On February 11, 2016, the Centers for Medicare & Medicaid Services (CMS) released its final rule (the “Final Rule”) implementing Section 6402(a) of the Affordable Care Act, which created a new Section 1128J(d) of the Social Security Act, “Reporting and Returning of Overpayments.” This provision requires any person who has received a Medicare overpayment to report and return the overpayment (1) within 60 days of the date on which the overpayment was identified, or (2) by the date any corresponding cost report is due, whichever is later. In issuing the Final Rule, CMS states that the "requirements in this rule are meant to support compliance with applicable statutes, promote the furnishing of high quality care, and … protect the Medicare Trust Funds against improper payments, including fraudulent payment." The Final Rule — which applies only to Medicare Part A and Part B overpayments — will be published in the February 12, 2016 Federal Register and will be effective March 14, 2016. Dentons will be publishing a more comprehensive analysis of the Final Rule for Bloomberg BNA in the coming weeks. In the interim, we offer the following summary of the Final Rule's key provisions.

Meaning of "identification"

Among the most critical issues facing providers and suppliers is determining when an overpayment is considered "identified" for purposes of triggering the 60-day report and return requirement. In the Final Rule, CMS states that a "person has identified an overpayment when the person 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." According to CMS, "reasonable diligence" includes both (1) proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and (2) investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining "credible information" of a potential overpayment.

Responding to comments that there is no statutory basis to apply a standard beyond actual knowledge to the term "identified," CMS counters that limiting "the standard for identification to actual knowledge would create a loophole and would conflict with the plain statutory mandate to report and return any overpayments the [provider or supplier] has received." Any other reading, CMS argues, would allow entities "to easily avoid returning improperly received payments and the purpose of the section would be defeated." Toward this end, CMS cautions that providers and suppliers who undertake no or minimal compliance activities to monitor the accuracy and appropriateness of their Medicare claims expose themselves "to liability under the identified standard articulated in this [Final Rule] based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment."

Some of the examples cited in the Final Rule further illustrate CMS' heightened expectations in this regard.

  • Responding to commenters who questioned whether there is a duty to revise past cost reports based on the results of a Medicare Administrative Contractor (MAC) audit of one cost report, CMS states that if "the MAC notifies a provider of an improper cost report payment, the provider has received credible information of a potential overpayment and must conduct reasonable diligence on other cost reports within the lookback period to determine if it has received an overpayment." 
  • When commenters asked whether there was a responsibility to go back beyond the three years covered in a Recovery Audit Contractor (RAC) audit that identifies overpayments, CMS replied "yes," explaining that the Final Rule "clarifies that when the provider or supplier receives credible information of a potential overpayment, they need to conduct reasonable diligence to determine whether they have received an overpayment. RAC audit findings, as well as other Medicare contractor and [US Department of Health and Human Services, Office of Inspector General (HHS-OIG)] audit findings, are credible information of at least a potential overpayment. Providers and suppliers need to review the audit findings and determine whether they have received an overpayment. As part of this review, providers and suppliers need to determine whether they have received overpayments going back 6 years as stated in this Final Rule."

While CMS states that it believes that "contractor overpayment determinations are always a credible source of information for other potential overpayments," the agency also acknowledges that a "provider may reasonably assess that it is premature to initiate a reasonably diligent investigation into the nearly identical conduct in an additional time period until such time as the contractor-identified overpayment has worked its way through the administrative appeals process."

Timing

The Final Rule provides that the 60-day time period begins either (1) when reasonable diligence is completed and the overpayment is identified or (2) on the day the person received credible information of a potential overpayment, if the person fails to conduct reasonable diligence and the person in fact received an overpayment. CMS clarifies that part of "identification"—which triggers the 60-day time period—is quantifying the amount. Elaborating further on how long reasonable diligence should take, CMS has established six months as the benchmark for timely investigation "because [CMS] believes that providers and suppliers should prioritize these investigations." CMS concludes that eight months—six months for timely investigation and two months for reporting and returning—"is a reasonable amount of time, absent extraordinary circumstances affecting the provider, supplier or their community." According to CMS, "[e]xtraordinary circumstances may include unusually complex investigations that the provider or supplier reasonably anticipates will require more than six months to investigate, such as physician self-referral law violations that are referred to the CMS Voluntary Self-Referral Disclosure Protocol (SRDP)."

Look-back period

In contrast to the 10-year look-back period in the proposed rule, under the Final Rule overpayments must be reported and returned only if a person identifies the overpayment within six years of the date the overpayment was received. The six-year look-back is measured from the date the person "identifies" the overpayment. In addition, "to ensure that the [Medicare] reopening rules do not present an obstacle or unintended loophole to compliance and enforcement of [section] 1128J(d)," CMS is amending the reopening rules to accommodate the six-year look-back for reporting and returning overpayments. The amended reopening rules will allow for the reopening of initial determinations for the purpose of reporting and returning an overpayment. 

Retroactivity

CMS clarifies that the Final Rule is not retroactive. Providers and suppliers that reported and returned overpayments prior to the effective date of the Final Rule, and that made a good faith effort to comply with the provisions of Section 1128J(d), are not expected to have complied with each provision of the Final Rule. However, all providers and suppliers reporting and returning overpayments on or after the effective date of the Final Rule (March 14, 2016)—including overpayments received prior to the Final Rule's effective date—must comply with the new regulatory requirements.

Methods for reporting and returning identified overpayments

The Final Rule provides that providers and suppliers may use any applicable claims adjustment, credit balance, self‑reported refund or another appropriate process to satisfy the obligation to report and return overpayments. In addition, CMS states that providers and suppliers may either refund the overpayment amount or request a voluntary offset from the MAC. To the extent the overpayment amount is extrapolated based on a statistical sampling methodology, CMS states that "it is necessary for the overpayment report to explain how the overpayment amount was calculated." CMS also notes that there is no minimum monetary threshold for reporting and returning overpayments because, in its view, "a regulatory de minimis standard would be susceptible to abuse, especially in the context of claims-based overpayments."

The Final Rule also provides that the deadline for returning overpayments will be suspended when either (1) the HHS-OIG acknowledges receipt of a submission under the HHS-OIG Self-Disclosure Protocol (SDP) or (2) CMS acknowledges receipt of a disclosure under the SRDP. In either case, the requirement to return overpayments within 60 days of identification will be tolled (1) for the full duration of the time that the provider or supplier is negotiating a potential settlement, (2) until such time as the provider or supplier withdraws from the SDP or SRDP or (3) until such time as the provider or supplier is removed from the SDP or SRDP. CMS notes, however, that self-disclosure to entities outside of the SDP or SRDP—such as the US Department of Justice or a Medicaid Fraud Control Unit—does not toll the deadline for returning overpayments.

Finally, the deadline for returning overpayments also will be suspended when a provider or supplier requests an extended repayment schedule, and will remain suspended until CMS or its contractors reject the extended repayment schedule or the provider or supplier fails to comply with the terms of the extended repayment schedule.