Since passage of the Affordable Care Act, compliance officers and attorneys have struggled to comply with the new rule requiring notification and repayment of Medicare overpayments within 60 days.[i] The two large questions that remain unclear are what constitutes an “overpayment,” as well as what it means to “identify” an overpayment.
Section 6402(a) of the Affordable Care Act (“ACA”) created a new section 1128J(d)(1) of the Social Security Act (the “Act”), which addresses overpayments. Section 1128J(d)(2) requires an overpayment to be reported and returned “by the later of (A) the date which is 60 days after the date on which the overpayment was identified; or (B) the date any corresponding cost report is due, if applicable.”
The questions surrounding “overpayment” and “identify” remain crucial because failure to comply gives rise to Federal False Claims Act liability. Section 1128J(d)(3) of the Act directs that any overpayment retained by a person past the 60-day deadline constitutes an obligation under the Federal False Claims Act for purposes of 31 U.S.C. § 3729. Liability under the False Claims Act subjects one to a civil penalty of between $5,000 and $10,000 for each false claim and treble the amount of the government’s damages.
Retention of overpayments beyond the 60-day deadline in the Act has been classified as “reverse false claims” in litigation. The first major litigation addressing the 60-day overpayment reporting deadline in a reverse false claims case was Kane ex rel. U.S. v. Healthfirst.[ii]
In Kane, a software glitch caused three New York City hospitals to submit improper claims to Medicaid in 2009 as a secondary payer for patients for whom they had already received payment through Medicaid managed care. In September 2010, auditors from the New York State Comptroller’s Office notified the defendants of the incorrect billing. The defendants refunded these initial incorrect claims and assigned the Relator,[iii] Mr. Kane, to investigate the extent of overbilling due to the software glitch.
On February 4, 2011, five months after the Comptroller notified the defendants of the improper claims, Mr. Kane notified the defendants’ management that approximately 900 claims totaling over $1 million were improperly billed due to the glitch. On February 8, 2011, Kane was terminated. Kane subsequently became a Relator and filed a False Claims Act action, which the government joined. The complaint alleged that the defendants began repaying the overpayments in April 2011 and “fraudulently delayed” repayments until March 2013. In support of its claim, the government alleged that the defendants reimbursed the government for only approximately 300 improper claims after receiving a Civil Investigative Demand (“CID”) in June 2012.
The court denied the defendants’ motion to dismiss the complaint, holding that the facts in the case clearly showed requisite “knowledge” of the overpayments and a deliberate attempt to avoid the 60-day repayment obligation. However, the court highlighted that “identified” as used in the Act was undefined, and may differ from the term “known” as used in the False Claims Act.
Fast forward to February 12, 2016, where the Center for Medicare and Medicaid Services (“CMS”) issued a final rule to its February 16, 2012 Proposed Rule on the Reporting and Returning of Overpayments.[iv] The Final Rule, published February 12, is entitled “Medicare Program; Reporting and Returning of Overpayments” (“Overpayment Rule”).[v] The regulations promulgated in the Overpayment Rule became effective March 14, 2016.
The Overpayment Rule defines “identification” and provides a lookback period in which to identify overpayments, as well as a procedure for reporting and returning the overpayments.
42 C.F.R. § 401.303 defines “overpayments” as “[a]ny funds that a person has received or retained under title XVIII of the Act to which the person, after applicable reconciliation is not entitled under such title.”
The commentary offers examples of overpayments as:
- Medicare payments for noncovered services.
- Medicare payments in excess of the allowable amount for an identified covered service.
- Errors and nonreimbursable expenditures in cost reports.
- Duplicate payments.
- Receipt of Medicare payment when another payor had the primary responsibility for payment.[vi]
Once overpayments are identified, the Overpayment Rule mandates a six-year lookback from the date the person identifies the overpayment.[vii] However, providers should note that False Claims Act liability could still extend to 10 years in some cases. CMS suggests that this disparity be reconciled in future clarifications.
Final Rule 42 C.F.R.§ 401.305 defines “identified” as:
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.
To help define “reasonable diligence,” the commentary offers some examples of when an overpayment has been “identified”:
- A provider of services or supplier reviews billing or payment records and learns that it incorrectly coded certain services, resulting in increased reimbursement.
- A provider of services or supplier learns that a patient death occurred prior to the service date on a claim that has been submitted for payment.
- A provider of services or supplier learns that services were provided by an unlicensed or excluded individual on its behalf.
- A provider of services or supplier performs an internal audit and discovers that overpayments exist.
- A provider of services or supplier is informed by a government agency of an audit that discovered a potential overpayment, and the provider or supplier fails to make a reasonable inquiry. (When a government agency informs a provider or supplier of a potential overpayment, the provider or supplier has a duty to accept the finding or make a reasonable inquiry. If the provider’s or supplier’s inquiry verifies the audit results, then it has identified an overpayment and, assuming there is no applicable cost report, has 60 days to report and return the overpayment. As noted previously, failure to make a reasonable inquiry, including failure to conduct such inquiry with all deliberate speed after obtaining the information, could 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).
- A provider of services or supplier experiences a significant increase in Medicare revenue and there is no apparent reason—such as a new partner added to a group practice or a new focus on a particular area of medicine—for the increase. However, the provider or supplier fails to make a reasonable inquiry into whether an overpayment exists. (When there is reason to suspect an overpayment, but a provider or supplier fails to make a reasonable inquiry into whether an overpayment exists, it may be found to have acted in reckless disregard or deliberate ignorance of any overpayment.)[viii]
Once a provider has identified overpayments, the Overpayment Rule remains a work in progress. It cites 13 identified criteria from the 2012 proposed rule that must be incorporated into overpayment reports, but then it declines to adopt them, instead directing the provider to ascertain the best recipient and mechanism for reporting the overpayment. The commentary notes that Publication 100-08, Chapter 4, Section 4.16 of the Medicare Program Integrity Manual requires Medicare contractors to process all voluntary refunds,[ix] so providers may seek to issue a refund there first. For other instances, the commentary dictates that the CMS Voluntary Self-Disclosure Protocol (SDRP) and OIG’s Self-Disclosure Protocol (SDP) shall also remain acceptable methods,[x] with their own protocols by which to report overpayments and process refunds. If the person calculates the overpayment using a statistical sampling methodology, the person must describe the methodology in the disclosure report.[xi]
While the Overpayment Rule’s impact in False Claims Act litigation remains untested, it provides helpful guidance for Medicare providers and their compliance officers and attorneys to ferret out overpayments and identify responsibilities to report. Healthcare providers are urged to implement (or review existing) policies to identify, report, and refund overpayments with the guidance of experienced healthcare counsel.
[i] The Centers for Medicare & Medicaid Services (CMS) “60-day rule” requires Medicare Parts A and B providers and suppliers to report and return overpayments by the later of either (a) 60 days after the date an overpayment was identified, or (b) the due date of any corresponding cost report (which is used to report expenses for various types of Medicare reimbursable facilities).
[ii] 120 F.Supp.3d 370 (S.D.N.Y. 2015).
[iii] Under the False Claims Act, in Medicare and other governmental investigations, a “relator”—an individual not affiliated with the government—is authorized to file actions on behalf of the government, in this case to assist with the investigation and recovery of overpayments by Medicare.
[iv] 77 Fed. Reg. 9179 (Feb. 16, 2012).
[v] 81 Fed. Reg. 7654 (Feb. 12, 2016).
[vi] Id. at 7656.
[vii] 42 C.F.R. § 401.305(f).
[viii] 81 Fed. Reg. at 7659.
[ix] Id. at 7675.
[x] 42 C.F.R. § 401.305(d)(2).
[xi] 42 C.F.R. § 401.305(d)(1).