Four years after the issuance of the Proposed Rule and six years after the authorizing statute, CMS has published the much-awaited Final Rule regarding reporting and returning of Medicare Part A and B overpayments (the “Final Rule”). 81 Fed. Reg. 7654-7684 (Feb. 12, 2016).  Since the inception of section 6402(a) of the Affordable Care Act (ACA), there has been confusion among providers, lawyers, regulators, and courts regarding the requirements, scope, and impact of Social Security Act  section 1128J(d), which requires a person who has received an overpayment to report and return the overpayment within 60 days of identification or the date any corresponding cost report is due. CMS issued the Final Rule with the goal to provide clear requirements for persons to report and return Medicare overpayments under section 1128J(d)’s “60-Day Rule.”

What:

Section 1128J(d) of the Act created an express duty to refund and report Medicare and Medicaid overpayments “by the later of” 60 days after the overpayment was “identified” or the date the cost report is due. Failure to report and return the overpayment is an obligation for the purpose of the False Claims Act (31 U.S.C. § 3729(a)(1)(G)). The Final Rule only applies to overpayments from traditional Medicare – Parts A & B.

The Final Rule has a lot of detail regarding the application of the 60-Day Rule requirements.  What follows is a summary of the top two blockbuster clarifications made – the look-back period, and what it means to “identify” an overpayment.

Look-back Period

What had been unclear from the statute was the look-back period for any retained overpayments.  The Proposed Rule offered a 10-year look-back period, based on the outer limit of the False Claims Act’s statute of limitations.  The Final Rule settled on a 6-year look-back period.  The 6-year look-back is not retroactive, and will be effective March 14, 2016.  See 81 Fed. Reg. at 7671.

For consistency, CMS also included language concerning reopenings under the Final Rule in 42 C.F.R. § 405.980(c)(4), which has been extended to 6 years as well and are limited to reopenings by the provider or supplier under 42 C.F.R. § 401.305.  See 81 Fed. Reg. at 7673.

“Identify”

At the heart of most discussions regarding the 60-Day Rule has been: what does it mean to “identify” an overpayment? “Identify” was not defined in section 1128J(d) of the Act, so we were left wondering whether that meant the moment when, for example, there was a compliance hotline allegation, the moment when the allegation was verified to be a billing error, or the moment at which an overpayment was quantified. The Final Rule sets out CMS’s decision that providers have an obligation to exercise “reasonable diligence” through “timely, good faith investigation of credible information.”  81 Fed. Reg. at 7662. CMS clarified that this means both proactive and reactive reviews of Medicare billing – in other words, merely auditing based on compliance hotline calls or issues raised by staff is insufficient.  See id. at 7664.

The 60-day clock does not start running until after the reasonable diligence period has concluded, which may take “at most 6 months from receipt of credible information, absent extraordinary circumstances.” 81 Fed. Reg. at 7662.  The Final Rule acknowledges that complex investigations, like a Stark Law violation, that are referred to the CMS Voluntary Self-Referral Disclosure Protocol, fall within this “extraordinary circumstances” category. Lastly, and perhaps most importantly for providers, an overpayment is not “identified” until the amount of the refund has been “quantified.” See id. at 7661.  That means an 8-month period–6 months for timely investigation plus 60 days for reporting and returning of the overpayment.

Failing to make reasonable diligence efforts, including failure to conduct diligence with all deliberate speed after obtaining the information, may result in the provider or supplier knowingly retaining an overpayment because it acted in reckless disregard or deliberate ignorance of whether it received such an overpayment. See id. at 7659.  That overpayment liability can, in turn, result in Federal false claims act liability under 31 U.S.C. § 3729(a)(1)(G) as “reverse” false claims.

When:

The Final Rule will be effective March 14, 2016. It is not retroactive, though CMS advises providers and suppliers that the ACA statutory requirements have been in effect since 2010.  See 81 Fed. Reg. at 7673. This means that all providers and suppliers reporting and returning overpayments on or after March 14, 2016 – even overpayments received prior to March 14, 2016 – must comply with the new regulatory requirements.

Who:

The Final Rule is in effect for Medicare Part A and Part B providers and suppliers. Medicare Parts C & D Plans and Prescription Drug Plan sponsors are subject to a separate rule that was issued in May 2014. See 81 Fed. Reg. at 7655 (citing 70 Fed. Reg. 29844).  No final rule has been published that addresses Medicaid requirements.