On Feb. 11, the Centers for Medicare & Medicaid Services (CMS) published a final rule relating to the overpayment providers receive from federally funded health care programs. While the rule eases some of the burden for providers to report and return overpayments, it reinforces the expectation that providers and suppliers regularly account for overpayments and issue refunds when and as due. Deviation from the rule could expose health care providers to False Claims Act (FCA) liability.

The win for providers is that the final rule considerably reduces the time period providers and suppliers need to look back for excess reimbursement. The proposed rule had a lookback period of 10 years to align with the maximum time for bringing an FCA action, but the final rule shortened the lookback period to 6 years. The final rule also clarifies the meaning of overpayment identification and now includes quantifying the amount of the overpayment as part of the definition of identification. This is a significant win for providers and suppliers in a climate where increased scrutiny and stricter regulations are prevalent and FCA liability in the health care sector is a constant threat. However, health care providers must be vigilant in identifying and accounting for overpayments.

In February 2012, CMS published a proposed rule concerning a provider or supplier’s obligation to return overpayments. This became known as the “60-day rule.” The rule created great concern in the health care industry because it called for a lookback period of 10 years for providers to identify overpayment from Medicare. Further, the proposed rule did not allow time for the recipients to quantify the amount of the overpayment.

The 60-day rule implements a provision of the Affordable Care Act (ACA) that requires the receiver of a Medicare or Medicaid overpayment to report and return the overpayment by the later of 60 days after the overpayment was identified or the date any corresponding cost report is due. The ACA also made retaining an overpayment past the deadline the basis for FCA liability by making the retention of the overpayment an “obligation” under the FCA’s reverse false claim provision.

Under the proposed rule, overpayment identification was deemed to occur if a health care provider or supplier had actual knowledge of the existence of the overpayment or acted in reckless disregard or deliberate ignorance of the overpayment. This mirrored the definition of “knowledge” under the FCA. Under the final rule, overpayment identification occurs when a provider or supplier “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.” CMS said the change from the proposed rule to the final rule was in response to commentator concerns that an overpayment must be quantified before it can be reported and returned. The final rule notes that “part of identification is quantifying the amount, which requires a reasonably diligent investigation.”

The final rule’s definition of overpayment identification is in direct contrast with the August 3, 2015 decision out of the Southern District of New York where the Court ruled that overpayment identification occurred when the provider was “put on notice of a potential overpayment.” (Kane ex rel. United States et al. v. Healthfirst et al., Case No. 1:11-cv-02325) The Court ruled that the legislative history of the FCA indicated the intent for “FCA liability to attach when, as here, there is an established duty to pay money to the government, even if the precise amount is not determined.” The Court noted that to rule otherwise would create “a perverse incentive to delay learning about the amount due and relegating the sixty-day period to merely the time within which [the providers] would have to cut the check.” The Court noted that “prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned health care providers working with reasonable haste to address erroneous overpayments,” and that actions against well-intentioned providers who miss the 60-day deadline “would be inconsistent with the spirit of the law and would be unlikely to succeed.”

The final rule provides some much needed relief for health care providers and suppliers who are facing constant scrutiny and great exposure to FCA liability. Yet, the rule is an enforcement of the expectation that health care providers and suppliers have comprehensive processes in place to regularly identify and account for overpayments and issue refunds. Providers and suppliers should have a plan associated with recoupments, take backs, overpayments, and the like and sophisticated processes in place to address these issues on a daily basis.