circuit and throughout the country have typically sought forfeiture money judgments against all defendants for the proceeds of the fraud obtained by all members of a health care fraud conspiracy.  The Supreme Court recently curtailed these efforts in Honeycutt v. United States.  In Honeycutt, the Court held that the forfeiture statute only permits a forfeiture money judgment for property a defendant actually acquired as part of the crime, not all proceeds of the conspiracy.

In Honeycutt, defendant Terry Honeycutt managed sales and inventory at his brother’s hardware store.  The brothers were prosecuted for conspiring to sell iodine with the knowledge that it was being used to manufacture methamphetamine.  The government sought a forfeiture money judgment of $269,751.98, constituting the hardware store’s profits.  The defendant’s brother pled guilty and agreed to forfeit $200,000.  The government sought and obtained a forfeiture money judgment against defendant Terry Honeycutt for $69,751.98, even though he did not personally benefit from the hardware store’s profits.  The Sixth Circuit held that the conspiring brothers were “jointly and severally liable for any proceeds of the conspiracy,” joining several circuits, including the Second Circuit, in an expansive view of criminal forfeiture.

Justice Sotomayor’s decision in Honeycutt strictly followed the language of the statute, 21 U.S.C. § 853, which mandates forfeiture of “any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of” certain crimes.  The Court concluded that the provisions of the statute limit forfeiture to property the defendant himself actually acquired, not property obtained by other conspirators.  The Court held that the plain text of the statute and the limitation of forfeiture to property acquired or used by the defendant “foreclose joint and several liability for co-conspirators.”

Prosecutors have routinely sought to forfeit all proceeds of health care fraud and other conspiracies from all co-conspirators.  Thus, minor players in a conspiracy with significant assets could find themselves liable for a forfeiture money judgment well in excess of the proceeds they actually received from their crime.  In Honeycutt, the Supreme Court refused to apply the tort concept of joint and several liability to the forfeiture statutes, and has taken a sweeping tool away from the government.

 

The Supreme Court recently allowed liability through the implied certification theory of the False Claims Act (FCA), which was raised and upheld in Universal Health Services, Inc. v. United States ex rel. Escobar. The decision provided for a new applicable standard and resolved the split among circuit courts on whether to recognize the theory.

In Escobar, a teenaged patient was receiving health services from a mental health facility. The patient had an adverse reaction to medication prescribed and died of a seizure. The parents later discovered United Health Services sought reimbursement from MassHealth (the Massachusetts State Medicaid Program) for mental health services provided at the facility by individuals who did not meet the standards for licensure and other requirements. The parents then filed a qui tam suit relying on the implied certification theory of liability. The District Court ruled against the parents finding the claims for reimbursement were not expressly false because the facility made no express statement regarding the service providers. United States ex. rel. Escobar v. Universal Health Services, 780 F.3d 504 (1st Cir. 2015). On appeal, the First Circuit rejected the bright line approach and determined that compliance with licensure and other MassHealth regulatory requirements were conditions of payment sufficient to support an FCA suit. United States ex. rel. Escobar v. Universal Health Services., 780 F.3d 504 (1st Cir. 2015)

The Supreme Court held that implied false certification is a proper basis for liability under the False Claims Act where (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided”, and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” The Court focused on defining the FCA’s materiality standard as whether the government’s knowledge of the noncompliance “would have” affected their payment decision rather than “could have”. The Court further explained that whether an obligation was a condition of payment relates to, but is not dispositive of, materiality.

Now, after Escobar, FCA plaintiffs must overcome a more demanding materiality standard when relying on implied false certification to establish False Claims Act liability.

Special thanks to Law Clerk Joanna Lima for her assistance in preparing this blog post.

The Supreme Court held last week that in a federal health care fraud prosecution, the Sixth Amendment prevents the government from obtaining a pretrial freeze of assets that were untainted by the alleged crime and that defendant sought to use to pay her lawyer.

In Luis v. United States, the government alleged that the defendant had been engaged in paying kickbacks and conspiring to commit health care violations, and had fraudulently obtained close to $45 million.  The government sought a pretrial order restraining $2 million under 18 U.S.C. § 1345, which allows a restraint on property obtained as a result of health care fraud or “property of equivalent value.”  Here, however, the property the government sought to restrain was not connected with the alleged crime, and defendant sought to use those funds to hire counsel to defend her in the criminal case.

The Supreme Court held that the pretrial restraint of legitimate, untainted assets needed to retain counsel of choice violates the Sixth Amendment. Justice Breyer’s plurality opinion first emphasized that the Sixth Amendment right to counsel is “fundamental” and “guarantees a defendant the right to be represented by an otherwise qualified attorney whom that defendant can afford to hire.” The government argued that the important interests of keeping assets available for statutory penalties and compensation of victims justified the restraint.

Justice Breyer found controlling the fact that the funds at issue were untainted by the alleged crimes, so they belonged to the criminal defendant “pure and simple.” In contrast, tainted funds—assets connected to a crime—may be subject to pretrial restraint.  The Court, for example, has held that tainted funds subject to forfeiture may be restrained pretrial even if the defendant seeks to use those funds to pay a lawyer. Caplin & Drysdale v. United States, 491 U.S. 617 (1989); United States v. Monsanto, 491 U.S. 600 (1989).  A significant factor in the forfeiture cases was that title to forfeited property passes to the government at the time of the crime.  The government, however, had no present interest in the defendant’s untainted funds in the case before the Court.

While in some circumstances a party without a present interest may restrain property, here the criminal defendant sought to use the funds to hire counsel, and the Sixth Amendment right to counsel does not permit such a restraint.  Justice Breyer noted that accepting the government’s position could erode the right to counsel, as Congress may provide more statutory provisions allowing for restraint of untainted assets equivalent in value to the criminal proceeds.

The decision did not break along usual lines for the Court. The plurality opinion authored by Justice Breyer was joined by Chief Justice Roberts and Justices Ginsberg and Sotomayor.  Justice Thomas concurred in the judgment, writing that he would not engage in any balancing and would hold strictly that the Sixth Amendment does not allow a pretrial asset freeze infringing the right to counsel.  Justices Kennedy, Alito and Kagan dissented, asserting on various grounds that where the government has established probable cause to believe that it will eventually recover all of the defendant’s assets, she has no right to use them pretrial to pay for a lawyer.

In the end, the decision draws a clear Constitutional line between: (1) tainted funds, which may be subject to pretrial restraint, and (2) innocent or untainted funds needed to pay for counsel, which may not.

Leslie Caldwell, DOJ Assistant Attorney General for the Criminal Division, spoke to the qui tam relators’ bar at a Taxpayers Against Fraud conference last month, stating a new DOJ policy for criminal and civil division coordination of qui tam cases, starting with intake. 

Taxpayers Against Fraud is an organization of whistleblowers and their counsel, which seeks to combat fraud against the government.  Caldwell encouraged TAF members to reach out to the criminal division, and its 40 attorney Health Care Fraud unit, in qui tam cases that could potentially involve criminal conduct.  Stating that “qui tam cases are a vital part of the Criminal Division’s future efforts,” she outlined a newly implemented procedure so that all new qui tam cases will be shared by the Civil Division with the Criminal Division as soon as they are filed.  “Those prosecutors then coordinate swiftly with the Civil Division and U.S. Attorney’s Offices about the best ways to proceed in the parallel investigations.”   

Early civil-criminal coordination of qui tam cases has been standard practice for some time in several U.S. Attorney’s Offices, including locally in the Eastern District of New York.  As early as 1997, Attorney General Janet Reno issued a Memorandum on Coordination of Parallel Criminal, Civil and Administrative Proceedings.  In the 1997 Memo, Attorney General Reno recognized the necessity of coordinating criminal, civil and administrative investigative and litigative resources,  stating that “every United States Attorney’s office and each Department Litigating Division should have a system for coordinating the criminal, civil and administrative aspects of all white-collar crime matters within the office.”  In 2012, Attorney General Eric Holder updated this policy in a Memorandum on Coordination of Parallel Criminal, Civil, Regulatory and Administrative Proceedings.   Attorney General Holder stressed that this coordination should operate at all stages of fraud investigations, including intake, investigation and resolution. 

Healthcare providers can expect DOJ to continue to expand its aggressive efforts in combatting healthcare fraud.  DOJ has signaled that it intends to increase its coordination of civil and criminal investigations and remedies for maximum deterrence and collection of healthcare dollars.  Providers facing scrutiny from the government will need to be aware that, behind the scenes, there is likely an organized and coordinated effort that includes civil, criminal, regulatory, and administrative resources.

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.