On Feb. 12, 2016, CMS published the much anticipated final regulations implementing the so-called “60-Day Rule.” Congress adopted the 60-Day Rule as part of the Affordable Care Act (ACA). The Rule requires health care organizations to report and return overpayments received from Medicare Parts A and B1 within 60 days after the overpayment is identified. Retention of an identified overpayment beyond the 60-day period gives rise to potential liability under the federal False Claims Act. 

Since the enactment of the 60-Day Rule, the health care industry, the government, lawyers and the courts have struggled to interpret and apply its provisions. Among the most critical issues is determining when an overpayment is consider “identified” for purposes of starting the 60-day period. There is no definition in the statute.  In proposed regulations issued in 2012 CMS took the position that “[a] person has identified an overpayment if the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”

The only court to rule on the 60-Day Rule held that a provider “identifies” an overpayment when it is “put on notice that a certain claim may have been overpaid.”  United States ex rel. Kane v. Healthfirst, Inc., No. 11 Civ. 2325, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015).  Both the proposed regulations and the Healthfirst holding were controversial.  Many feared that the standards for determining compliance with the 60-Day Rule were impractical. 

CMS evidently took this criticism to heart and seeks to establish a more reasonable framework.  The final rule provides that 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.” 

In addition to clarifying when an overpayment is “identified,” the final regulations and commentary provide valuable insight into several aspects of the 60-Day Rule.

1. A Positive Reduction

CMS originally proposed a 10-year lookback period; repayment would have been required if identification occurred within 10 years of the overpayment. The final rule reduces this period to 6 years. The final regulations are not retroactive; providers that reported and/or returned overpayments prior to the effective date of the final regulations (March 14, 2016) and that made a good faith effort to comply with the statutory 60-Day Rule are not expected to have complied with the new regulatory requirements. Significantly, this means that overpayments that have already been reported to a Medicare Administrative Contractor or through CMS’s Voluntary Self-Referral Disclosure Protocol (SRDP) will not be governed by the new 6-year lookback period. Until now, the SRDP has operated with a 4-year lookback period.
  
2. No More Shoulda Coulda Woulda

Health care providers often ask, “When am I obligated to investigate past claims for potential overpayments?” The final rule’s constructive knowledge standard helps address what CMS describes as the “ostrich defense” and underscores the importance of establishing clear procedures on how and when to investigate potential overpayments. CMS explains that a person “should have” determined an overpayment occurred “if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” The final rule does not define what constitutes “reasonable diligence,” but the agency explains in the preamble that it includes at least two elements: (a) “proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments,” and (b) reactive “investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.”

CMS acknowledges compliance programs are not uniform, but instead vary based on a provider’s size and complexity. But apathy will not be forgiven; CMS warns that “undertaking no or minimal compliance activities” creates exposure to liability under the 60-Day Rule “based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment.” 

3. Sometimes Two Equals Eight

The final rule allows providers a period of time to investigate and quantify potential overpayments before the 60-day clock begins ticking. Once a provider obtains credible information concerning a potential overpayment, the provider may undertake reasonable diligence to determine whether an overpayment has been received and to quantify the overpayment amount. The 60-day repayment period will only begin once the provider completes the reasonable diligence, or—if the provider fails to conduct reasonable diligence—the day the person received the credible information regarding the potential overpayment. Echoing the provider community’s comments, CMS acknowledges that reasonable diligence takes time, and that part of identifying an overpayment is quantifying the amount.

The regulatory text does not strictly define the amount of time a provider may take to conduct its investigation. In the preamble, however, CMS states that reasonable diligence “is demonstrated through the timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.” In the agency’s view, providers generally may have “[a] total of 8 months (6 months for timely investigation and 2 months for reporting and returning)” from the day they first obtained obtaining credible information of a potential overpayment.

According to the commentary “extraordinary circumstances” can extend the period for investigating credible information of an overpayment. CMS acknowledges that this is a fact-specific question, noting that “unusually complex investigations” may require more time. Regardless of the time taken for an investigation, CMS advises, “it is certainly advisable … to maintain records that accurately document … reasonable diligence efforts” to demonstrate compliance with the rule.

4. Wait for the Big One

If a provider identifies a single overpaid claim, does the 60-day clock begin to run as to that overpayment? Fortunately, CMS believes that if a provider finds such a claim, it is appropriate to determine whether there are more overpayments on the same issue before quantifying the total overpayment and making the repayment. This means that if probe samples are taken as part of a provider’s compliance activities, the provider may continue to investigate and make appropriate conclusions and extrapolations before the provider will be considered to have identified an overpayment. 

5. Who Ya Gonna Call? Not DOJ

Providers obviously have the option of making a disclosure and repayment to a Medicare Administrative Contractor within sixty days of identification of the overpayment.  However, the disclosure obligation is also satisfied if a provider submits a voluntary disclosure under the OIG’s Self-Disclosure Protocol (SDP) or CMS’s SRDP. If negotiations conclude absent a settlement, the tolling ceases and the 60-day clock continues to run from the point the provider withdraws from the SDP or SRDP. Self-disclosure to other enforcement agencies like the Department of Justice will not toll the 60-day period.