Since the advent of the Medicaid managed care program there has been a lingering question as to when a Medicaid dollar stopped being a Medicaid dollar.

With fee-for-service providers that were paid directly by the Medicaid program, the answer was always clear-cut – each dollar received from the Medicaid program was a Medicaid dollar and therefore it and the provider who received it were subject to the audit authority of the New York State Office of the Medicaid Inspector General (“OMIG”).

But what about providers contracted through Medicaid managed care organizations (“MCO”) and not directly enrolled as Medicaid providers? Before Governor Cuomo issued his Executive Budget earlier this month, there was debate as to where the OMIG’s audit authority stopped with arguments on either side of the line.  Many argued that the OMIG’s authority stopped with at the doors of the MCO.  After the money was paid to the MCO it was able to negotiate contracts directly with providers and disburse the funds as it saw fit, with each MCO operating independently of each other.  The other side of the coin was that a dollar spent with the purpose of providing care to a Medicaid recipient established that the dollar was a Medicaid dollar from start to finish, regardless of whether it was passed through a MCO.

With the Executive Budget, however, all confusion and debate will be settled.  Per the proposed language of the Health and Mental Hygiene Article VII Legislation, Social Services Law Section 364-j will be amended to state that “[a]ny payment made pursuant to the state’s managed care program, including payments made by managed long term care plans, shall be deemed a payment by the state’s medical assistance program.”

The Executive Budget goes further, clearly defining the OMIG’s ability to recover overpayments made by a MCO to its contracted providers that were discovered during an OMIG audit or investigation, as well as during an investigation or prosecution by the New York State Office of the Attorney General Medicaid Fraud Control Unit (“MFCU”).  If the OMIG is unable to recover the overpayment, the MCO may be required to act on the OMIG’s behalf to recoup the overpaid funds and repay the State within six months of receiving notice of the overpayment.

The legislation sets January 1, 2018 as the start of the review period and, without any amendments to the budget bill by the Legislature, will go into effect immediately upon the Governor signing the bills into law.  With the OMIG poised to begin these audits, MCO-contracted providers should familiarize themselves with the OMIG’s audit protocols and procedures.

Medicaid providers, both fee-for-service and those contracted with MCO, who are interested in taking a proactive stance in preparing for an OMIG or MFCU audit or investigation, or providers who are already the subject of one are encouraged to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com to plan your next move.

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.

At the end of June, the U.S. Attorney’s Office in Manhattan filed a False Claims Act complaint against Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Continuum Health Partners, 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. 

In 2010, the Affordable Care Act amended the False Claims Act to provide that overpayments of federal funds must be paid within 60 days after they are identified, and that the failure to timely return an overpayment constitutes a reverse false claim, subjecting a party to liability for three times the amount of the claim and a penalty of between $5,500 and $11,000 for each claim. 

Under the Medicaid regulations applicable to this case, the defendant providers were not permitted to receive additional payments from Medicaid above amounts paid by a managed care organization.  A computer glitch caused defendants to erroneously seek additional payments from Medicaid. 

According to the complaint, defendants became aware of the problem in September 2010, when the State Comptroller identified a small number of improper payments.  A review by defendants in February 2011 revealed a more significant problem, involving approximately 900 claims totaling over $1 million that were wrongly submitted to Medicaid.  Nevertheless, defendants only repaid the small amount of claims identified by the Comptroller. 

The employee who identified the significant overpayment problem was terminated, and later filed the qui tam case in which the government intervened.  The State Comptroller continued to investigate, and defendants made certain payments when they were identified by the Comptroller.  The complaint alleges that defendants dragged their heels on making all the repayments, however, and sought to conceal the true extent of the problem.  Defendants only finished returning the overpayments in 2013, more than two years after they were identified.  In addition, many of the repayments were not made until after June 2012, when the government issued a Civil Investigative Demand to defendants. The government now seeks to recover treble damages and a penalty of up to $11,000 for each claim. 

There is no question that the overpayments in this case resulted from a mistake, a computer glitch.  Nevertheless, this case shows that the government will aggressively seek to recover False Claims Act damages and penalties for the failure to timely return overpayments once they have been identified, even if the original overpayment was due to mistake or inadvertence rather than fraud.  The allegations of this complaint seem particularly egregious, with defendants allegedly being aware of significant overpayments and making only minimal efforts to repay the government.  The law, however, only requires a failure to return an overpayment within sixty days after identification for False Claims Act liability to attach. 

This case highlights a serious problem for providers who become aware that they may have been overpaid on claims to the United States.  In that situation, providers will have to promptly assess whether an overpayment has in fact occurred, and then determine what next steps are in order to avoid False Claims Act liability.  The government can be expected to aggressively prosecute these cases.  In addition, False Claims Act investigations into allegedly improper claims will likely include investigation into whether providers were aware of problems with certain claims, and whether they let more than sixty days lapse before addressing them.