On September 7, 2018, the United States District Court for the District of Columbia vacated CMS’s 2014 Final Overpayment Rule, applicable to the Medicare Advantage program, granting summary judgment to UnitedHealthcare that the Final Rule violated the Medicare statute, was inconsistent with the Affordable Care Act (ACA) and the False Claims Act (FCA), and violated the Administrative Procedures Act (APA). In broad strokes, the District Court confronted two statutory issues. The first centered on the undisputed fact that the Final Rule did not account for known errors in the data (from traditional Medicare) used to calculate payments to Medicare Advantage plans. The court found that this failure violates the statutory mandate of “actuarial equivalence” because, although “payments for care under traditional Medicare and Medicare Advantage are both set annually based on costs from unaudited traditional Medicare records,” the Final Rule “systematically devalues payments to Medicare Advantage insurers by measuring ‘overpayments’ based on audited patient records.” As a result, the court concluded that the Final Rule “establishes a system where ‘actuarial equivalence’ cannot be achieved.” On the same basis, the court found that the Final Rule violates the statutory requirement to use the “same methodology” in calculating expenditures in traditional Medicare and determining payments to Medicare Advantage plans. The Final Rule “fails to recognize a crucial data mismatch and, without correction, it fails to satisfy [the Medicare statute].” (more…)
The question of when an overpayment becomes “identified” for purposes of False Claims Act liability has generated significant uncertainty, and one district court just added more fodder for debate. See UnitedHealthcare Ins. Co. v. Price, No. 16-cv-157 (D.D.C. Mar. 31, 2017). The Affordable Care Act (“ACA”) requires persons to report and return overpayments from Medicare or Medicaid within 60 days of identification, and the failure to do so can trigger FCA liability. The ACA delegated to CMS the task of defining when an entity has “identified” an overpayment. CMS promulgated two rules (in May 2014 for Medicare Advantage (“MA”) plans and Part D Sponsors and in February 2016 for Medicare Part A/B providers), which equate “identification” to circumstances in which a person “has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment.” The “should have identified” standard generated concerns that CMS was using a simple negligence standard. The FCA, however, requires proof of at least “reckless disregard,” which courts have equated to gross (not merely simple) negligence.
After nearly four years, CMS has revised and finalized its proposed rule offering guidance to Medicare Part A and B providers and suppliers as to how they can fulfill their statutory obligations to report and return “identified” overpayments. CMS altered a number of its proposals, including adopting a six-year lookback period, rather than ten. Perhaps most critically for providers, the Agency departed from its earlier interpretation of “identified” to allow for some length of time—generally six months, except in extraordinary circumstances—to quantify overpayments before the sixty-day repayment clock begins to run.
A new lawsuit filed against CMS challenges the agency’s position on when a healthcare entity will be deemed to have “identified” an overpayment – an issue that has significant implications for “reverse” false claims liability under the FCA. See UnitedHealthcare Ins. Co. v. Burwell, No. 1:16-cv-00157 (D.D.C. Compl. Filed Jan. 29, 2016). Section 6402 of the Affordable Care Act imposes on entities an affirmative duty to return overpayments within sixty days of the overpayment being “identified.” Failure to fulfill this obligation can subject an entity to FCA liability. As we previously reported here, in 2014, CMS issued a Final Rule applicable to Medicare Advantage plans and Part D sponsors, in which it defines “identified” as meaning the time when the entity “has determined, or should have determined through the exercise of reasonable diligence,” that it received an overpayment. The plaintiffs charge that the Final Rule is arbitrary and capricious because, they contend, the term “identified” in the statute applies only to obligations that “a plan affirmatively knows it has received,” not to obligations that the plan does not know about, but that the government claims it should have known about (i.e., constructive knowledge). A ruling on the merits of this argument could have significant implications on the scope of reverse claims liability under the FCA. How this lawsuit affects the timing of CMS’s anticipated publication of the overpayments rule affecting Medicare Part A and Part B, which had been expected this month, remains to be seen. We will continue to monitor these developments.
A copy of the complaint against CMS can be found here.
On August 3, Judge Ramos of the Southern District of New York denied the motion to dismiss of defendant hospitals (“Continuum”) accused of failing to timely return overpayments in violation of the FCA. See U.S. ex rel. Kane v. Continuum Health Partners, Case No. 11-2325 (S.D.N.Y. Aug. 3, 2015). In a decision that provides the first significant judicial guidance on the FCA’s overpayments provision, the court held that the statutory sixty-day clock to repay “identified overpayments” begins running “when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.” As such, the decision portends potentially expansive FCA liability for failing to remediate overpayments promptly.
Posted by Scott Stein and Brenna Jenny
On Friday, February 13, 2015, CMS announced that it needs at least one more year to finalize regulations governing the report and return of “identified” overpayments by Part A/B providers under section 6402 of the Patient Protection and Affordable Care Act (“PPACA”). As we previously reported, CMS published a proposed rule in February 2012 for Medicare Part A and B, but, despite subsequently finalizing overpayment regulations for Medicare Advantage (“MA”) organizations and Part D sponsors, has not yet finalized a version of its 2012 proposal.
Although agencies are generally expected to publish final rules within three years of the publication of a proposed rule, they can invoke “exceptional circumstances” and elect to file a notice of continuation. CMS described the exceptional circumstances at play here as the need to both resolve the “significant policy and operational issues” raised by stakeholders and to gather input from DOJ and OIG. In the notice, CMS states that notwithstanding the delay, it wants “to remind all stakeholders that even without a final regulation they are subject to the statutory requirements found in section 1128J(d) of the Act and could face potential False Claims Act liability, Civil Monetary Penalties Law liability, and exclusion from Federal health care programs for failure to report and return an overpayment.”
The fact that CMS has delayed the guidance for Medicare Part A and B, despite having previously finalized guidance for Medicare Part C and D, suggests that CMS does not necessarily intend to adopt a one-size-fits-all approach to the overpayment rules. The extent to which the Part C/D guidance should be applied to Part A/B is being argued in United States v. Continuum Health Partners (as reported here), in which DOJ is seeking to recover Medicaid overpayments. In its briefing, DOJ has argued that critical provisions from the MA/Part D final rule, such as when a payment has been “identified,” should be considered equally applicable in other contexts. CMS’s delay in finalizing regulations for Part A/B arguably undercuts that contention. Further, CMS’s notice of continuation likely reflects significant negotiations between various agency stakeholders as to how restrictive the regulations should be, since the extent of the flexibility given to providers will significantly impact the viability of future qui tam suits, including those that have already been filed but remain under seal. The delay heightens the consequences of the Southern District of New York’s ruling in Continuum, as CMS will likely have an opportunity to respond to the court’s approach in its final rule.
A copy of the text of CMS’s Federal Register notice can be found here.
Posted by Scott Stein and Brenna Jenny
On December 8, 2014, a district court in the Southern District of Georgia dismissed FCA claims brought against the corporate parent and affiliates of a hospital, rejecting the government’s attempt to hold these associated corporations liable for the hospital’s alleged reverse false claims violations. See U.S. ex rel. Schaengold v. Mem’l Health, Inc., No. 11-cv-0058 (S.D. Ga. Dec. 8, 2014).
The government intervened as to one count of the relator’s qui tam action, which alleged that defendant Memorial Health, Inc., its wholly-owned subsidiary Memorial Hospital, and a physician group (“MHUP”) wholly-owned by another Memorial Health subsidiary, violated the FCA by failing to timely return overpayments received by Memorial Hospital. According to the relator (the former CEO of Memorial Health and Memorial Hospital), Memorial Health and affiliated entities (collectively, “Memorial System”) employed the physicians of MHUP and paid compensation at levels above fair market value rates. As a result, these compensation arrangements between referring physicians and healthcare entities could not meet the Stark Law’s exception for “bona fide employment relationships,” which requires fair market value compensation. The Stark Law requires any funds received in violation of the law to be refunded within sixty days of collection. Under this theory, by submitting a cost report including services obtained in violation of the Stark Law, yet certifying that the services identified in the report complied with all applicable laws, the hospital concealed an obligation to refund overpayments to the government.
Although this theory of FCA liability is premised on the submission of cost reports, the government and the relator attempted to impute liability on additional corporate entities that did not submit any cost reports for these physicians’ services. Memorial System’s Board of Directors had previously discussed potential fair market value concerns with their compensation arrangements with MHUP. The government argued that because Memorial Health and all other relevant subsidiaries operated as a unitary health system controlled by a centralized management team, which was aware of the alleged Stark Law violations, all of the related entities were liable for the hospital’s submitted claims.
The court rejected the proposition that “merely being a parent, or an associated corporation, of a subsidiary that commits an FCA violation” can be sufficient to support FCA liability for a subsidiary’s violations. Instead, related entities can only be liable if they were directly involved in the submission of claims, or if veil-piercing is appropriate. The court quickly concluded that, although the other entities were involved in arrangements that ultimately culminated in the submission of allegedly false claims to the government, the absence of any allegations that they were directly involved in causing the submission of falsely certified cost reports warranted dismissal. The court also concluded that veil-piercing was inappropriate. Noting that overlapping management generally does not merit veil-piercing, the court ruled that even if all entities could be considered “alter egos,” there as no allegation that failure to pierce the corporate veil would result in injustice. The government was granted twenty days to amend its complaints and replead its claims against the hospital’s affiliated entities.
A copy of the court’s decision is available here.
Posted by Scott Stein and Brenna Jenny
The parties in a closely watched reverse false claims case, United States v. Continuum Health Partners, continued their dispute over when an “obligation” to repay the government arises under the FCA’s reverse false claim provision. (For previous coverage, see here, here, and here). Continuum’s reply brief in support of its motion to dismiss focuses on the government’s assertion that a “potential” overpayment creates an obligation to repay sufficient to trigger the FCA.
Continuum’s reply brief points out an inconsistency between the government’s legislative history arguments and the text of the statute as enacted. In its opposition brief, the government frequently cited a Senate Report of an earlier version of the bill that became the Fraud Enforcement and Recovery Act (“FERA”). The Report states, as the government quoted in its brief, that the term “obligation” for FERA purposes “includes fixed and contingent duties.” However, as Continuum points out, while the text of the bill that was the subject of the Senate Report defined an obligation as “a fixed duty, or a contingent duty arising from…,” the text of FERA, as enacted, does not contain any reference to contingent duties. Rather, the FCA as amended by FERA defines “obligation” as “an established duty, whether or not fixed, arising from….” 31 U.S.C. § 3729(b)(3). Under Continuum’s interpretation, this alteration deliberately narrowed the scope of statutory “obligations” by eliminating contingent duties. Even an “inadequate review of potential overpayments” still equates to only a contingent duty or a potential liability, rather than an established duty to repay.
Continuum also attacks one of the central premises in the government’s opposition brief, namely that the definition of an identified overpayment in the Part C/Part D context—as set forth in the 2014 CMS Medicare Advantage and Part D Plan Sponsor final rule (“MA/Part D Final Rule”)—should apply to this case. Two years earlier, CMS proposed a distinct rule that would have applied to Medicare Part A and Part B providers, but the agency has not yet finalized this rule. Continuum emphasizes the government’s failure to justify its assumption that the policy judgments generating the overpayment regulations in the MA/Part D Final Rule would lead to the same interpretation in the Part A/Part B context, or even in the Medicaid context, which is one step further removed from the purview of the MA/Part D Final Rule.
Finally, Continuum contests the government’s interpretation of the term “avoid an obligation” as being satisfied by one who “refrains from an obligation to pay money to the government.” Continuum criticizes the government’s further reliance on the Senate Report for the un-enacted version of FERA, which stated that the reverse false claims provision is violated “once an overpayment is knowingly and improperly retained, without notice to the Government about the overpayment.” Continuum maintains that an obligation can only be avoided through affirmative action by the defendants. Because the government alleges only that Continuum failed to act by promptly repaying the government, i.e., through inaction, Continuum argues that the reverse false claims provision is not implicated.
A copy of the reply brief can be found here. A decision on Continuum’s motion to dismiss is expected in early 2015.
Posted by Scott Stein and Brenna Jenny
As we previously reported, the Department of Justice (“DOJ”) recently filed its first FCA suit premised solely on the untimely return of overpayments. DOJ’s November 10, 2014 memorandum in opposition to defendants’ (“Continuum’s”) motion to dismiss (which we discussed here), confirms that DOJ seeks to stake out an expansive argument for such claims.
DOJ’s claims arise out of the alleged failure to timely refund certain payments that Continuum received from Medicaid. The Center for Medicare and Medicaid Services (“CMS”) has not issued any guidance concerning refund of overpayments to Medicaid. CMS likewise still has not finalized its 2012 proposed rule implementing the overpayments provision of the Affordable Care Act (“ACA”) for payments to providers and suppliers under Medicare Parts A and B. This remains true despite CMS’ subsequent finalization, earlier this year, of a rule regarding overpayments to Medicare Advantage organizations and Part D Plan Sponsors. Nevertheless, in its recent filing, DOJ takes the position that CMS’s guidance to Medicare Part C and Part D participants should be applied to Medicaid providers. Specifically, DOJ argues that a provider should be deemed to have “identified” an overpayment where it “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.” Br. at 5 (quoting 42 C.F.R § 422.326). According to DOJ, the government adequately alleged a violation of the reverse false claims provision by alleging that “Continuum learned that it had received such overpayments, became aware of the scope of these overpayments and nonetheless failed to take remotely reasonable steps to return those funds to Medicaid.” Br. at 18–19. Although Continuum had criticized relator’s admittedly “preliminary” report as being insufficient to identify overpayments, DOJ portrayed Continuum’s “fraudulent delay” in repaying as an effort to “sidestep” its obligations by “ignoring clear evidence of overpayments.” Br. at 21.
DOJ also advocates an aggressive position as to the meaning of the word “overpayment.” The ACA includes a provision requiring recipients of Medicare and Medicaid payments to report and return overpayments within 60 days of identification. The ACA further states that failure to return overpayments within such time is an “obligation” under the reverse false claims provision of the FCA, which prohibits knowingly concealing, or avoiding or decreasing, an obligation to pay money to the government. FERA amended the FCA by defining “obligation” as “an established duty, whether or not fixed, arising . . . from the retention of any overpayment.” Emphasizing the phrase “whether or not fixed,” and relying on legislative history surrounding the FERA amendments, DOJ maintains that an “obligation” can exist “whether or not the amount owed is yet fixed.” Br. at 11–12 (quoting Brief for United States at 24, United States v. Bourseau, No. 06-56741 (9th Cir. July 14, 2008)). DOJ sidesteps the problematic implications that flow from its interpretation. If an “obligation” to repay can arise even absent a fixed amount owed, it seems unrealistically rigid to expect providers and suppliers to calculate and return such amounts to the government in a mere sixty days. Internal investigation and analysis as to the amount of overpayments owed can be portrayed as ostensible footdragging and “fraudulent delaying,” as DOJ has done in this case.
A copy of DOJ’s memorandum is available here. We will continue to monitor developments in the case.
Posted by Scott D. Stein and Brenna Jenny
We previously reported on the Department of Justice’s (“DOJ’s”) and the New York Attorney General’s pioneering suits against a provider network, based solely on a failure to timely refund overpayments. See U.S. ex rel. Kane v. Continuum Health Partners, Case No. 11-2325 (S.D.N.Y.).
On September 22, 2014, the defendants (“Continuum”) filed motions to dismiss the federal and State of New York False Claims Act suits, arguing that the relator’s internal email to colleagues listing a set of potential overpayments did not trigger an obligation to return “identified” overpayments. Continuum emphasizes that the relator’s preliminary assessment, by the DOJ’s own acknowledgement in its complaint, required “further analysis” to “corroborate” the relator’s suspicions. The focal point of Continuum’s brief is DOJ’s position that “mere notice of a potential but unconfirmed overpayment” is equivalent to “identifying” an overpayment. Continuum marshals arguments sounding in legislative history and statutory construction, but one of its most forceful points is to highlight the practical necessity of allowing providers sufficient time to investigate and confirm any potential overpayments uncovered during internal audits. Indeed, as Continuum observes, the government itself is rarely able to complete its own investigations within the initial sixty day timeframe during which a qui tam suit is held under seal.
Continuum also argues that even if it is deemed to have “identified” overpayments when the relator sent his email, the government has failed to allege that Continuum “concealed,” “avoided,” or “decreased” an obligation. Continuum alleges that these terms imply some affirmative conduct, not simply failing to act (report), and that the plaintiffs have alleged no such conduct.
Continuum also notes that the reverse false claims provision of the federal FCA applies to obligations to pay “the Government,” and Continuum maintains that the statutory treatment of this word indicates a narrow application to the federal government, and not state governments. As such, Continuum contends, its allegedly belated repayments of funds to New York Medicaid cannot create liability.
With regard to the New York False Claims Act, Continuum makes the further argument that its reverse false claims provision was not enacted until March 2013 and should not be applied retroactively. Because the alleged violations occurred two years prior to the provision’s enactment, Continuum contends, they cannot serve as a basis for liability.