Overpayment Rule Sets 6 Year Lookback

Nearly 6 years after the passage of the Affordable Care Act, CMS published the final 60 day rule for Medicare Parts A and B overpayments. The rule requires a person who has received an overpayment to report and return the overpayment to HHS, the State, an intermediary, a carrier or a contractor within 60 days after the date the overpayment was identified or the due date of any corresponding cost report, as applicable. The final rule is codified at 42 CFR 401.301 – 305; 401.607. Failure to properly identify and return overpayments may lead to liability under the False Claims Act.

The Final Rule sets a 6 year lookback period and clarifies what it means to identify an Overpayment. Prior to publication of the Final Rule, CMS previously published final rules for Medicare Parts C and D. As we previously reported, the New York District Court considered the “identification issue” in Kane v. Healthfirst, Inc. Unlike the Final Rule, the Court in Kane did not allow for quantification of an overpayment prior to commencement of the 60 day clock.

A. Ten Year Lookback Burden ‘Reduced’ to Six Years.

As we described in a February 2012, blog post, CMS initially proposed a ten year lookback period. The final rule eases this burden and requires that an overpayment be reported and returned within six years of receipt of the overpayment. In CMS’s view, “[c]reating this limitation for how far back a provider or supplier must look when identifying an overpayment is necessary in order to avoid imposing unreasonable additional burden or cost on providers and suppliers. Yes, 6 years is better than 10, but CMS declined to adopt a 4 year lookback as contained in the current reopening rules at 42 CFR 405.980. In reaching the 6 year rule, it appears that CMS contemplated burden, statutes of limitation in enforcement statutes, and state law record retention rules that require providers to retain records for 6 or 7 years.

B. Clarification of Meaning of ‘Identification’ of An Overpayment.

When does the 60 day clock start? The ACA provides that an overpayment must be reported and returned by the later of (i) the date which is 60 days after the date on which the overpayment was identified; or (ii) the date any corresponding cost report is due, if applicable. The Final Rule clarifies 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.” 81 Fed. Reg. 7654. Conversely, the Final Rule provides that “a person should have determined that the person received an overpayment and quantified the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” 81 Fed. Reg. 7661, 7683. Moreover, it identifies specific examples of where an overpayment may be identified. 81 Fed. Reg. 7659.

1. Reasonable Diligence in Quantifying an Overpayment – The commentary to the Final Rule provides guidance on what constitutes reasonable diligence. In terms of quantifying an overpayment, reasonable diligence is demonstrated “through the timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.” Extraordinary circumstances are fact specific but may include unusually complex matters. Reasonable diligence in the Final Rule replaced the concept of “all deliberate speed” in the proposed rule.

2. Reasonable Diligence Through Compliance Activities – Under the Final Rule, reasonable diligence includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and investigations conducted in good faith in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment. The Final Rule admonishes the provider and supplier community to engage in meaningful compliance activities:

We believe that undertaking no or minimal compliance activities to monitor the accuracy and appropriateness of a provider or supplier’s Medicare claims would expose a provider or supplier to liability under the identified standard articulated in this rule based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment.

81 Fed. Reg. 7661.

C. Reporting.

A person will satisfy the reporting obligations by making a disclosure under the OIG’s Self-Disclosure Protocol or the CMS Voluntary Self-Referral Disclosure Protocol. Otherwise, providers are required to use “an applicable claims adjustment, credit balance, self-reported refund, or other reporting process set forth by the Medicare contractor to report an overpayment.” Those SRDPs submitted prior to the effective date of the Final Rule will still be governed by the 4-year lookback period. Going forward the 6-year look back period will apply, though CMS still needs to modify this period with the OMB with regard to the financial analysis they are allowed to collect under the Paperwork Reduction Act. Therefore, at this point providers may voluntarily provide information for the 5th and 6th year. 81 Fed. Reg. 7673.

D. Conclusion.

In light of the Final Rule, providers should evaluate their compliance and auditing activities and evaluate the extent to which they could demonstrate “reasonable diligence.” In general, providers should work diligently to quantify and report overpayments by no later than 8 months (6 months to quantify, 2 months to report).

Adam Snyder is Chair of the Ogden Murphy Wallace Business Department and is a Part-time/Adjunct Faculty member of the University of Washington School of Law. For additional information regarding the Medicare 60 Day Overpayment Rule, Corporate Compliance, or internal investigations, please contact Adam Snyder.

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