Secondary Payer Refunds, Overpayments and Obligations

CMS’s new rule regarding the reporting and returning of Medicare overpayments (effective March 14, 2016) makes clear that secondary payer refunds owed by health care providers to Medicare may become overpayments for purposes of the new rule. Without sufficient oversight, such overpayments may expose a health care provider to liability under the Civil Monetary Penalties Law (“CMPL”) and the False Claims Act (“FCA”). Specifically:

  • If a health care provider does not pay a secondary payer refund owed to Medicare within the period required by the secondary payer regulations,1,2 the unpaid refund becomes an “overpayment” under the overpayment rule (for purposes of this article, this type of overpayment is hereinafter referred to as an “unpaid refund/overpayment”).
  • The overpayment rule requires that a health care provider report and return an unpaid refund/overpayment to Medicare within the earlier of 60 days after the health care provider:

(i) Determined that the unpaid refund/overpayment (and the amount of the unpaid refund/overpayment) was not paid to Medicare within the period required by the secondary payer regulations; or

(ii) Should have determined, through the exercise of “reasonable diligence,” that the unpaid refund/overpayment (and the amount of the unpaid refund/overpayment) was not paid to Medicare within the period required by the secondary payer regulations.

  • If a health care provider “knows”3 that it is in possession of an unpaid refund/overpayment and does not report and return it to Medicare within the above-described applicable 60-day period, the provider may incur penalties under the CMPL.4
  • If a health care provider does not report and return an unpaid refund/overpayment within the above-described applicable 60-day period, the overpayment rule provides that the unpaid refund/overpayment becomes an “obligation” under the FCA (for purposes of this article, this type of obligation is hereinafter referred to as an “unpaid refund/obligation”). The provider may incur penalties under the FCA for failing to pay the unpaid refund/obligation to Medicare.5,6 

The Importance of Proactive Compliance Activities

As noted, the period for reporting and returning an unpaid refund/overpayment is 60 days from the date the health care provider determines, or should have determined through the exercise of “reasonable diligence,” whichever is earlier, that the unpaid refund/overpayment (and the amount of the unpaid refund/overpayment) was not paid to Medicare within the period required by Medicare’s secondary payer regulations.

By operation of the overpayment rule, if a health care provider does not exercise reasonable diligence in determining when it fails to pay secondary payer refunds within the period required by the secondary payer regulations and, in fact, an instance occurs where the provider fails to pay a refund within the required period, the provider, according to CMS, “should have” determined that the refund was not timely paid to Medicare under the secondary payer regulations.7 Stated differently, for a health care provider that is unaware that it is in possession of a secondary payer refund that was not paid to Medicare within the period required by the secondary payer regulations, the provider may be excused from the overpayment rule’s requirement to report and return the unpaid refund/overpayment (and thereby avoid potential liability under the CMPL and the FCA in the event the provider does not report and return the unpaid refund/overpayment within the overpayment rule’s applicable 60-day period) so long as the provider is exercising reasonable diligence in determining when such refunds are not timely paid to Medicare under the secondary payer regulations.

According to CMS, reasonable diligence includes proactive compliance activities by qualified individuals to monitor for the receipt of overpayments, as well as investigations conducted in good faith and in a timely manner in response to obtaining credible information of a potential overpayment.CMS maintains that health care providers “have a clear duty to undertake proactive activities to determine if they have received an overpayment or risk potential liability for retaining such overpayment.”9 After a health care provider finds a single overpaid claim, CMS expects the provider “to inquire further to determine whether there are more overpayments on the same issue before reporting and returning the single overpaid claim.”10 Examples of proactive compliance activities recognized by CMS include self-audits, internal statistical analysis, compliance checks and “other additional research.”11

Practical Takeaways

To avoid potential exposure under the CMPL and the FCA resulting from a failure to report and return to an unpaid refund/overpayment within the above-described applicable 60-day period, health care providers should incorporate within their current compliance programs proactive compliance activities that focus on ensuring: (i) the identification of secondary payer refunds owed to Medicare; (ii) the payment of secondary payer refunds to Medicare within the period required under the secondary payer regulations; and (iii) that, in the event a refund is not paid to Medicare within the period required under the secondary payer regulations, the resulting unpaid refund/overpayment is paid to Medicare within 60 days from the date the health care provider determines, or should have determined through the exercise of reasonable diligence, whichever is earlier, that the unpaid refund/overpayment (and the amount of the unpaid refund/overpayment) was not paid to Medicare within the period required by the secondary payer regulations.