On February 11, 2016, the Centers for Medicare & Medicaid Services (“CMS”) provided much-anticipated clarity and consistency for providers in its final “60-Day Overpayment Rule,” regarding the reporting and returning of Medicare Part A and Part B “overpayments” (i.e., amounts paid under the Medicare program to which a recipient is not entitled).
The Patient Protection and Affordable Care Act (“ACA”) as enacted in March 2010 includes a provision requiring a provider (or supplier) who has received an overpayment to identify, report and return the overpayment to the Medicare program no later than the earlier of (a) 60 days after the date on which the overpayment was identified, or (b) the date any corresponding cost report is due (if applicable). Failure to report an overpayment within the prescribed time period exposes the provider to potentially crippling liability under the False Claims Act (“FCA”), imposing civil penalties of up to $11,000 per false claim and triple damages. CMS published a proposed rule on February 12, 2012 clarifying the statutory requirement, addressing what constitutes “identification” of an overpayment and the beginning of the 60-day repayment period and the applicable lookback period. Even before CMS finalized the 60-Day Overpayment Rule, providers and suppliers were subject to FCA liability for failure to properly report and return overpayments within 60 days under the ACA provision and proposed rule.
In its 2012 proposed rule, CMS originally advised that an overpayment has been identified when the provider has “actual knowledge of the existence of the overpayment” or “acts in reckless disregard or deliberate indifference of the overpayment.” The proposed rule also acknowledged that the 60-day clock would not start running until after the provider had an opportunity to undertake a “reasonable inquiry” into the basis of the alleged overpayment.
Commentary to the 2012 proposed rule raised concerns over the requirement that providers have “actual knowledge” of an overpayment, and further stated that “reckless disregard” and “deliberate ignorance” are ambiguous terms that do not adequately inform providers of circumstances that would give rise to a duty to investigate. In its final rule, CMS therefore attempted to provide sufficient guidance as to what efforts are necessary to avoid penalty liability under a new “reasonable diligence” standard.
Reasonable diligence standard
The final 60-Day Overpayment Rule clarifies that identification of an overpayment occurs when the provider “has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.” CMS further clarifies that “reasonable diligence” includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments, and investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.
In terms of the overpayment timeline, CMS explains that the duty to investigate whether an overpayment has actually occurred begins when a person obtains credible information concerning the potential overpayment. “Credible information” is described in the commentary as information that supports a reasonable belief that an overpayment may have been received. Then, the 60-day time period begins either (a) when the reasonable diligence is complete, or (b) if the person failed to conduct reasonable diligence and there was in fact an overpayment on the day the person received the credible information of a potential overpayment. CMS has explained now that reasonable diligence is “demonstrated through timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”
Commentators on the 2012 proposed rule argued that an overpayment must be quantified before it can be reported and returned. In the final 60-Day Overpayment Rule, CMS clarified that part of identification is quantifying the amount of the overpayment, which is also part of the provider’s reasonable diligence.
Providers who have identified an overpayment that they need to report and return must “look back” only to payments that occurred within a certain time period from the date on which an overpayment was received. The 2012 proposed rule originally required providers to go back as far as 10 years to identify and return overpayments.
However, providers objected to the 10-year time period for several reasons, including that it is longer than the more commonly used 6-year statute of limitations in the FCA. They also argued that a 10-year lookback period would be overly burdensome, and would impose additional record retention requirements that would be inconsistent with existing record retention requirements, especially concerning electronic medical and billing records.
In the final 60-Day Overpayment Rule, CMS cut the lookback period from 10 years to a more reasonable 6-year period, citing an attempt to avoid imposing an “unreasonable additional burden or cost on providers and suppliers.”
The clarifications CMS provided in the final 60-Day Overpayment Rule are the latest in a series of final rules and regulatory guidance from CMS that reflect a more practical and realistic approach to highly complex health care statutes and regulations. For example, in November 2015, CMS published a final rule as part of the Physician Fee Schedule which included several important updates to the physician self-referral law (commonly known as the “Stark Law”) including two new exceptions to prohibited referrals and several revisions to existing exceptions “to accommodate delivery and payment system reform, to reduce burden, and to facilitate compliance.” The 60-day overpayment rule appears to reflect the same more practical approach to health care regulation and will have an immediate impact on compliance policy and procedures.
The rule in its entirety can be found here.
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