Kane V. Healthfirst: Kickstarting The 60-Day Rule
Influential Court Defines “Identified” as Known or Should Have Known
Under the Patient Protection and Affordable Care Act (“ACA”), a healthcare services provider who receives an overpayment of Medicare or Medicaid funds must “report and return” the excess funds to the government within sixty days of the “date on which the overpayment was “identified.” 42 U.S.C. § 1320a-7k(d)(1), (2). Failure to do so can subject the provider to liability – in the form of treble damages and statutory fines – under the False Claims Act (“FCA”). Id. § 1320a-7k(d)(3).
The statute does not define “identified,” and that silence has created uncertainty for providers and the government about when the 60-day clock begins to run. In August, the U.S. District Court for the Southern District of New York became the first court to attempt to resolve the uncertainty, but in doing so it placed a heavy burden on providers. In Kane ex rel. U.S. v. Healthfirst, Inc., the court rejected the provider’s argument that an overpayment is “identified” when the payment is “classified with certainty,” or conclusively established. Such an interpretation, according to the court, would allow providers to avoid FCA liability by “putting [their] head[s] in the sand” and declining to investigate potential overpayments. Thus, the court adopted the government’s definition: an overpayment is “identified” when the provider has determined, or “should have determined through the exercise of reasonable diligence,” that it has received a potential overpayment. Once the provider learns that an overpayment may have occurred, it has sixty days to investigate, report, and return any excess funds to the government.
The Kane court recognized that its definition of “identified” would leave providers with often impossibly little time to investigate potential overpayments before being subjected to FCA liability. However, the court insisted that the FCA’s scienter requirement mitigates the burden: one needs to act knowingly or recklessly in order to violate the FCA. “Therefore, prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.” In Kane, the government alleges that the provider failed to investigate potential overpayments that were first identified by an employee until months later when the State of New York raised the issue, and then took two years to complete its investigation and return all of the excess funds. According to the government, then, the provider neither exercised “reasonable haste,” nor demonstrated good intentions.
Definition Misconstrues the Nature of FCA Cases
Numerous shortcomings befall the court’s reasoning. The faith it puts in prosecutorial discretion is undermined by the fact that private citizens file the vast majority of FCA actions. Unburdened by the professional obligation to further the interests of justice and motivated by the prospect of a lucrative recovery, these private actors have far less incentive to evaluate whether defendants met the FCA’s scienter requirements before filing suit. And, compared to the U.S. government, they likely have few resources to devote to such an evaluation. Moreover, even if the “well-intentioned” health care provider can demonstrate, to the satisfaction of a court or a jury, that it was working with reasonable haste to remedy overpayments and thus did not knowingly violate the FCA, it may have to expend significant resources in litigation before that issue becomes ripe for disposition.
Limits on Kane’s Impact
The U.S. District Court for the Southern District of New York is just one court, influential though it may be. No other court has defined “identified,” as that term is used in § 1320a-7k, and given the lack of textual guidance as to its meaning, another court could interpret the term differently. Kane itself recognizes that the rules of statutory construction do not unanimously counsel in favor of the definition it adopts.
Moreover, the Center for Medicare and Medicaid Services (“CMS”) has proposed a rule that serves as a compromise between the positions taken by the litigants in Kane. Under that proposed rule, an overpayment would be “identified” when a provider has “actual knowledge of the overpayment or acts in reckless disregard or deliberate indifference of the overpayment.” If adopted, the rule would seem to dissuade providers faced with potential overpayments from “sticking their heads in the sand,” while at the same time providing them with the opportunity to investigate the matter before the 60-day clock begins to run.
Responding to Kane
Unless and until the proposed rule is adopted or other courts disagree with the Kane court, Kane stands as the only interpretation of “identified,” as the term is used in § 1320a-7k. Accordingly, it gives providers the best guidance as to how courts – and, perhaps more importantly, the government – will apply the 60-day rule regarding overpayments. To act as quickly as Kane requires, providers should consider implementing effective post-payment review plans and/or ensuring rigorous adherence to such plans that are already in place. By doing so, the provider can demonstrate that it is “well-intentioned” and acting with “reasonable haste” to remedy erroneous overpayments, even where strict compliance with the 60-day rule proves impossible.
 Kane v. Healthfirst, Inc., Case No. 1:11-cv-02325-ER, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015).
 77 Fed. Reg. 9179-9187 (Feb. 16, 2012).