The 60-day Refund Rule, created by the 2010 Affordable Care Act, requires providers to report and return Medicare and Medicaid overpayments within 60 days of identifying them. See Section 1128J(d) of the Social Security Act, 42 U.S.C. 1320a-7k(d), referenced below as the “60-day Refund Rule.” Failure to comply with the 60-day Refund Rule can result in the imposition of a civil monetary penalty under 42 C.F.R. § 1003.210(a)(8) with a maximum penalty of $24,164 for 2023 (2024 updates are not yet available). In addition, improper retention of an identified overpayment may provide grounds for allegation of a violation of the Federal False Claims act, which includes potential recoveries for whistleblowers, treble damages, per claim penalties, and in some cases a Corporate Integrity Agreement as part of a settlement.

Regulations implementing the application of the 60-day Refund Rule for overpayments under Medicare Parts A and B were effective in March 2016, and can be found in 42 C.F.R. Parts 401 and 405 (the 2016 regulations). In 2022, CMS issued proposed revisions to the 2016 regulations (the 2022 Revisions), which have not yet been finalized. As discussed below, the 2022 Revisions proposed a notable change as to what it meant to “identify” an overpayment.

What’s New. In Section III.O of the recently released advance copy of the 2025 Proposed Rule for the Physician Fee Schedule (2025 PFS Proposed Rule), scheduled for publication in the Federal Register on July 31, 2024, the Centers for Medicare & Medicaid Services (CMS) added an additional provision to the still pending 2022 Revisions. Specifically, in the 2025 PFS Proposed Rule, CMS proposed an additional regulatory subsection formalizing the six-month period for investigation of an overpayment during which the 60-day overpayment refund deadline would be temporarily suspended. 

As summarized by CMS in the preamble discussion to the 2025 PFS Proposed Rule,

New proposed § 401.305(b)(3) would specify the circumstances under which the deadline for reporting and returning overpayments would be suspended to allow time for providers to investigate and calculate overpayments. Proposed § 401.305(b)(3)(i) provides that the deadline to report and return an overpayment would be suspended if: (1) 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 (2) the person conducts a timely, good-faith investigation to determine whether related overpayments exist. Proposed § 401.305(b)(3)(ii) provides that, if the conditions for proposed § 401.305(b)(3)(i) are met, the deadline for reporting and returning the initially identified overpayment and related overpayments that arise from the same or similar cause or reason as the initially identified overpayment will remain suspended until the earlier of the date that the investigation of related overpayments has concluded 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 identified.

Currently, the six-month period contemplated for completion of a good faith investigation before the 60-day deadline is triggered appears in the preamble discussion to the 2016 Regulations, not in any regulation. See 81 Fed. Reg. 7654, 7662 (Feb. 12, 2016), There had been concern in the provider community that CMS might not continue that six-month investigation period upon finalization of the 2022 Revisions. Adding the provision as a regulation required notice and a public comment period which is satisfied by the 2025 PFS Proposed Rule.

What does it mean to “identify” an overpayment? Not yet finalized from the 2022 Revisions is the critical delineation of when an overpayment has been “identified” such that the 60-day refund rule is triggered. The statute itself does not define what it means to be “identified.” 

The existing regulation (at 42 C.F.R. § 401.305(a)(2)) explains that:

[a] person 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. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

A similar provision issued by CMS relating to overpayments under Parts C and D was rejected by a court, following which CMS essentially abandoned that provision. As noted in guidance on the CMS website titled “Status of December 2022 Proposed Rule,” “CMS views the District Court’s ruling as having invalidated the definition of “identified” set out in 42 C.F.R. § 422.326(c). However, Medicare Advantage Organizations (MAOs) remain obligated to report and return all overpayments that they have identified within the meaning of the statute, 42 U.S.C. § 1320a-7k(d)(2)(A).” https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/risk-adjustment/status-december-2022-proposed-rule.

The 2022 Revisions, which if adopted will apply to Medicare Parts A, B, C and D, provide that “[a] person has identified an overpayment when the person knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in 31 U.S.C. § 3729(b)(1)(A),” consistent with the False Claims Act’s knowledge standard. Although the 2022 Revisions are still pending finalization, the time for comment on the “identification” language has long closed.

What Providers and Suppliers Should Do Now

Anyone with comments on the 2025 PFS Proposed Rule, including the new provisions of Section 401.305(b), should make them by September 9, 2024, as indicated in the process described in the 2025 Proposed PFS Rule.

Moreover, providers and suppliers should be prepared to revisit their overpayment policies upon finalization of the 2022 Revisions and the addition from the 2025 PFS Proposed Rule. As noted repeatedly above, the 2022 Revisions have not yet been finalized; however, in the April 2024 Medicare Advantage Final Rule, CMS noted that it intended to issue a final rule revising the definition of “identified” “as soon as it is reasonably possible.” See 89 Fed. Reg. 30448, 30457 (Apr. 23, 2024). https://www.govinfo.gov/content/pkg/FR-2024-04-23/pdf/2024-07105.pdf

It seems reasonably likely that CMS will finalize its proposed overpayment regulations as part of the finalization of the 2025 PFS Proposed Rule, with an effective date relatively soon thereafter.