* The following alert was originally published in Health Law360. To read it on the Health Law360 website, click here

Everyone working in the health care industry today knows how often overpayments can occur. Some are isolated instances, while others may involve hundreds of claims and are not detected until years after they first occurred. Moreover, overpayments often result from mistake, inadvertence or perhaps negligence, rather than intentional fraud. Nevertheless, it is clear under the Affordable Care Act that any provider who receives an identified overpayment is under a direct legal mandate to return it.

Specifically, the ACA requires all Medicare and Medicaid overpayments to be reported and returned by the later of (1) 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable (the 60-day rule).

Following the ACA’s enactment, there was a great deal of confusion about various aspects of the law; most notably, about what it meant to “identify” an overpayment and the length of the required lookback period (i.e., how far back in time providers must go when investigating potential overpayments). The proposed regulations issued in 2012 did not clearly resolve the “identification” issue and would have imposed a burdensome and controversial 10-year lookback period.

Earlier this year, the Centers for Medicare and Medicaid Services released the long-awaited final regulations on the 60-day rule, providing much needed guidance to providers and suppliers (collectively, “providers”) on how to satisfy the law on overpayment returns.[1] The final regulations, which apply only to Medicare Parts A and B, clarify that the identification of an overpayment occurs when the provider has or should have, through the exercise of reasonable diligence, determined that it has received an overpayment and quantified the amount of the overpayment due to be returned. The regulations also establish that Medicare providers are subject to a six-year lookback period in connection with overpayments. In addition, the regulations set forth the process for reporting and returning identified overpayments.

Providers will welcome several regulatory provisions that provide greater clarity and/or are less stringent than those in the proposed rule. Nevertheless, in the preamble to the regulations, CMS repeatedly emphasizes that all providers and suppliers must take proactive, as well as reactive, steps in order to satisfy the law’s requirement to report and return overpayments. As a result, providers should closely review the regulations, update their compliance program, as well as their policies, procedures and training, to ensure they are well-positioned to identify, fully investigate and return overpayments as required by the law and regulations. Moreover, providers should be on the lookout for increased enforcement of the 60-day rule.

Returning Overpayments Under the Regulations

Many of the key issues addressed in the regulations are described in greater detail below.

When is an Overpayment “Identified”?

Under the regulations, a provider has identified an overpayment “when the person has, or should have through the exercise of reasonable diligence, determined that the [provider] has received an overpayment and quantified the amount of the overpayment.” The fact that the regulations recognize that an overpayment cannot be “identified” until quantification is complete is extremely important, since quantifying an overpayment can be extremely time-consuming and resource-intensive.

CMS acknowledges that the investigation and quantification may take up to six months, and that complex investigations, such as those involving violations of the Stark Law that have been referred to the CMS self-referral disclosure protocol, may take even longer. Once the overpayment is “identified,” the provider has 60 additional days to repay it. In short, after it has credible evidence of the receipt of a potential overpayment, a provider generally will have up to eight months to return the money to the government.

What is Reasonable Diligence?

Under the regulations, providers must use “reasonable diligence” to identify overpayments. There is considerable discussion in the preamble noting that “reasonable diligence” includes both proactive compliance activities conducted by qualified individuals to monitor claims for overpayments, as well as reactive investigations conducted in response to credible information of a potential overpayment. CMS further states, “Thus providers and suppliers have a clear duty to undertake proactive activities to determine if they have received an overpayment or risk potential liability for retaining such overpayment.”

The preamble to the regulations also indicates that if the provider finds a single overpaid claim, “it is appropriate to inquire further to determine whether there are more overpayments on the same issue before reporting and returning the single overpaid claim.” For example, if a provider conducts an audit using a probe sample, the provider should not report and return overpayments related to the probe sample claims until the full overpayment amount (looking back up to six years, if appropriate) is identified.

Similarly, in the discussion about government audits, the preamble notes that audits by the government or a contractor may be for a limited time period. If the provider confirms the audit’s findings, they may have credible information that triggers an obligation to investigate beyond the audited time frame, up to the six year lookback period as described below.

How Far Back Do Providers Need to Lookback for Overpayments?

While the law does not specify a lookback period, under the regulations an overpayment must be reported and returned within six years of the date the overpayment was received. While this lookback period is considerably shorter than the 10-year period in the proposed rule, it is significantly longer than the four-year time period that many providers had been using based on the reopening rules at 42 C.F.R. § 405.980. While not described as such, this appears to be the primary trade off in the regulations. Providers are given a longer time to investigate, but have to return any overpayments that may have been incurred over a longer period of time (albeit not as long as the 10-year period originally proposed).

It is important to note that the six-year time frame is the maximum lookback period established by the regulations. Each overpayment should be reviewed in light of the particular facts at issue since it often is possible to reduce the length of the lookback period. For example, if a coding error was caused by one particular coder who only worked at the facility for a two-year period, it likely will not be necessary to go back beyond that period of time.

How Should Overpayments Be Reported and Returned?

The regulations state that providers should report and return overpayments using applicable claims adjustment, credit balance, self-reported refund or other reporting processes set forth by the applicable Medicare contractor. (The detailed list of required data elements described in the proposed rule has been eliminated.) The overpayment reporting requirement also can be satisfied by making a disclosure and reaching a settlement under the Office of Inspector General’s self-disclosure protocol or under the CMS voluntary self-referral disclosure protocol. In addition, the regulations require the provider to describe any statistically valid sampling and extrapolation methodology used to calculate the overpayment.

Receipt of a self-disclosure submission to either the OIG or CMS protocol will suspend the deadline for returning an overpayment until a settlement agreement is entered, or the person withdraws or is removed from the applicable protocol. However, the deadline is not suspended if a self-disclosure is made to any other agency, such as the U.S. Department of Justice, an assistant U.S. attorney or a Medicaid fraud control unit.

Do Small Dollar Amounts Need to be Reported And Returned?

CMS declined to adopt a minimum monetary threshold for overpayments. As a result, overpayments of even de minimis value must be identified, reported and returned. (However, in the absence of fraud, small dollar amounts are likely most appropriately returned through the claims adjustment process or by reporting to the applicable Medicare contractor.)

Other Issues Addressed

 The preamble and the regulations also:

  • Clarify that providers who are not a party to a kickback arrangement, but who may have received payments as a result of a kickback arrangement between others, are unlikely (in most instances) to have “identified” an overpayment. (To the extent such a provider does identify and report an overpayment, CMS indicates that they are unlikely to be required to repay the overpayment, except in extraordinary circumstances);
  • Allow for suspending the deadline for returning overpayments when a provider requests an extended repayment schedule; and  
  • Note that the regulations do not create any new appeal rights, but, to the extent the return of an overpayment results in a revised initial determination for an individual claim, providers are afforded any appeal rights that currently exist.

The Regulations’ Relationship to the Continuum Case

A 2015 ruling by a New York federal district court judge in the Continuum case, placed many health care providers and suppliers on “high alert” after finding that a provider identifies an overpayment when it is “put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained …”

The Continuum case indicated that providers had no more than 60 days to investigate, quantify, report and return all overpayments; an unrealistic mandate, particularly for providers investigating complicated compliance issues, some of which may have occurred years ago. The facts in Continuum were unusually egregious, e.g., the overpayment was not fully returned until several years after it was initially identified. Nevertheless, with these regulations, CMS seemingly has rejected the Continuum court’s approach.

Facilitating Compliance

Failure to comply with the law and regulations related to overpayment returns can lead to the imposition of civil monetary penalties, potential exclusion from federal health care programs, and possible False Claims Act litigation. Moreover, the potential liability for a provider dramatically increases when an overpayment is identified, but not returned. It is clear from the final rule that the government expects providers to have a robust compliance program that incorporates both proactive and reactive compliance measures. Providers should confirm they:

  • Have policies and procedures describing the provider’s obligation to report and return overpayments in accordance with the regulations and provide appropriate training to employees on these policies and procedures;
  • Implement periodic billing and coding audits in a proactive attempt to identify overpayments;
  • Utilize publicly available government resources to help guide their audit efforts (for example, the OIG work plan and OIG special advisory opinions);
  • Promptly investigate any suspected incidence of noncompliance with federal health care program requirements, and determine whether any additional overpayments exist;
  • Engage counsel and other experts, e.g., coding experts, as necessary, to complete a thorough investigation (and quantification) within the required six-month period;
  • Understand the various risks, benefits and methods for reporting and returning overpayments, including which method is appropriate for the different types of overpayments (e.g., simple overpayments resulting from improper billing v. overpayments resulting from a potential Stark Law violation); and
  • Document the diligence performed as part of your inquiry into a potential overpayment; including, the scope of the inquiry and the methodology used to quantify the overpayment.

Conclusion

With the publication of the regulations implementing the 60-day rule, Medicare providers now are on notice that the government expects them to proactively monitor for, and fully investigate credible information about, any potential overpayments. Further, providers who identify an overpayment must assess the scope of liability during a six-year lookback period, and must report and return any overpayment in a timely manner or face potential civil monetary penalties, exclusion and/or False Claims Act penalties.

To help reduce the risk of exposure, providers should review their compliance programs to ensure they contain policies and procedures to monitor for overpayments, and thoroughly investigate and promptly return any overpayments once they are identified. Periodic audits to ensure that these policies and procedures are being implemented appropriately also are advisable. In addition, working with legal counsel may help establish whether a particular set of facts actually constitutes an overpayment and if so, can help determine how far back it is necessary to investigate.