HIGHLIGHTS:

  • The Centers for Medicare & Medicaid Services (CMS) will implement its Final Rule on the reporting and return of Medicare Parts A and B overpayments on March 14, 2016.
  • CMS guidance emphasizes the need for proactive compliance measures to help monitor for potential overpayments.
  • The standard 60-day timeframe for the reporting and return of overpayments will accommodate timely, good faith investigations of a potential overpayment, which can take up to six months from the receipt of credible information that a potential overpayment exists.

After more than four years since the issuance of its Proposed Rule,1 the Centers for Medicare & Medicaid Services (CMS) will implement its Final Rule on the reporting and return of Medicare Parts A and B overpayments, effective March 14, 2016.2 Although the reporting and return of Medicare overpayments has been required since the enactment of the Affordable Care Act (ACA) in 2010, this latest CMS guidance provides much needed clarity and consistency to enable provider and supplier compliance with these rules.

Section 1128J(d) of the Social Security Act requires a person who has received an overpayment to report and return the overpayment within either 60 days after the date on which the overpayment was identified or on the date any corresponding cost report is due, whichever is later. Failure to report and return an overpayment could subject a provider or supplier to liability under the False Claims Act or Civil Monetary Penalties Law, as well as potential exclusion from federal healthcare programs. Still, without the implementation of regulations or other guidance, Medicare providers and suppliers have struggled with the many different circumstances under which a potential overpayment could be implicated. We highlight the most significant guidance included in the Medicare Parts A and B Overpayments Final Rule below:

How Is an Overpayment Identified?

As set forth in the new 42 C.F.R. §401.305(a)(2), an overpayment is 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." Although CMS originally suggested in its Proposed Rule the use of a "reckless disregard or deliberate ignorance" standard to find constructive knowledge of an overpayment, CMS has instead adopted an "exercise of reasonable diligence" standard. Any failure to exercise this reasonable diligence triggers overpayment reporting and return obligations if the person has in fact received an overpayment.

What Is Reasonable Diligence?

CMS emphasizes that "reasonable diligence" includes both proactive, good faith compliance measures to monitor for overpayments as well as reactive and timely, good faith investigations conducted once the provider or supplier obtains "credible information" of a potential overpayment. Although CMS recognizes that compliance programs may vary in size, scope or activity based on the type of provider or supplier, it warns that "no or minimal compliance activities... would expose a provider or supplier to liability... based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment."

What Are the Obligations to Investigate?

Despite requests by commenters to define what constitutes the type of "credible information" that would trigger an investigation, CMS has chosen to allow a factual determination of the type of credible information that "supports a reasonable belief that an overpayment may have been received." Not every instance or complaint concerning a potential overpayment is necessarily considered credible. However, based on the examples cited in the Final Rule, the range of what is "credible" can be a single (but detailed) compliance hotline complaint or notification from a Medicare Administrative Contractor (MAC) of an improper cost report payment. CMS also indicates that scenarios in which "profits from a practice or physician were unusually high in relation to hours worked or the relative value units associated with the work" would trigger a similar duty to investigate.

CMS also directly addresses whether a provider or supplier must investigate further for additional overpayments if it finds a single overpaid claim. CMS states that reasonable diligence requires a provider or supplier "to inquire further to determine whether there are more overpayments on the same issue before reporting and returning the single overpaid claim." Specifically, "it is not appropriate for a provider or supplier to only return a subset of claims identified as overpayments and not extrapolate the full amount of the overpayment."

How Is an Overpayment Quantified?

An overpayment is not technically "identified" until the amount of overpayment is quantified. CMS expressly allows the use of "statistical sampling, extrapolation methodologies and other methodologies as appropriate to determine the amount of the overpayment, rather than identifying every claim." Still, providers and suppliers must calculate overpayments in a way that is "reliable and accurate." Similar to current voluntary reporting processes in place for Medicare, provider and suppliers must explain in an overpayment report how the amount of the overpayment was calculated if statistical and extrapolation methods are used. We also note that Medicare declined to adopt a de minimis exception for small-dollar overpayments, but is considering a minimum monetary threshold for cost report-related overpayments.

What Is the Timeframe for Reporting and Returning an Overpayment?

Although the statutory language imposing a 60-day deadline for the reporting and return of an overpayment is clear, deciding when the 60-day clock begins to tick has been the subject of much debate prior to this most recent guidance. The Final Rule clarifies that the 60-day timeframe begins either 1) when the exercise of reasonable diligence is completed, or 2) if there is a failure to exercise reasonable diligence, on the day when the person received credible information of a potential overpayment.

If an investigation is conducted as part of the provider or supplier's exercise of reasonable diligence, CMS will accommodate the time it takes to conduct such an investigation even if the investigation takes longer than 60 days. Despite earlier proposed language requiring that investigations be conducted "with all deliberate speed," CMS has instead opted for a specific benchmark for the duration of the investigation, stating that demonstration of reasonable diligence can be "a timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances," such as an unusually complex investigation. A provider or supplier could actually have up to eight months for reporting and returning the overpayment: six months for the timely investigation to conclude and an additional two months after its conclusion to report and return any identified overpayments. CMS also suspends the 60-day deadline for Office of the Inspector General (OIG) Self-Disclosure Protocol or CMS Voluntary Self-Referral Disclosure Protocol submissions, at least until those submissions are resolved through settlement, withdrawal or removal.

Similar to CMS's Final Rule on Medicare Advantage and Part D Overpayments (see Holland & Knight's alert, "CMS Announces Final Regulatory Changes to Medicare Advantage and Part D," June 4, 2014), CMS requires that overpayments must be reported and returned if a person identifies an overpayment within six years of the date the overpayment was received. CMS has adjusted its regulations related to reopenings to ensure accommodation of this new six-year lookback period.

How Are Overpayments Reported and Returned?

CMS has added several other mechanisms to report and return overpayments beyond their existing voluntary refund process, allowing for claims adjustment, credit balance or other reporting processes made available by the applicable MAC. A provider may also satisfy reporting obligations through disclosure and settlement under the OIG Self-Disclosure Protocol or CMS Voluntary Self-Referral Disclosure Protocol. In addition to these methods, CMS will also allow providers and suppliers to request a voluntary offset from the MAC instead of returning an overpayment by a check enclosed with an overpayment report.

Consistent with Medicare Advantage and Part D overpayment regulations, if a potential overpayment is identified and corrected before "applicable reconciliation," no overpayment exists, even if interim payments have been made during the year based on estimated costs. Applicable reconciliation occurs when a cost report is filed or – in cases where the provider receives more recent CMS information on the Supplemental Security Income (SSI) ratio or knows that outlier reconciliation will be performed – when final reconciliation of the provider's cost report occurs.

On a final note, CMS specifically addresses overpayments that may arise due to a violation of the Anti-Kickback Statute. If the provider or supplier is not a party to the violation but has sufficient knowledge that an overpayment may exist, CMS states that the provider or supplier should still report the overpayment. CMS would in turn report the overpayment to the OIG and suspend the repayment obligation until resolution of the violation, which could include the OIG's decision to take no additional action or through a judgment, verdict, conviction, plea or settlement. CMS expects that only the parties to the kickback scheme would be required to return the overpayment reported by an innocent provider or supplier, except in the most extraordinary circumstances.