The Final Rule on Reporting and Returning of Overpayments (“Final Rule”), which became effective on March 14, 2016, requires Medicare providers to report and return Medicare overpayments by the later of (i) 60 days after the date on which the overpayment was identified, or (ii) the date on which any corresponding cost report was due. This 60-day deadline for returning overpayments is suspended when any of the following occurs:

  1. The OIG acknowledges receipt of a submission to the OIG Self-Disclosure Protocol;
  2. CMS acknowledges receipt of a submission to the CMS Voluntary Self-Referral Disclosure Protocol; or
  3. A person requests an extended repayment schedule as defined in 42 CFR Section 401.603.

When is an overpayment identified? CMS regulations provide 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. 42 CFR Section 401.305(a)(2). Therefore, in order for there to have been identification of an overpayment, the provider needed to determine that there was an overpayment and had to calculate the amount of the overpayment. If a provider (1) fails to exercise reasonable diligence after receiving credible information regarding a potential overpayment and (2) in fact receives an overpayment, then the 60-day reporting timeline begins to run on the day the provider received the credible information.

The government believes that providers may meet the standard of reasonable diligence through good faith investigation of credible information which is “at most six (6) months from receipt of the credible information, except in extraordinary circumstances.” 81 FR 7654, 7662.

The government considered but rejected adopting “a reasonable period of time to investigate” standard because CMS concluded that an open-ended time frame would likely be viewed as no more clear than the “all deliberate speed” standard originally suggested in the proposed regulation. The government believes 6 months is a fair benchmark for timely investigation because providers and suppliers should prioritize these investigations. CMS believes that resolving overpayments is “sufficiently important that providers and suppliers should devote appropriate attention resolving these matters.” 81 FR 7654, 7662.

CMS believes that 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 the community. Id. CMS does not explain what it believes constitutes extraordinary circumstances. CMS concludes that what constitutes extraordinary circumstances is a fact specific question, but may include unusually complex investigations such as the physician self-referral law, natural disasters or a state of emergency.

Kane vs. Healthfirst, Inc., et al No. 1:11-CV-02325 (S.D.N.Y. 2015), the first False Claims Act (“FCA”) case to be filed for violating the 60-Day Rule on overpayments, was recently settled. St. Luke’s Roosevelt Hospital, Mount Sinai Beth Israel Hospital and Continuum Health Partners, Inc. agreed to pay approximately $3 million to resolve allegations that they violated the 60-day repayment rule, and therefore the FCA, by knowingly retaining certain overpayments past the 60-day report and refund deadline.

The facts in this matter are fairly simple. In September of 2010, the New York office of the State Comptroller notified Continuum Health Partners, Inc. (“Continuum”), which formerly operated the co-defendant hospitals, that there was a software error that allowed Continuum and others to wrongly bill Medicaid as a secondary payor. In February of 2011 Continuum and certain hospitals became aware of the extent of the overbilling because of an internal investigation conducted by a Continuum employee, Robert Kane. The investigation revealed that there were approximately 900 specific claims totaling over $1 Million that had been wrongly submitted to and paid by Medicaid as a secondary payor.

The Government's complaint alleges that Continuum terminated Kane on February 8, 2011, did nothing substantial with Kane’s analysis, and only made minor reimbursements for improperly submitted claims. According to the Government’s complaint, Continuum only reimbursed the Department of Health for approximately 300 affected claims in and after June of 2012 – only after the Government issued a Civil Investigative Demand ("CID") to Continuum – and made final payments in March of 2013, over two years after Continuum knew of the extent of the overpayments.

If we apply the Final Rule to the Kane facts, it is reasonable to argue that in September of 2010, when the New York Comptroller’s office identified that there was a software glitch that caused overbilling, the 6-month period of reasonable diligence commenced. Certainly when Kane completed his analysis of the problem in February of 2011, the 60-day period to quantify and report started to run. The lesson of the Kane settlement and the Final Rule is that compliance officers now have to complete their investigation on a more rigorous track to actually comply with this 8-month safe harbor.