Avoid False Claims Liability: CMS Clarifies How to Comply with 60-Day Deadline for Returning Medicare Overpayments

The Affordable Care Act requires labs, pathology groups and other providers to return overpayments to Medicare within 60 days of identifying the overpayment. Failing to comply with that deadline can mean False Claims liability and a fine ranging from $5,500 to $11,000 per claim. Until now, there was little clarity regarding what constitutes identification of an overpayment. This February, however, the Centers for Medicare and Medicaid Services (CMS) issued a final rule interpreting the 60-day repayment requirement (See G2 Compliance Advisor, March 2016, p. 1). It’s not just the regulatory provisions that offer clarity, however. CMS responses to commenters, which are set forth in the preamble to the final rule, are insightful as well. Here’s what you can learn from CMS’ new rule.

When the rule applies
Note the Feb. 12, 2016 final rule applies to Medicare providers and suppliers billing Medicare Parts A and B and any overpayments reported or returned on or after March 14, 2016, irrespective of the date on which the overpayment was received, says health care lawyer Robert E. Mazer of Ober Kaler. A claim any time in the last six years, that is discovered this year after March 14, 2016, must be returned in compliance with the final rule’s interpretation of the 60-day deadline.

For providers already participating in a Stark law, self-referral disclosure protocol, instead of the six-year lookback a four-year lookback period applicable under Stark law applies. CMS is seeking OMB authorization, Mazer says, to require providers and suppliers reporting Stark Law violations under CMS’ self-referral disclosure protocol to report financial information back six years.

Calculating the Overpayment
CMS clearly emphasizes in the preamble to the rule that an overpayment is any amount which a lab receives to which it isn’t entitled—whether the result of fraud, inadvertent error or mistake. The amount that must be repaid is the difference between the amount received and the amount that should have been received, explains Mazer. In the case of an overpayment caused by violations of the Anti-Kickback Statute, Stark Law or goods or services provided by an excluded provider, the entire amount received is considered an overpayment, he adds.

But, Mazer indicates the “final rule includes certain exceptions or special rules for cost report claims, formal OIG and CMS self-disclosures, and requests for extended repayment schedules.” Additionally, a change in law or regulation doesn’t render a payment that was properly received suddenly an overpayment. “However, a so-called agency ‘clarification’ could result in an overpayment,” says Mazer.

Note too that underpayments can’t be used to offset overpayment amounts according to CMS which explains in the preamble that underpayments are “outside the scope of this rulemaking.” Instead, providers can address underpayments by requesting reopenings.

Impact on Appeal Rights
Mazer advises “providers and suppliers review available appeal rights as part of the process of reporting and returning overpayments. Use of a statistical sample, for example, may preclude a Medicare claims appeal.” He explains that CMS notes in the preamble that if a repayment of a “self-identified overpayment results in a revised initial determination of any specific claim or claims, a person would be afforded any appeal rights that currently exist.”

An existing appeal of a contractor’s determination of overpayment may render it premature to return any overpayment. “If a contractor’s determination is appealed, the provider or supplier may reasonably determine that it is premature to investigate whether it received an overpayment during other periods until conclusion of the appeal process,” says Mazer. But after having self-identified an overpayment, filing an appeal would not impact a provider’s or supplier’s duty to investigate potential overpayments or report and return any that are identified, Mazer adds.

Beware: Effective Compliance Doesn’t Merit Leniency
Mazer notes that CMS “encourages providers and suppliers to have ‘effective compliance plans.’” CMS rejected, however, a commenter’s request for a presumption that an overpayment is a simple mistake if the provider has a ‘certified’ or ‘approved’ compliance plan, stating: “Based on our experience, it is possible for providers or suppliers who have active compliance programs to commit fraud.”

CMS further adds that “[a] provider or supplier with little if any compliance activities to monitor claims is exposed to liability ‘based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment.’”

“It is unclear what CMS means by this,” says Mazer. “It may mean that a provider or supplier without an effective compliance program or the like will be deemed to have identified an overpayment on the date that it was received.”

Additionally, unlike sentencing guidelines and the OIG compliance program guidance, CMS’ final rule on overpayments doesn’t accommodate different types or sizes of providers. “Providers 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.”

Guidelines for Reasonably Diligent Investigations
The final rule begs the question: What is reasonable diligence? Here are 6 lessons from CMS’ rule that should guide labs seeking to be reasonably diligent.

#1. Be “active”
CMS defines reasonable diligence as be both proactive and reactive including “proactive compliance activities” that monitor receipts and look for overpayments and reactive investigations in response to “obtaining credible information of a potential overpayment.”

Note too that the 60-days for returning overpayments starts when the reasonable diligence is completed. But, if a party fails to exercise reasonable diligence, the 60-day time frame for returning an overpayment runs from the time the entity received credible information about a potential overpayment (that is, when it should have started exercising reasonable diligence to address the potential overpayment).

#2. Act on credible information within six months
The need for reasonable diligence can be triggered by receipt of credible information. “Credible information includes information that supports a reasonable belief that an overpayment may have been received,” explains Mazer. He emphasizes that CMS’ preamble indicates that reasonable diligence is “demonstrated through the timely, good faith investigation of credible information, which is at most 6 months from receipt of … credible information [of a possible overpayment], except in extraordinary circumstances.” “This 6 month deadline is not included in the language of the actual regulation,” says Mazer.

CMS explained that the six month estimate for timely investigation was chosen “because we believe that providers and suppliers should prioritize these investigations and also to recognize that completing these investigations may require the devotion of resources and time.” CMS added that extraordinary circumstances may warrant extending the six months for investigation and 60 days for payment (so 8 months total) but said such extraordinary circumstances may include “unusually complex investigations” such as those involved in a physician self-referral law violation under the CMS voluntary self-referral disclosure protocol, natural disasters, or states of emergency.

#3. Treat contractor determinations as credible information
Mazer notes that CMS says Medicare contractor audit findings “are credible information of at least a potential overpayment.” He adds that CMS also says a provider’s confirmation of a Medicare contractor’s audit findings, may constitute “credible information related to a potential overpayment for periods that were not audited, triggering a need to conduct reasonable diligence.” Further, if a contractor determines that there has been an improper payment of a cost report claim, the provider is required to “conduct reasonable diligence on other cost reports.”

#4. Document efforts to comply with reasonable diligence Health care providers should be conditioned by now to document everything relevant to demonstrating compliance with the law—but it bears repeating. CMS’ preamble expressly cautions “it is certainly advisable for providers and suppliers to maintain records that accurately document their reasonable diligence efforts to be able to demonstrate their compliance with the rule.”

#5. Medicare revenue and medical necessity are relevant
CMS addressed medical necessity in general and specifically with regard to labs in the preamble. Generally, CMS indicates “principles set forth in the final rule apply to ‘medical necessity’ determinations,” Mazer points out. Commenters claimed that lack of medical necessity or insufficient documentation “are extremely difficult to define objectively” and alluded to application of the rule in those circumstances being unfair. CMS responded, however, that “[s]ufficient documentation and medical necessity are longstanding and fundamental prerequisites to Medicare coverage and payment.”

Additionally, a significant increase in Medicare revenue should trigger the need for reasonable diligence, according to CMS. A commenter sought leniency for labs in this regard, pointing out that labs aren’t “in a position to determine the medical necessity of the services they provide because they do not order the tests,” and thus they shouldn’t be expected to “proactively conduct an inquiry into whether an overpayment exists based on the volume of Medicare work it conducts.” CMS responded: “All providers and suppliers have a duty to ensure that the claims they submit to Medicare are accurate and appropriate. There may be situations where a significant increase in Medicare revenue should lead a laboratory to conduct reasonable diligence.”

#6. Extrapolate and find other similar overpayments “A provider or supplier cannot return those specific claims found to have been overpaid as part of an audit sample, but then choose not to extrapolate its findings and report and return total overpayments,” explains Mazer. CMS says it believes “it is appropriate to inquire further to determine whether there are more overpayments on the same issue before reporting and returning the single overpaid claim.”

CMS further indicates it believes providers should be able to conduct a probe sample and incorporate it into a larger full sample to extrapolate overpayments “in a timely manner.” “In the clinical laboratory setting it may well be that you have hundreds of claims that are virtually the same and don’t require detailed analysis to determine if it’s overpaid,” Mazer told G2 Compliance Advisor when discussing the Continuum Health case (see G2 Compliance Advisor, August 2015, p. 1). Although this won’t always be the case, when it is, you should be able to address the issue more quickly.

Editor’s Note: Robert E. Mazer, together with his colleague Kelly J. Davidson, also a health care lawyer with Ober Kaler’s Health Law Group, will be presenting a webinar addressing this final rule and what it means for labs and pathology groups April 13, 2016, 2-3pm EST. For more information, visit www.g2intelligence.com/web.

Takeaway: Federal court defines identified overpayments stringently but also raises potential for leniency for providers acting with "reasonable haste" to report and return overpayments.