On February 12, 2016, the Centers for Medicare & Medicaid Services (CMS) issued the long-awaited final rule (Final Rule) implementing the Patient Protection and Affordable Care Act (ACA) provision that obligates healthcare providers and suppliers to return overpayments made by federal healthcare programs within 60 days of identification.1 This Final Rule was promulgated almost exactly four years from CMS's issuance of the proposed rule. Fortunately, CMS seems to have used the last four years to listen to providers' concerns and reduce some of the complexities, as well as clarify certain ambiguities of this requirement, specifically around the meaning of identification, the start of the 60-day clock and the lookback period.

The new regulations can be found at 42 C.F.R. §§ 401.301, 401.303, and 401.305.

Background of the Refund Obligations Under the ACA

Most healthcare organizations are familiar with the fact that the ACA added a new Section 1128J(d) to the Social Security Act which provides that "[i]f a person has received an overpayment, the person shall . . . report and return the overpayment" to "the Secretary [of Health and Human Services], the State, an intermediary, a carrier, or a contractor, as appropriate," and "notify the Secretary, State, intermediary, carrier or contractor to whom the overpayment was returned in writing of the reason for the overpayment."2

Section 1128J(d) further requires that an overpayment 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. An "overpayment" is "any funds that a person receives or retains under title XVIII [the Medicare statute] or XIX [the Medicaid statute] to which the person, after applicable reconciliation, is not entitled."3

Section 1128J(d) provides that any overpayment that is "retained" by a person after the deadline for reporting and returning the overpayment is an "obligation" for purposes of the reverse false claims provision of the federal False Claims Act (the FCA). The FCA imposes liability on any person who "knowingly conceals" or "knowingly and improperly avoids or decreases" an "obligation to pay or transmit money or property to the Government."4 Thus the knowing and improper failure to return "identified" overpayments by the applicable time frame may result in treble damages and monetary penalties under the FCA. The ACA also amended the Civil Monetary Penalties Laws to authorize the imposition of civil monetary penalties (and potential exclusion from federal healthcare programs) on any person who "knows of an overpayment and does not report and return the overpayment in accordance with [Section 1128J(d)]."5

Final Regulation

1. When Is an Overpayment Identified?

Under the Final Rule, an overpayment has been identified "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"6 (emphasis added). Here, CMS recognized that providers and suppliers often need to conduct an investigation before they can even determine whether they received an overpayment.

CMS expects that providers and suppliers perform "reasonable diligence" when they receive potentially credible evidence of an overpayment. "Reasonable diligence" includes "both proactive compliance activities conducted in good faith by qualified individuals to monitor 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."7

CMS expects a provider to promptly commence an investigation into any potential receipt of an overpayment if it has potentially credible evidence that it received an overpayment. A provider may not stick its head in the sand to avoid repayment obligations. Accordingly, a person is deemed to have identified an overpayment "if the person fails to exercise reasonable diligence and the person in fact received an overpayment."8

2. When Does the 60-Day Clock Start to Run?

The Final Rule allows providers and suppliers to complete their investigation and quantify the amount of the overpayment before the 60-day clock starts, so long as the provider or supplier is not dragging out the process. In general, CMS expects that reasonable diligence should take a provider no more than six months from receipt of the credible information. This is because CMS believes that providers and suppliers should prioritize investigating their receipt of overpayments and ". . . should devote appropriate attention to resolving these matters. A total of 8 months (6 months for timely investigation and 2 months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances affecting the provider, supplier, or their community."9

While extraordinary circumstances are fact-specific inquiries, CMS notes that they "include unusually complex investigations . . . such as physician self-referral law violations that are referred to the CMS Voluntary Self-Referral Disclosure Protocol. Specific examples of other types of extraordinary circumstances include natural disasters or a state of emergency."10

3. What Is the Relevant Lookback Period?

In the Final Rule, CMS has defined the lookback period to be six years from the date the overpayment was received. For providers, this is a welcome revision to the proposed rule in which CMS proposed a 10-year lookback period.

4. How Should Overpayments Be Reported and Returned?

CMS will allow providers and suppliers to use existing processes to report and return overpayments, including, without limitation, claims adjustments, credit balances, existing cost-report reconciliations, and self-reported processes (such as the voluntary refund process). Providers and suppliers may continue to request a voluntary offset as a method of returning the overpayment; however, in discussing the definition of overpayment, CMS refused to opine on whether identified underpayments may be offset against overpayments when determining the repayment amounts. CMS intends to develop a standardized reporting form.

In addition, CMS will "allow[] for suspending of the deadline for returning overpayments when a person requests an . . . [Extended Repayment Schedule]" due to true financial hardship.11

5. Other Notable Points:

  • CMS noted that "[w]hile . . . [it] will not recover an overpayment twice," CMS will not exempt claims that formed the basis of a self-disclosure from subsequent audits.12
  • CMS declined to adopt a minimum monetary threshold for refund subject to this Final Rule, as it believed any threshold would be susceptible to abuse.
  • CMS expects providers to retain documentation which demonstrates that the providers engaged in reasonable diligence to investigate the overpayment.