On February 11, 2016, the Centers for Medicare and Medicaid Services (CMS) released the highly anticipated Final Rule regarding the Reporting and Returning of Overpayments. The Final Rule provides some clarity and resolves some unanswered questions and conflicting opinions regarding overpayments, including what constitutes "identification" of an overpayment and the length of a lookback period. As explained in more detail below, the Final Rule establishes that a person (defined as a provider or a supplier) must report and return an overpayment within 60 days of the identification and quantification of that overpayment. In addition, the Final Rule establishes the lookback period for such reporting and returning as six years; rather than the earlier proposed ten year lookback. The Final Rule is effective on March 14, 2016 and is not retroactive.

By way of background, the Affordable Care Act (ACA) established new section 1128J(d) of the Social Security Act, requiring a person who received an overpayment to report and return that overpayment, and to report in writing the reasons for the overpayment, to the appropriate party within 60 days of the later of the identification of the overpayment or the date any corresponding cost report is due.1 If not repaid or disclosed within 60 days, the overpayment constituted an "obligation" and liability under the False Claims Act, Civil Money Penalties Law and could lead to exclusion. These overpayments are commonly referred to as "reverse false claims." Adding confusion, the ACA did not define what constituted "identification," nor did it define the lookback period that would apply when an overpayment was identified. As such, providers struggled to find consistency in determining when an overpayment was "identified," and once identified, how far back they should extend their investigation. CMS issued a Proposed Rule four years ago and deferred issuing the Final Rule for over a year; thus the anxious anticipation for final guidance.

The Final Rule resolves both of those questions. Under this Rule, an overpayment is “identified” when a 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. The CMS responses to comments clarify that "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. Part of reasonable diligence includes conducting an audit to determine whether an overpayment exists and to quantify that overpayment, and when a single overpayment is identified, CMS believes it is appropriate to do a further inquiry to determine whether there are more overpayments on the same issue before reporting and returning the single overpaid claim.

CMS established the benchmark for a timely investigation as, at most, six months from the receipt of credible information (information that supports a reasonable belief that an overpayment may have been received). As such, absent extraordinary circumstances, the total time period for reporting and returning overpayments is eight months from the receipt of such information (i.e., six months for investigation and two months for reporting and returning any overpayment). CMS declined to establish a minimum threshold for reporting and returning overpayments.

The 60-day time period begins when the reasonable diligence is completed, and the overpayment is identified, or, in the failure to conduct reasonable diligence, on the date the person received credible information that an overpayment was received.2 This is an important clarification, in light of the prior inconsistencies in interpretation and case law such as Kane v. Healthfirst, which in the absence of such plain guidance from CMS had adopted an expansive definition of "identified" as being put on notice, and starting the 60-day clock ticking, when there was evidence of a "potential" overpayment.
CMS recognized that compliance programs will differ based on the size and setting of a particular provider, but advised that those providers who undertake no or minimal compliance activities to monitor Medicare claims can be exposing themselves to liability under this Final Rule, based on the failure to exercise reasonable diligence.

The Final Rule addresses the lookback period, setting that period at six years from the date the overpayment was received. This is a reduction from the previously proposed ten year period, based on the outer limit of the False Claims Act statute of limitations. The period of six years was selected because it remains consistent with the False Claims Act enforcement period and would not create an additional burden on providers who are required to retain records and claims data for at least six years.

The Final Rule does not change the process for reporting and returning overpayments. However, it does allow for additional processes beyond the voluntary refund process, including claims adjustment, credit balance, self-reported refund, or other appropriate process to report and return overpayments.

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1This time period is tolled for providers who elect to disclose conduct through the formal processes of the CMS Voluntary Self-Disclosure Reporting Protocol or the OIG Self-Disclosure Protocol. It is not tolled for disclosures to the DOJ or a MFCU.
2What constitutes "credible information" is a fact-specific determination, and can include hotline calls, RAC audits, Medicare contractor or OIG findings, etc. It does not include an error by a Medicare contractor in which the contractor identifies the error and adjusts claims to correct the error.