The long awaited Final Rule on return of Medicare overpayments (Final Rule) issued by the Centers for Medicare & Medicaid Services (CMS) took effect on March 14, 2016. The Final Rule applies to Medicare Part A and Part B providers and suppliers. We are still waiting on the final rule for reporting and repaying Medicaid overpayments.

The Final Rule implemented the overpayment reporting and refund provisions of the Patient Protection and Affordable Care Act, which requires providers to report and refund overpayments within 60 days after the date on which the overpayment was identified or the date on which any corresponding cost report is due, whichever is later. Compliance with these requirements is crucial as failure to return a known overpayment is a basis for liability under the Federal False Claims Act (FCA). The three key requirements that the Final Rule clarified and which all providers participating in Medicare Part A and Part B must know are: (a) when is an overpayment identified by a provider, (b) what is the required lookback period for returning overpayment, and (c) what process must be used to refund an overpayment.

When is an overpayment identified?

The date on which a provider “identifies” an overpayment is critical as that determines when the 60-day clock to refund the overpayment starts to run. The Final Rule states that a provider has identified an overpayment if the provider (a) has, or should have through the exercise of reasonable diligence, determined that the provider has received an overpayment, and (b) has quantified the amount of the overpayment. According to CMS, a provider “should have” determined that the provider received an overpayment if the provider “fails to exercise reasonable diligence” and “in fact received an overpayment.”

Reasonable Diligence: Identifying a repayment obligation includes both an obligation to implement compliance activities to monitor proactively the receipt of potential overpayments, as well as to exercise reasonable diligence to investigate credible information regarding receipt of a potential overpayment. Investigations should be conducted in a timely manner and generally should not take more than six months from receipt of the credible information, except in extraordinary circumstances. CMS explained that a six-month benchmark for timely investigation was chosen because providers should make these investigations a priority, and yet CMS recognizes that completing these investigations requires the devotion of resources and time. CMS emphasized that receiving overpayments from Medicare is sufficiently important that providers should devote appropriate resources and attention to resolving these matters. CMS clarified that a total of eight months, specifically six months for timely investigation and two months for reporting and returning, is a reasonable amount of time, absent extraordinary circumstances affecting the provider. CMS explained that what constitutes extraordinary circumstances is a fact-specific inquiry and that examples of extraordinary circumstances include natural disasters or a state of emergency. In addition, CMS noted that the extraordinary circumstances may include unusually complex investigations that the provider reasonably anticipates will require more than 6 months to investigate. CMS advised providers to document their reasonable diligence efforts evidencing compliance with the Final Rule.

Quantification: With respect to quantifying the amount of the overpayment, CMS clarified that statistical sampling, extrapolation methodologies and other appropriate methodologies can be used. CMS noted that if an overpayment amount is extrapolated using a statistical sampling methodology, the overpayment report must explain how the overpayment amount was calculated.

What is the lookback period?

The Final Rule states that overpayments must be reported and returned only if a provider identifies the overpayment within six years of the date the overpayment was received. CMS established a lookback period to be six years, reasoning that this timeframe aligns with the FCA statute of limitations and noting that providers typically retain records for six to seven years consistent with applicable record retention requirements. Importantly, CMS also changed the lookback period from four years to six years for overpayments based on Stark Law violations, which providers disclose to CMS through the CMS Self-Referral Disclosure Protocol (SRDP). CMS clarified that the six year lookback period is not retroactive, and that providers who have previously returned an overpayment are not required to revisit their prior repayment obligations. However, as of March 14, 2016, all providers reporting and returning any overpayments, including the overpayments reported via SRDP, must comply with the Final Rule’s six-year lookback period.

How to report an overpayment

The Final Rule permits return of overpayments through the use of procedures established by Medicare Administrative Contractors. These procedures include claims adjustments, credit balance, self-reported voluntary refunds and other similar processes.

The Final Rule is now in effect, and it is imperative that providers engage in compliance activities to monitor receipt of potential overpayments, act promptly to investigate any credible information regarding potential overpayments and timely refund any overpayments to Medicare consistent with the requirements of the Final Rule.