Kane v. Healthfirst, Inc.
120 F. Supp. 3d 370
S.D.N.Y.2015Background
- Relator Robert P. Kane, a Continuum employee, discovered in 2010–2011 that a Healthfirst software translation error caused remittances to show that participating hospitals could bill secondary payors (including Medicaid), producing numerous potential Medicaid overpayments. Kane compiled a spreadsheet (~900 claims) and emailed it to Continuum management on Feb. 4, 2011; about half of those listed were actual overpayments.
- Kane was terminated four days after sending the spreadsheet; Continuum reimbursed only a handful of claims initially and allegedly did not act on Kane’s analysis or notify the state Comptroller comprehensively.
- The United States and New York intervened in 2014 and brought reverse-false-claims claims under 31 U.S.C. § 3729(a)(1)(G) and the NYFCA § 189(1)(h), alleging knowing concealment/avoidance of obligations to repay Medicaid overpayments and seeking treble damages and statutory penalties.
- Defendants moved to dismiss under Rules 9(b) and 12(b)(6), chiefly arguing that (1) Kane’s spreadsheet identified only potential, not actual, overpayments so the ACA’s 60‑day “report and return” clock never began; (2) failure to act promptly cannot constitute wrongful “avoidance” absent active concealment; and (3) New York’s reverse‑false‑claims amendment (added 2013) cannot be applied retroactively.
- The court examined the meaning of “identified” in the ACA’s 60‑day rule, considered statutory purpose, legislative history, canons against absurd results, and agency interpretations (CMS), and found the Government and New York sufficiently pleaded obligations, knowing avoidance/concealment, and proper application of state law retroactively.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an overpayment was “identified” (triggering the ACA 60‑day clock) | Kane’s spreadsheet and the Comptroller’s notices put Defendants on notice such that the overpayments were "identified" under the ACA (or should have been identified through reasonable diligence) | “Identified” requires conclusive proof ("classified with certainty"/"known"), so the 60‑day clock did not start | Court: “identified” can mean being put on notice (or should have been determined through reasonable diligence); Government’s pleading suffices to allege obligations under the ACA/FCA |
| Whether failure to repay within 60 days can constitute improper “avoidance” or “concealment” under § 3729(a)(1)(G) | Alleged inaction after notice (firing Kane, ignoring his analysis, delaying repayments until CID) plausibly alleges avoidance/knowing retention under FCA knowledge standard (includes recklessness/deliberate ignorance) | Avoidance requires active, affirmative acts to evade — mere delay or inaction is insufficient | Court: Inaction after notice can plausibly constitute avoidance; allegations adequately plead avoidance and satisfy Rule 9(b) with respect to scienter |
| Whether scienter (knowledge) was adequately pleaded under Rule 9(b) | Knowledge may be alleged generally; pleadings show facts consistent with recklessness/deliberate ignorance (sufficient under FCA) | Complaint fails to plead knowing conduct, only negligent or uncertain inquiry | Court: Knowledge adequately pleaded (recklessness/deliberate ignorance included); Rule 9(b) satisfied for scienter allegations |
| Whether NYFCA reverse‑false‑claims provision (added 2013) may be applied to pre‑amendment conduct | New York: Legislature expressly provided retroactive application of amendments; NYFCA is civil and not so punitive as to violate Ex Post Facto concerns | Retroactive application would unfairly punish pre‑amendment conduct | Court: NY legislature clearly intended retroactivity; NYFCA is civil (Mendoza‑Martinez factors do not show it is punitive enough to override legislature); retroactive application permitted |
Key Cases Cited
- Neifert-White Co. v. United States, 390 U.S. 228 (discussing scope of FCA covering attempts to cause government to pay money)
- Bahrani v. Conagra, 465 F.3d 1189 (10th Cir.) (obligation may arise even when precise sum is undetermined; reverse‑false‑claims context)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must be plausible)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standards and rejecting conclusory allegations)
- Barnhart v. Sigmon Coal Co., 534 U.S. 438 (statutory interpretation: consult context when text ambiguous)
- I.N.S. v. Cardoza-Fonseca, 480 U.S. 421 (legislative choice of different words can indicate distinct meanings)
- United States v. Mead Corp., 533 U.S. 218 (agency interpretations may merit deference in appropriate circumstances)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (framework for deference to agency statutory interpretations)
- Kennedy v. Mendoza-Martinez, 372 U.S. 144 (factors for determining whether a civil sanction is punitive)
- Landgraf v. USI Film Prod., 511 U.S. 244 (analysis of retroactivity principles)
- Smith v. Doe, 538 U.S. 84 (courts ordinarily defer to legislature's civil label; only clear proof converts civil remedy into punitive)