New Health Care Compliance Obligations for Reporting and Returning Overpayments, Effective March 14, 2016

On February 12, 2016, the Centers for Medicare & Medicaid Services (“CMS”) finalized its regulations with respect to the prompt reporting and returning of overpayments under Medicare Parts A and B (the “Final Overpayment Rule” or the “Rule”). Failure to comply with the Final Overpayment Rule may result in penalties and liability, including exclusion from federal health care programs. Key provisions of the Rule are discussed below.

Providers and Suppliers Have 60 Days from “Identification” to Report and Return an Overpayment
Overpayments must generally be reported and returned within 60 days of “identification,” or by the due date of any corresponding cost report (if applicable), whichever is later. “Identification” is deemed to occur when a person has – or with “reasonable diligence” should have – both (a) determined that the person has received an overpayment, and (b) quantified the amount of the overpayment. This ultimately places a burden on the provider/supplier to engage in ongoing “reasonable diligence” to ensure an overpayment was not received.

CMS’s Interpretation of “Reasonable Diligence” – Providers and Suppliers Have Duty to Engage in Both “Proactive” and “Reactive” Compliance Activities
CMS specified that “reasonable diligence” requires both “proactive” good faith monitoring of claims and “reactive” investigative actions taken in response to a provider having received “credible information about a potential overpayment.” CMS did not specify the level of “proactive” monitoring that must occur on an ongoing basis to achieve reasonable diligence, and declined to provide any specific guidance in response to concerns raised by commenters regarding a potential “perpetual duty” to research whether an overpayment exists. CMS stated “[p]roviders and suppliers, large and small, have a duty to ensure their claims to Medicare are accurate and appropriate and to report and return overpayments they have received.”

With respect to “reactive” compliance activities, absent extraordinary circumstances, CMS considers “reasonable diligence” to entail a maximum of six months from receipt of credible information regarding a potential overpayment for a provider/supplier to conduct the investigation to determine whether an overpayment does, in fact, exist and to quantify the overpayment amount. This means that, generally, a provider/supplier will have a maximum of eight months after receiving such credible information to report and return an overpayment: six months for the timely investigation to confirm and quantify the overpayment and two months (60 days) to report and return the overpayment.

Failure to Engage in Reasonable Diligence Triggers 60 Day Period
With respect to “reactive” reasonable diligence, if a person receives an overpayment but fails to conduct a reasonable inquiry upon receipt of credible information regarding such overpayment, a person will be deemed to have identified the overpayment – and the 60-day period will start – on the day the person received the credible information.

With respect to “proactive” reasonable diligence, CMS stated that providers and suppliers who do not proactively review their claims for a potential overpayment and, in fact, receive an overpayment, “risk potential liability for retaining such overpayment.” CMS did not specify when the 60-day period begins in cases of an ongoing failure to engage in proactive claim monitoring activity.

Six Year Lookback Period for Overpayments

Reporting and returning is required only for overpayments identified within six years of receipt of the payment. This six-year limitation is a welcome relief to providers and suppliers who recall CMS’s initial 2012 rule proposal for a 10-year lookback period. As acknowledged by CMS in the Final Overpayment Rule, this limitation is more consistent with the typical data retention periods currently utilized by health care entities pursuant to existing law.

Effective Date of the Rule
The Effective Date of the Final Overpayment Rule is March 14, 2016. The Rule is not retroactive. Therefore, providers/suppliers who, in good faith, reported or returned overpayments prior to the effective date are not expected to have complied with the Rule. However, any person who reports or returns an overpayment after the effective date must comply with the Rule even if the overpayment was received prior to the effective date of the Rule.

Methods to Report and Return Overpayments
Providers and suppliers may report and return overpayments using (a) an applicable claims adjustment, credit balance, self-reported refund, or other reporting process made available by the applicable Medicare contractor, or (b) either the CMS or Office of Inspector General (“OIG”) self-disclosure protocols.

Other Key Points
The following are some additional key provisions of the Final Overpayment Rule and/or statements made by CMS with respect to its interpretation of the Rule:

  • Statistical Sampling – Providers and suppliers are specifically permitted to use statistical sampling and extrapolation to calculate an overpayment amount. In such a case, the methodology must be described in the report.
  • “Credible Information” that Triggers a Duty to Investigate – A provider/supplier should generally assess on a case-by-case basis whether or not information is “credible” for purposes of triggering a duty to investigate a potential overpayment. However, CMS stated that RAC or other Medicare contractor and OIG audit findings are indeed “credible information.”
  • Identification of a Single Overpaid Amount – If a single overpayment amount is identified, CMS believes it is appropriate to inquire further to determine whether “more overpayments on the same issue” exist before reporting and returning the single overpaid claim. This means that the reporting/returning of the overpayment would not be required until the full overpayment amount is identified.
  • Quantification of Overpayment Amount – CMS stated that identification of the overpayment entails quantifying the overpayment amount “with a reasonable degree of certainty.”
  • Tolling of 60 Day Period through Use of CMS or OIG Self-Disclosure Protocols – The deadline for returning an overpayment is tolled for the full duration of time that a provider/supplier is negotiating a potential settlement amount through the CMS or OIG self-disclosure protocols.

Health care providers and suppliers are strongly urged to review their compliance programs to ensure they will meet requirements of the Final Overpayment Rule.

Should you have any questions regarding the Rule and what it means for you and your business, please do not hesitate to contact an attorney on our Health Care and Hospital Team.

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