In response to comments on the 2022 proposed changes to the overpayments regulation, the Centers for Medicare & Medicaid Services (CMS) proposed additional changes to the overpayment rule to clarify that the obligation to report and return requires quantification of the overpayment as part of identification. However, CMS proposed a strict time period for conducting reviews of overpayment issues. Under the proposed rule, the statutory 60-day clock would start to run either on the date of completion of the investigation or 180 days from the date on which the initial overpayment was identified, whichever is earlier. This proposal raises several questions and appears contrary to the overpayment statute.

In Depth

BACKGROUND AND PRIOR PROPOSED RULE

On July 31, 2024, CMS published the calendar year 2025 Medicare Physician Fee Schedule proposed rule, which contains an important proposal related to potential changes to the regulations for reporting and returning Medicare Part A and Part B overpayments. For a discussion of additional topics in this 2024 proposed rule, see this article by our McDermott+ colleagues.

Following changes made by the Affordable Care Act, Section 1128J(d) of the Social Security Act requires a person who has received an overpayment to report and return the overpayment, as appropriate, and to report the reason for the overpayment. Overpayments are required by statute to be reported and returned by the later of:

• 60 days after the date on which the overpayment is identified or
• The date any corresponding cost report is due, if any.

The current regulations provide a definition for when a provider has “identified” an overpayment at 42 C.F.R. § 401.305(a)(2). An overpayment has been “identified” when a provider “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.” The regulation further clarifies that a provider will be deemed to have identified an overpayment if the provider “fails to exercise reasonable diligence and the [provider] in fact received an overpayment.”

In December 2022, CMS first proposed to amend its overpayment regulations to revise the “identified” definition, specifying when a provider has “knowingly receives or retains an overpayment.” This 2022 proposed rule would define the terms “knowing” and “knowingly” to have the same meaning as under the federal False Claims Act (FCA). 42 U.S.C. § 1320a-7k(a)(d)(4)(A). The 2022 proposal would remove the current “reasonable diligence” standard and instead would adopt by reference the definitions of “knowing” and “knowingly” established by the FCA. See 31 U.S.C. § 3729(b)(1)(A). We previously analyzed the 2022 proposed rule here.

CMS has not yet finalized the proposals set forth in the 2022 proposed rule with respect to Medicare overpayments under Parts A and B. After reviewing (and while continuing to review) the public comments received in response to the 2022 proposed rule, CMS retained its original proposals to modify the regulations for Medicare Parts A and B as set forth in the 2022 proposed rule and added further proposed changes in the 2024 proposed rule. CMS plans to respond to the comments received in response to both the 2022 proposed rule and the 2024 proposed rule in a final rule.

CMS proposed to modify its regulations in part to respond to a ruling from the US District Court for the District of Columbia, which held that, as applied to Medicare Part C plans, the “reasonable diligence” standard in the current overpayment regulations promulgated by CMS impermissibly established FCA liability for mere negligence. UnitedHealthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173, 191 (D.D.C. 2018), rev’d in part on other grounds sub nom. UnitedHealthcare Ins. Co. v. Becerra, 16 F. 4th 867, cert. denied, 142 S.Ct. 2851. Although the ruling in that case applied only to Part C plans, CMS issued the 2022 proposed rule in an effort to align the Part A and Part B overpayment rules with the district court’s decision, which CMS views “as having invalidated the definition of ‘identified’ set out at 42 C.F.R. § 442.326(c).”

2024 PROPOSED RULE: POTENTIAL CHANGES TO DEADLINE TO REPORT AND RETURN OVERPAYMENTS

In addition to the 2022 proposals, which CMS emphasized remain under consideration, CMS proposed further changes to the deadline for reporting and returning overpayments, and clarified certain circumstances that will extend the deadline for a provider who has identified an overpayment.

If finalized, in addition to the existing reasons that the deadline to report and return an overpayment would be suspended, the deadline would be suspended if:

• “[A] person has identified an overpayment but has not yet completed 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” and
• “[T]he person conducts a timely, good-faith investigation to determine whether related overpayments exist.” 42 C.F.R. § 401.305(b)(3)(i)(A).

The 2024 proposed rule would add a new deadline at Section 401.305(b)(3)(ii) if the conditions at proposed new Section 401.305(b)(3)(i) are satisfied. A provider would have up to 180 days to investigate whether there are the “same or similar” overpayments. If the conditions are satisfied, then the deadline for reporting and returning the initially identified overpayment and related overpayments that arise from the same or similar cause or reason would remain suspended until the earlier of:

• The date that the investigation of related overpayments concludes and the aggregate amount of the initially identified overpayments and related overpayments is calculated or
• The date that is 180 days after the date on which the initial identified overpayment was

CMS stated that these proposals are in response to comments received on the 2022 proposed rule that expressed concern regarding CMS’s proposals to remove the term “quantified” from the original regulatory text and to remove the ability for providers to investigate whether an “overpayment” has been received. This commentary was included in the 2016 Federal Register preamble to the original overpayment regulations. CMS believes that the 2024 proposals, especially proposed Section 401.305(b)(3)(ii)(A), would address these concerns.

CMS provided the following example to demonstrate how an overpayment must be reported and returned under the 2024 proposed rule:

• Day 1: A person identifies an overpayment arising from a physician’s failure to properly document the medical record to support the coding of a specific claim, and the person who identified the overpayment has reason to believe that this may be a common practice of the physician. Therefore, there may be more claims affected by the same issue.
  • Scenario 1: The person has up to 180 days to conduct and conclude a good faith investigation to determine whether related overpayments that arise from the same or similar cause or reason as the initially identified overpayment exist. The suspension ends when the investigation is concluded and the initial overpayment and related overpayments, if any, are calculated, or by day 180, whichever is earlier. The overpayment must be reported and returned within 60 days after either completion of the investigation or day 180, whichever is earlier. CMS notes that the newly proposed suspension period for good faith investigations is not mutually exclusive of other potentially applicable reasons for suspension already promulgated at Section 305(b)(2). CMS provides the example of a person who is reporting the overpayment to the Office of Inspector General self-disclosure protocol, which may further suspend the overpayment report and return requirement in accordance with the provision at Section 401.305(b)(2)(i).
  • Scenario 2: If an investigation is not conducted, or the investigation is not timely or conducted in good faith, then the identified overpayment must be reported and returned no later than 60 days after the identification of the initial overpayment.

ANALYSIS

The 2024 proposed rule is intended to address commenters’ concerns over when an overpayment is deemed to have been “identified” in light of the removal of the quantification standard in the 2022 proposed rule and the lack of clarity on having a reasonable period of time to conduct investigations into potential overpayments. However, the 2024 proposed rule could be read to contain a new and stricter timeline for both conducting and completing investigations into potential overpayments, which raises several new interpretative questions as well as serious questions about whether the proposal is consistent with the statute.

While CMS described commenters’ concerns about a “perceived 6-month time period” in the 2016 preamble, the preamble expressly states that CMS “chose 6 months as the benchmark for timely investigation” into potential overpayments. CMS also recognized in the regulatory preamble that it may reasonably take longer than six months to complete an investigation to determine whether there is an identified overpayment in “extraordinary circumstances.” CMS stated that “[w]hat constitutes extraordinary circumstances is a fact specific question. Extraordinary circumstances may include unusually complex investigations that the provider or supplier reasonably anticipates will require more than six months to investigate, such as physician self-referral law violations . . . natural disasters or a state of emergency.” CMS originally adopted this benchmark time period approach instead of setting a hard deadline in response to commenters’ concerns that the 2012 proposed rule did not address the practical reality that providers and suppliers face in their day-to-day compliance activities. Commenters noted that it often takes a considerable amount of time to investigate credible information of a potential overpayment, confirm that an overpayment exists and then quantify the amount. All of these concerns remain valid.

The example that CMS provided in the 2024 proposed rule reflects the simplest version of an overpayment investigation. In reality, it may take considerably longer to investigate whether a provider has identified an overpayment or to quantify any related overpayments. This is particularly true in the event of large and complex overpayment matters that may involve multi-year, statistically valid coding and billing audits or matters involving extrapolation. Similarly, this time period may be insufficient to permit a provider to analyze and resolve Stark Law matters.

The 2024 proposed regulatory language also introduces ambiguity, as it appears to contemplate that the deadline for returning overpayments is suspended before certain overpayments have been “identified” but while an investigation is ongoing. CMS acknowledges in the 2024 proposed rule that overpayment investigations may involve more complicated factual scenarios, such that a provider may now be obligated to refund the “identified” portion of a multipart overpayment while the investigation into any related overpayments is ongoing. For example, if a provider has initially “identified” an overpayment but believes that there may be additional related overpayments (on the same or similar facts), the provider may be obligated to repay the initially identified overpayment while investigating whether there are related overpayments (within the 180-day period).

As commenters noted in 2012, it often takes the most diligent organization longer than six months to complete an investigation or audit a potential compliance issue and quantify the amount of any resulting overpayment. Generally, if an organization can show a reasonably diligent effort to evaluate the issue and quantify the amount, the amount of time for this review is not solely determined by whether such effort was reasonable. The six-month benchmark has historically served as a useful guidepost in advising organizations on these matters and in structuring compliance reviews. While attempting to provide clarity, CMS’s proposal to establish a bright-line, definitive deadline for investigations to be completed, before the 60-day window to report and return any resulting overpayments begins, does not take into account the concerns described above.

Finally, the legal support for the proposal is suspect because the proposed rule appears to create a deadline for reporting and returning related overpayments that have not been identified. The statute says the 60 days to report and return starts to run from identification of the overpayment (which, practically, must include quantification). The proposal appears to try to start the 60-day clock for the related, but unidentified, overpayments by Day 180 of the initial overpayment identification. While CMS’s intent is to address the court’s invalidation of the “reasonable diligence” standard, CMS has arguably proposed an even more egregious situation by creating a regulation that is contrary to, and not supported by, the plain statutory language.

Organizations should consider submitting comments to the 2024 proposed rule. Comments are due on September 9, 2024, by 5:00 pm EDT.