The Centers for Medicare & Medicaid Services (CMS) published the Reporting and Returning of Overpayments Final Rule (Final Rule) on February 12, 2016.1 The Final Rule implements section 6402(a) of the Affordable Care Act which requires a person enrolled in the Medicare program as a provider or supplier (e.g., a hospital or a physician) who has received an overpayment through Medicare Part A or Part B to report and return the overpayment using one of the processes described below. The overpayment must be reported and returned by the later of (A) 60 days after the date on which the overpayment was identified; or (B) the date any corresponding cost report is due. If the overpayment is not returned within the required time, the provider or supplier may become liable for the amount of the overpayment and any applicable civil penalties and damages under the False Claims Act. The Final Rule is effective March 14, 2016.

While the Final Rule clarifies and relaxes key aspects of the regulations initially proposed by CMS, it also imposes certain affirmative obligations on providers and suppliers:

  • Applies only to Medicare Parts A and B 

The Final Rule applies only to payments made to providers and suppliers under the Medicare Part A or Part B programs. Medicare Part C and Part D overpayments are addressed separately in a final rule published May 23, 2014. No final rule has been published that addresses the reporting and return of Medicaid overpayments.

  • Six Year Lookback Period 

CMS shortened the lookback period in the Final Rule from 10 years to six years.2 This means that providers and suppliers are required to report and return within 60 days only those overpayments identified within six years of the date the overpayment was received.

  • Identification of Overpayments 

The Final Rule specifies that overpayments are not identified until they have been quantified. Specifically, a person is considered to have 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."3

  • Reasonable Diligence Required 

The Final Rule requires that providers and suppliers exercise reasonable diligence in the investigation and quantification of overpayments. The Final Rule defines reasonable diligence as the timely, good faith investigation of credible information within six months of the receipt of the credible information, except in extraordinary circumstances. CMS further states that it is "certainly advisable for providers and suppliers to maintain records that accurately document their reasonable diligence efforts" to demonstrate compliance.4

  • Proactive Compliance

CMS also clarifies in the Final Rule that in addition to investigations conducted in response to credible information, "reasonable diligence" also requires "proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments."5

  • Methods of Reporting and Returning Overpayments 

In contrast to CMS's initial proposal which required providers and suppliers to use the "voluntary refund process" to disclose identified overpayments, the Final Rule allows providers and suppliers to report and return overpayments through several different processes depending on the type of provider or supplier involved and the reason for the overpayment. Available processes through which overpayments may be reported and returned include: the Department of Health and Human Services Office of Inspector General Self-Disclosure Protocol (SDP), the CMS Voluntary Self-Referral Disclosure Process (SRDP), claims adjustment process, credit balance process, self-reported refund process or "another appropriate process."6

CMS narrowed the application of the Final Rule in many ways. It only applies to payments made under the Medicare Part A or Part B programs. The lookback period was shortened from 10 to six years. Overpayments are not considered identified until they have been quantified. CMS also expanded the available means for providers and suppliers to report and return an overpayment, making it easier for providers and suppliers to do so. The Final Rule also clarified CMS's expectations regarding investigation and monitoring of overpayments by obligating providers and suppliers to exercise reasonable diligence by investigating credible information regarding overpayments in a timely, good faith manner and engage in proactive compliance activities.