On February 16, 2012, CMS published a proposed rule to implement an ACA provision requiring enrolled providers and suppliers (and certain other enrollees) receiving Medicare funds to report and return Medicare overpayments by the later of 60 days after the date on which the overpayment was identified or, if applicable, the date any corresponding cost report is due. Although the requirement to refund an overpayment already exists in federal law, the proposed rule clarifies what constitutes “identification” of an overpayment, the mechanics of when and how an overpayment must be returned, and the period of time subject to repayment. An overview of the proposed rule follows.

CMS proposes to use the existing voluntary refund process, which it will rename as the “self-reported overpayment refund process.” When a provider or supplier reports an overpayment to a Medicare contractor the report must address 13 questions, including specific information concerning the overpaid claims, how the error was discovered, the reason for the overpayment and a description of the corrective action plan to ensure the error does not occur again. CMS indicates in the preamble that it plans to develop a uniform reporting form; in the interim, providers and suppliers are instructed to use Medicare contractors’ existing forms and processes.

The 60-day time period to report and return overpayments would begin on the date on which the provider or supplier identifies the overpayment. In some cases, a provider or supplier will receive information that creates an obligation to make a reasonable inquiry to determine whether an overpayment exists. If that inquiry reveals an overpayment, the provider then has 60 days to report and return the overpayment. CMS adds that failure to make a reasonable inquiry, including failure to conduct an inquiry “with all deliberate speed after obtaining the information” (such as a compliance hotline telephone complaint) could result in the provider or supplier knowingly retaining an overpayment since it acted in reckless disregard or deliberate ignorance of whether it received such an overpayment.

CMS provides several examples of instances when an overpayment has been “identified” and requires repayment, such as instances in which the provider or supplier: (1) reviews billing or payment records and learns that it incorrectly coded certain services, resulting in increased reimbursement; (2) learns that a patient death occurred prior to the service date on a submitted claim; (3) learns that services were provided by an unlicensed or excluded individual on its behalf; (4) performs an internal audit and discovers that overpayments exist; (5) is informed by a government agency of an audit that discovered a potential overpayment, and the provider or supplier fails to make a reasonable inquiry; or (6) experiences a significant increase in Medicare revenue and there is no apparent reason for the increase.

CMS also discusses situations in which overpayments arise due to a violation of the anti-kickback statute. CMS recognizes that “in many instances, a provider or supplier is not a party to, and is unaware of the existence of, an arrangement between third parties that causes the provider or supplier to submit claims that are the subject of a kickback.” CMS uses the example of a hospital that “may be unaware that a device manufacturer has paid a kickback to a physician on the hospital’s medical staff to induce the physician to implant the manufacturer’s device in procedures performed at the hospital.” CMS observes that even if the provider or supplier becomes aware of a potential third party payment arrangement, it generally would not be able to evaluate whether the payment was an illegal kickback or whether the parties had the requisite intent to violate the anti-kickback statute. CMS therefore specifies that “providers who are not a party to a kickback arrangement are unlikely in most instances to have “identified” the overpayment that has resulted from the kickback arrangement and would therefore have no duty to report it or . . . to repay it.” On the other hand, “[t]o the extent that a provider or supplier who is not a party to a kickback arrangement has sufficient knowledge of the arrangement to have identified the resulting overpayment, the provider or supplier must report the overpayment.” In either case, CMS’s “expectation is that only the parties to the kickback scheme would be required to repay the overpayment that was received by the innocent provider or supplier, except in the most extraordinary circumstances.”

The proposed rule would require providers and suppliers to report overpayments that occurred within a 10-year lookback period, which, according to CMS, corresponds to the statute of limitations under the False Claims Act (FCA). For hospitals and other providers submitting cost reports, CMS proposes an amendment to the cost reporting rules to allow reopenings related to overpayments reported and returned in accordance with the proposed rule. We would point out that for many providers and suppliers, the 10-year period may extend well beyond their current document retention policies and procedures. In addition, the FCA statute of limitation may be less than 10 years under certain circumstances. Any person who knowingly conceals or knowingly and improperly avoids an “obligation” to repay the government may be found liable under the FCA, and subject to fines of not less than $5,500 or more than $11,000 per claim, plus treble damages. Liability can also form the basis for administrative sanctions under the Civil Monetary Penalties Law, including exclusion from the Medicare program. Providers and suppliers that are unable to immediately repay large overpayments are warned that they may not delay reporting the overpayment, but instead must make the report within 60 days and use the existing Extended Repayment Schedule process to develop a repayment schedule for the overpayment. Comments on the proposed rule will be accepted through April 16, 2012.