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Final CMS Rule on the Reporting and Returning of Medicare Overpayments is a Wake-Up Call for Physicians
Wednesday, March 23, 2016

Effective March 14, 2016, a final rule published last month by the Centers for Medicare & Medicaid Services (CMS) implements the 60-day rule included in the Affordable Care Act (ACA) (31 U.S.C. § 1320a-7k(d)).  ACA requires physicians, other providers, and suppliers who receive Medicare funds to report and return overpayments by 60 days after the date on which the overpayment was identified.  Providers must also notify in writing the Secretary of DHHS, the State, an intermediary carrier, or contractor to whom the overpayment is returned of the reason for the overpayment.  ACA also provided that any overpayment retained by a person after the deadline is an obligation which potentially triggers the provisions of the Federal False Claims Act, with substantial civil penalties plus treble the amount of damages sustained by the government due to the acts of that person, Civil Monetary Penalties and exclusion from the federal health care programs.

The final rule addresses several concerns raised by providers about the Proposed Rule published on February 16, 2012.  It clarifies the meaning of overpayment “identification” that triggers the 60-day period for the reporting and repayment of overpayments, and it reduces the “lookback” period for overpayments to providers from ten years to six years.  At the same time, it serves as a wake-up call for physician practices to implement these particular requirements of the ACA as enunciated in the new rule.  We will answer some of the most important questions about the significance of the final rule for physicians in this alert.

To what providers and overpayments does the final rule apply?

The final rule applies only to Medicare Part A and Part B providers and suppliers. CMS has previously published separate rules covering the reporting and returning of overpayments for Medicare Part C and D, and a final rule concerning Medicaid overpayments has not yet been published. For hospitals that file cost reports with the Medicare program, the overpayments must be reported and returned by the later of (1) 60 days after the date on which the overpayment was identified, or (2) the date any corresponding cost report is due, if applicable.

The rule defines “overpayment” as any funds that a person has received or retained under the Medicare program to which the person is not entitled to retain. It includes payments for claims that lack sufficient documentation or  medical necessity, primary payments by Medicare when a primary payment from a non-Medicare payer has been received, and even overpayments caused by a Medicare contractor or which were otherwise outside of the provider’s control.

When is an overpayment identified? 

In its commentary, CMS indicates that the 60-day time period begins when either (a) the physician has completed reasonable diligence in investigating a potential overpayment and “identified” an overpayment, or (b) if the physician failed to conduct reasonable diligence but had in fact received an overpayment, the day the physician first received credible information of a potential overpayment. The final rule provides that a physician has “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.” (Emphasis added). It thus clarifies that the process of determining and quantifying an overpayment must be completed before the 60-day period begins. CMS also indicates that reasonable diligence and a timely, good faith investigation of credible information may require up to six months from receipt of the credible information before the overpayment is “identified,” and in extraordinary circumstances may require additional time. Written documentation of this process should be retained to demonstrate compliance with the rule.

What does the “reasonable diligence” standard mean in identifying overpayments? 

“Reasonable diligence” according to CMS requires both (1) proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments, and (2) investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment. To exercise reasonable diligence under this standard, CMS considers it necessary for a physician to have an effective compliance program that monitors the accuracy and appropriateness of the physician’s Medicare claims. 

What does this standard mean from a practical standpoint? 

CMS indicates that when a physician receives information about a potential overpayment, the physician has a duty to make a reasonable inquiry. Such information may include, among others, notice from a government agency, the physician’s discovery of a billing error that results in increased reimbursement, the discovery of services provided by an unlicensed or excluded individual, or an increase in the physician’s Medicare revenue with no apparent reason. If the reasonable inquiry reveals an overpayment, then the physician has 60 days to report and return the overpayment. If the physician fails to make a reasonable inquiry conducted with all deliberate speed, then the physician could be found to have acted in reckless disregard or deliberate ignorance of whether it had received such an overpayment. Failure to conduct reasonable diligence per se is not a violation of the statute, but failure to report and return an overpayment in fact received that the physician should have identified renders the physician liable. Physicians need to calculate an overpayment amount that is reliable and accurate and may use statistically valid sampling methodologies and extrapolation to calculate the overpayment amount.

What is the significance of the six year lookback period?

The final rule establishes a “lookback period” of six years after the date the overpayment was received, a change from the ten year lookback period in the proposed rule. A physician must report and return the overpayment only if he or she identifies the overpayment within six years of the date the overpayment was received. CMS has indicated that it will also amend its reopening rules, so that a contractor will be able to reopen and revise its initial determination related to any overpayment reported and returned during the six year lookback period in this final rule. This means that upon receiving findings of a Recovery Audit Contractor (RAC) audit (or other Medicare audit) that identifies overpayments, a physician may have a duty to determine and quantify overpayments going back six years, prior to the three-year period covered by the RAC audit.

How are physicians to report and return overpayments?

The final rule states that physicians should use the existing, most applicable process, including claims adjustment, credit balance (for hospitals), self-reported refund, or other appropriate process, to satisfy the obligation to report and return overpayments. Physicians may request a voluntary offset from the contractor instead of submitting a check with the overpayment reporting form.

Although several of the changes made to the proposed rule are favorable to physicians, the final rule creates a duty of reasonable diligence requiring physicians to proactively monitor receipts and office practices, as well as a duty to respond to credible information of a possible overpayment in a timely manner. These duties must be incorporated by physician practices of all sizes into a strong compliance program.

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