As part of its 2025 Physician Fee Schedule Final Rule (PFS Rule), the Centers for Medicare & Medicaid Services (CMS) finalized two crucial updates to federal Medicare overpayments regulations (sometimes referred to as the “60-Day Rule”) that (1) align the standard for when an overpayment is identified with the applicable standard under the False Claims Act (FCA), and (2) give health care providers up to 180 days to conduct good faith investigations to determine the existence of related overpayments after identifying an overpayment, respectively. 

These two changes address areas of significant uncertainty for health care organizations in recent years. Previously, there was uncertainty concerning the standard for “reasonable diligence” for identifying overpayments and how that standard squared with the FCA’s knowledge (scienter) requirement for liability thereunder. In addition, the changes also indicate there is an expectation by the government that, upon identifying an overpayment, health care organizations conduct timely good faith investigations to determine the existence of related overpayments to fulfill their 60-Day Rule obligations.

Medicare Overpayments Rule & Reasonable Diligence Standard

As a reminder, the 60-Day Rule was established as part of the Affordable Care Act (ACA) and requires a health care provider that receives an overpayment to report and return the overpayment by the later of (i) 60 days after the provider identifies the overpayment or (ii) the date any corresponding cost report is due. Failure to report and return an overpayment in a timely manner subjects the provider to significant potential liability under the FCA for a so-called “reverse false claim” for wrongful retention of the overpayment. However, the ACA did not define when an overpayment has been “identified.” This issue was addressed in rulemaking by the CMS in 2014 (for Medicare Parts C and D) and 2016 (for Medicare Parts A and B), wherein the CMS indicated that a provider “identifies” an overpayment when it determines, or should have determined, that the provider received an overpayment (this exercise is referred to as the “reasonable diligence” standard).

In 2018, a federal court overturned the reasonable diligence standard for Medicare Parts C and D in response to litigation brought by Medicare Advantage organizations. The court held that the reasonable diligence standard impermissibly established FCA liability for “mere negligence” and noted that the FCA had a specifically-defined knowledge standard that does not encompass negligence.

Updated Knowledge Standard for Identifying Overpayments

In response to the federal court’s ruling, and to promote consistency across Medicare programs, in December 2022, the CMS proposed updating its 60-Day Rule regulations to align the knowledge standard for identifying an overpayment with the standard under the FCA (please see here for our previous discussion of that proposed rule).

In the PFS Final Rule, CMS has finalized its proposal without changes. As of January 1, 2025, under the 60-Day Rule, a person has identified an overpayment when the person:

1. Has actual knowledge of an overpayment;
2. Acts in deliberate ignorance of the truth or falsity of information regarding the overpayment; or
3. Acts in reckless disregard of the truth or falsity of information regarding the overpayment.

Updated Reporting Deadline to Permit Good Faith Investigation of Related Overpayments

In the PFS Final Rule, the CMS also provides additional guidance and finalizes regulations concerning providers’ potential obligation to determine the existence of related overpayments upon identifying an overpayment. The CMS acknowledges the challenge in determining when the 60-day “clock” starts for reporting and returning an overpayment. 

The CMS states that the 60-day period begins when a provider “has actual knowledge of the overpayment” or if the provider “acts in deliberate ignorance or reckless disregard of the existence of the overpayment,” that period starts when the provider “acted in deliberate ignorance or reckless disregard of the truth or falsity of information regarding the overpayment.”

A lingering question for many health care organizations has been whether, upon discovering a single overpayment, the organization has an obligation under the 60-Day Rule to investigate whether an underlying compliance issue could have resulted in other overpayments. The CMS responds affirmatively in the PFS Final Rule, stating “we agree… that where a single overpayment is found and other related overpayments are suspected, the provider or supplier should investigate and calculate the aggregate overpayment prior to its return.”

Consequently, the CMS is finalizing a related regulation under the 60-Day Rule, which “suspends the 60-day report and return obligation for up to 180 days, to allow persons time to complete a good-faith investigation to determine the existence of related overpayments that may arise from the same or similar cause or reason as the initially identified overpayment.” In other words, the 60-day clock can be delayed for up to 180 days to allow providers time to conduct a good faith investigation of potential related overpayments to ensure a comprehensive reporting and returning of overpayments.

Conclusion

The 60-Day Rule updates in the PFS Final Rule provide important guidance and assurances to health care organizations regarding the standard for identifying overpayments and the government’s expectations for providers to proactively investigate, identify, and return such overpayments. Health care organizations should carefully review the final 60-Day Rule regulations and preamble commentary guidance from the CMS and update their compliance processes accordingly in order to mitigate the potential risk of FCA liability and whistleblower lawsuits for reverse false claims.