21.1 False Claims, Overpayments and Referral Laws

False Claims, Overpayments and Referral Laws

CDI can identify documentation or coding problems that affect a claim. The appropriate response is to establish the facts, correct affected work and involve the responsible compliance, billing and legal functions. A bad query, unsupported code, audit finding or compensation target is not by itself a complete legal determination. Different statutes address false claims, retained overpayments and referral arrangements, with different requirements.

Apply the actual False Claims Act provisions

The civil False Claims Act is principally codified at 31 U.S.C. §§3729–3733. Section 3729 includes several kinds of prohibited conduct. Three are especially relevant to CDI-related concerns:

The Act defines materiality in terms of a natural tendency or capability to influence payment or receipt of money or property. The facts must establish the requirements of the applicable theory; do not treat every departure from professional guidance as automatic falsity or materiality. A provider's authenticated diagnosis also does not make every underlying practice immune from review.

Knowledge does not require a specific intent to defraud

Under §3729(b)(1), knowledge includes actual knowledge, deliberate ignorance, and reckless disregard of truth or falsity. The Act does not require proof of a specific intent to defraud. This means that deliberately avoiding contrary evidence cannot be excused merely by saying no one wanted to commit fraud. It does not mean that every mistake or negligent act necessarily satisfies the knowledge standard.

Examples warranting investigation include instructions to bill a diagnosis despite the provider ruling it out, directions to ignore ventilation records to preserve a duration-dependent code, or repeated use of a diagnosis-trigger template after supported warnings that its premise is invalid. Preserve the actual instructions, records, warnings and responses. Those facts may bear on knowledge; the template's existence or a metric alone does not conclusively establish every element of liability.

Be precise about the clinical and coding premise. “Sepsis-3” names a clinical consensus framework, not a billable diagnosis code or a universal MCC. Mechanical ventilation duration must reflect the actual supported procedure and applicable PCS definition; “more than 96 hours” is not the same as “96 hours or more.” A low albumin alone does not establish severe malnutrition. Correct these premises rather than making legal arguments from an inaccurate clinical example.

Understand consequences without assuming an automatic judgment

Section 3729 provides for civil penalties and three times the government's damages, with a statutory provision for reduced damages when its conditions are met. The monetary penalty schedule has effective-date rules and changes over time. DOJ's July 2025 rule lists an FCA range of $14,308–$28,619 for penalties assessed after July 3, 2025 for violations after November 2, 2015; its July 2026 notice retains the 2025 levels for 2026. Do not present the older $13,946–$27,894 range as the current universal amount or assume every billing error produces a separate maximum penalty.

For an explicitly hypothetical case with $180,000 in established government damages, three times that amount is $540,000 before any applicable penalties or other adjustments. This arithmetic is not a finding that a coding audit automatically produces a judgment. Program exclusion and criminal liability arise under their applicable legal authorities; neither is an automatic consequence of every civil FCA allegation.

Identify overpayments under the current Part A/B regulation

The broader reporting-and-returning obligation is implemented for Medicare Part A/B providers and suppliers in 42 CFR Part 401, Subpart D. Sections 401.301 and 401.303 define the scope and terms. Do not label it Subpart C or apply this specific procedure as though it governs every Medicaid, Medicare Advantage or other payer situation.

Under current §401.305(a)(2), an overpayment is identified when the person knowingly receives or retains an overpayment, using the incorporated FCA knowledge definition. The superseded formulation requiring reasonable diligence and completed quantification before identification is not the current regulatory test. A credible concern requires timely evaluation; it cannot be ignored to avoid acquiring knowledge.

The general report-and-return deadline is the later of 60 days after identification or the due date of a corresponding cost report, if applicable, subject to the regulation's specified suspensions and reconciliation provisions. Track the applicable deadline with the responsible team rather than treating every issue as either an immediate refund or an automatic eight-month allowance.

Related-overpayment investigation: a conditional suspension

Section 401.305(b)(3) suspends the deadline when an overpayment has been identified, a good-faith investigation of related overpayments from the same or similar cause has not been completed, and the person conducts that investigation timely and in good faith. The suspension ends at the earlier of:

1. Completion of the related-overpayment investigation and calculation of the aggregate initially identified and related overpayments; or
2. 180 days after identification of the initial overpayment.

This is not a universal six-month period before identification, an automatic 180-day extension for every coding audit, or permission to keep waiting until day 180 after an investigation and aggregate calculation finish earlier. Document why the suspension applies, when it begins and ends, and the remaining reporting-and-returning deadline. A continuing investigation does not extend this suspension beyond the 180-day endpoint.

Other specified suspensions include acknowledgment of receipt in the OIG Self-Disclosure Protocol or CMS Voluntary Self-Referral Disclosure Protocol, and an extended-repayment-schedule request, with the different endpoints specified in §401.305(b)(2). A CDI note, an ordinary internal audit, or an intention to disclose is not itself the required acknowledgment or request. Applicable cost-report reconciliation provisions also need the responsible team's assessment.

Worked decision sequence

An audit finds an initially identified overpayment and suggests related claims may have the same error. Preserve the audit evidence and promptly involve compliance and the repayment owner. Determine the applicable knowledge, scope, cause, claims and deadlines. If a timely good-faith related investigation meets the regulatory conditions and concludes with the aggregate amount after 30 days, the investigation suspension ends then, rather than automatically continuing to day 180. Calculate and meet the reporting-and-returning deadline that applies to those facts.

Use the applicable contractor process for reporting and returning the funds; §401.305(d) identifies claims adjustment, credit-balance, self-reported-refund and other contractor processes, with special disclosure provisions. A statistically sampled calculation requires the specified description of valid sampling and extrapolation. The regulation also provides a six-year lookback for identification, measured from receipt of the overpayment. A lookback period is not an additional repayment grace period.

Under §401.305(e), retaining an overpayment after the applicable deadline makes it an obligation for FCA purposes. Section 3729(a)(1)(G) still requires the relevant knowing conduct. “Day 61 equals an adjudicated reverse false claim with automatic treble damages” is therefore an incorrect decision rule, especially where the actual deadline or a suspension differs.

Distinguish a qui tam action from a hotline report

Under §3730(b), a private person may bring an FCA action for the person and the United States. That person is a relator. The complaint is filed under seal, with the complaint and material evidence disclosed to the government under the statutory process. The initial seal period is at least 60 days and may be extended; it is not a guaranteed investigation-completion date.

If the government proceeds, it has primary responsibility for the action. If it declines, the relator may continue subject to the statute. Ordinary recovery-share ranges are 15%–25% when the government proceeds and 25%–30% when it does not, subject to statutory exceptions, reductions and eligibility requirements. Filing a report or suit does not guarantee an award, establish the allegations, or imply a particular settlement-success percentage. Relators need not be CDI professionals or credential holders.

Section 3730(h) separately provides remedies for specified retaliation against employees, contractors or agents because of protected lawful conduct connected with an FCA action or efforts to stop violations. An internal compliance report, an OIG hotline submission and a sealed qui tam lawsuit are different processes.

Keep referral-law analysis separate

The Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b), addresses knowing and willful remuneration arrangements involving referrals or purchases, orders or recommendations for federally reimbursable business. Statutory exceptions and regulatory safe harbors require their own analysis. Under subsection (g), a claim including items or services resulting from a violation is false or fraudulent for FCA purposes; this does not eliminate the remaining applicable FCA requirements.

The physician self-referral law, 42 U.S.C. §1395nn, generally prohibits specified Medicare designated-health-service referrals where the physician or immediate family member has a financial relationship with the entity, unless an exception applies, and prohibits billing for services from prohibited referrals. Inpatient and outpatient hospital services are among the designated services. Its referral/billing prohibition is generally described as strict liability; an absence of bad intent does not replace an applicable exception. Separate penalty provisions can have additional requirements.

A physician documentation incentive may warrant analysis under either or both laws. A CMI bonus is not by itself proof of a prohibited referral, and satisfying a Stark exception does not automatically resolve AKS concerns. Have the responsible reviewers assess the arrangement and affected claims under each applicable authority. CDI's immediate task remains accurate documentation, appropriate clarification and timely escalation of the actual facts.