In 2010, the Affordable Care Act (“ACA”) enacted new rules governing overpayments made by the Medicare and Medicaid programs. Under these rules, providers have 60 days from the date that the overpayment has been identified to return the overpayment or face penalties and treble damages under the False Claims Act (“FCA”). As described below, recent regulations have clarified some of the issues surrounding the ACA obligation to refund overpayments, at least for overpayments under Medicare Parts A and B. But, determining whether a provider has “identified” an overpayment – and thus started the 60 day countdown – can still be nuanced and complex. Diligent providers that have proactive and robust compliance and audit functions in place may find some comfort, since such providers are presumably able to respond quickly to credible information that there has been a potential overpayment, as required by the new regulations, and thereby have a reasonable period of time to conduct an investigation and quantify the amount of any overpayment before the 60 day clock begins to run.
The new Part A and B regulations, however, do not address an important issue that remains unclear under the law: what types of non-compliance result in overpayments. Jurisprudence developed in the context of the FCA may be an important source of law for understanding this issue; if non-compliance with a particular requirement predicates liability under the FCA by rendering claims materially false, it is likely that payments received based on such claims would be overpayments that the claimant is obligated to report and return. Therefore, law defining the types of non-compliance that can predicate FCA liability may also speak to the types of non-compliance that can lead to an overpayment under the ACA.
Courts have agreed that, under the FCA, claims can be false either because they contain factually false information on their face, or because a claimant falsely certifies to compliance with a statutory, regulatory, or contractual provision (“false certification”). Until recently, however, the federal circuit courts were split as to whether such a false certification must be “express” – an explicit promise to comply with certain provisions – or whether it may also be “implied” simply through the act of submitting a claim. Those courts that accepted this latter “implied certification” theory of FCA liability were further split into two camps. While some took a narrow approach that only a failure to adhere to a requirement that is expressly characterized as a “condition of payment” constitutes a false claim, others had held that a false claim can emanate from the failure to comply with a “condition of participation” in the applicable government program. Under this latter view, in submitting a claim to Medicare or Medicaid, the provider impliedly certified that it had complied with all regulatory requirements governing the delivery of that service, not only requirements that expressly stated that they were conditions of payment. On this theory, failure to comply with potentially any regulatory requirement relating to the service provided and being billed for, could have lead to false claim liability under the FCA and exposed the provider to civil penalties, treble damages and qui tam liability.
The U.S. Supreme Court recently resolved these disputes about the viability and scope of the implied certification theory in its decision in Universal Health Services, Inc. v. United States and Commonwealth of Massachusetts ex rel., Julio Escobar and Carmen Correa. The Court upheld the First Circuit’s determination that implied certification is a viable theory of FCA liability, but adopted a novel analytical framework for determining what types of non-compliance can predicate liability. Rather than side with either of the two camps described above, the Court held that FCA liability can be predicated on non-compliance with requirements that are not expressly characterized as conditions of payment, but nonetheless that not all non-compliance can predicate FCA liability. Rather, the Court held that non-compliance can predicate FCA liability if the non-compliance renders the information contained in a claim for payment a “half-truth”, and the misrepresentation arising from the non-compliance is material to the government’s decision to pay the claim.
Given the already daunting complexity and risk healthcare providers currently face in navigating the multitude of Medicare and Medicaid coding, billing and other regulations, the implied certification theory has been a cause of great concern for providers receiving Medicare and Medicaid reimbursement. In upholding the implied certification theory, the Supreme Court has offered little solace to providers concerned about the threat of qui tam actions under the FCA. Although the Supreme Court’s emphasis on the rigor of the materiality requirement, as well as its newly formulated “half-truth” requirement, may give some comfort that not every instance of non-compliance will lead to FCA liability, it is still unclear how these elements will be interpreted and applied by the lower courts.
Without the precedential framework that allowed providers and suppliers to distinguish with some reliability between conditions of payment and conditions of participation – and, therefore, at least in circuits that relied on that distinction, to identify the types of non-compliance that created the most FCA risk – it will be difficult to determine when non-compliance with any of the myriad complex regulations governing health care providers and suppliers is likely to predicate FCA liability. Potential FCA exposure under United Health Services, therefore, is currently extremely uncertain. To the extent that the concept of implied certification informs the proper understanding of the types of non-compliance that can lead to overpayments under the ACA, this ambiguity also further muddies the water as to the circumstances under which non-compliance may create an obligation for providers and suppliers to report and return funds to Medicare or Medicaid.
I. The Affordable Care Act’s 60-Day Rule
The ACA includes a statutory requirement that a person who receives an “overpayment” from Medicare or Medicaid must “report and return” the overpayment within 60 days of the date on which the overpayment was “identified” (or the date any corresponding cost report is due) (the “60-Day Rule”).[1] An “overpayment” is any funds received or retained which, “after reconciliation,” the person is not entitled. An “overpayment” applies to funds received or retained under Titles XVIII and XIX, which include not only fee-for-service Medicare (Parts A and B) and Medicaid, but also Medicare Advantage (Part C) and Medicare Part D. The overpayment must be reported and returned “as appropriate” to the Secretary, the State, an intermediary, a carrier or a contractor, with notification “in writing of the reason for the overpayment.”[2]
Compliance with the 60-Day Rule is critically important to providers and suppliers because an “overpayment” retained after the deadline becomes an “obligation” under the FCA. An “obligation,” under the FCA means an “established duty, whether or not fixed,” arising from among other things, the “retention of any overpayment.”[3] Knowingly concealing and improperly avoiding or decreasing an obligation to pay the government creates liability under the FCA.[4] Knowingly includes not just having actual knowledge, but also acting with “reckless disregard” or “deliberate ignorance.”
A. When Is an Overpayment “Identified”?
On February 12, 2016, interpretive regulations for Medicare Parts A and B overpayments were finalized by the Center for Medicare and Medicaid Services (“CMS”) and clarified a number of key issues for Part A and B providers (the “Part A and B Final Rule”).[5] Regulations promulgated previously for Medicare Parts C and D overpayments clarified key issues for Medicare Advantage organizations and Part D sponsors who receive overpayments, but did not address the obligations of providers.[6] There are no regulations for Medicaid overpayments, although CMS has stated in commentary that such regulations may be forthcoming in the future.[7] Prior to the Part A and B Final Rule from CMS...
