CMS Offers Long-Awaited Clarification of Deadline for Returning Overpayments

Labs and other providers are required by a provision enacted in the Affordable Care Act to return overpayments to Medicare within 60 days of identifying the overpayment. Violations of the rule subject the provider to False Claims liability and civil monetary penalties including treble damages and a fine ranging from $5,500 to $11,000 per claim. What constitutes identification of an overpayment, however, has caused much debate and concern. A 2012 proposed rule didn’t add much clarity and a New York federal court decision last year in U.S. ex rel. Kane v. Continuum Health Partners, Inc., caused much consternation.

That court said the 60-day deadline for returning overpayments is triggered when providers are on notice that they may have received overpayments— not after they’ve determined with certainty the precise amount. The court argued that triggering the 60-day deadline only after providers did all they needed to “determine conclusively the precise amount owed to the Government” created “a perverse incentive to delay learning the amount due and relegat[ed] the sixty-day period to merely the time within which they would have to cut the check.”

Now, however, Centers for Medicare & Medicaid Services (CMS) has issued a final rule interpreting the 60-day repayment requirement. The agency says, in its press release announcing the final rule, that it includes “clarification around: the meaning of overpayment identification; the required lookback period for overpayment identification; and the methods available for reporting and returning overpayments to CMS.” On those three issues, the final rule states:

ffAn overpayment is identified “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.”

ffThe lookback period is six years, meaning if an overpayment is identified within six years of the date payment was received, the recipient must comply with the 60-day rule.

ffRepayments must be achieved using “an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process.”

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. This interpretation of what constitutes an overpayment is in keeping with CMS’ stated objective: “Our general aim of this final rule is to strengthen program integrity and to ensure that the Medicare Trust Funds are protected and made whole and that taxpayer dollars are not wasted. An overpayment must be reported and returned regardless of the reason it happened—be it a human or system error, fraudulent behavior or otherwise.” CMS also emphasized it didn’t exclude overpayments that were outside of the control of the provider.

Until now, CMS’s pronouncements on the repayment of overpayments left labs and providers with three major questions. Here’s what CMS had to say in the preamble to the final rule with regard to those questions.

When is an overpayment identified?
As we said, contrary to the Continuum Health court’s interpretation, CMS has now said a claim is identified when a lab should have (or has) identified the overpayment amount through reasonable diligence.

CMS rejected comments and suggestions that the rule only apply when a provider has actual knowledge of an overpayment, stating that such a rule would allow providers to easily avoid returning overpayments and the objective of the rule “would be defeated.” CMS said it’s clarification about when a claim is identified was made “after careful consideration” of comments received. “We believe that the final rule strikes the right balance between creating a flexible yet strong standard that applies to many different circumstances.”

The new guidance does raise an additional question, however: What’s reasonable diligence? CMS defines it to be both proactive and reactive including “proactive compliance activities” that monitor receipts and look for overpayments and 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).

Reasonable diligence also means not just repaying one identified overpaid claim but 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.”

Additionally, in discussing when a significant increase in Medicare revenue should trigger the need for reasonable diligence, a commenter pointed 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.”

How far back does this apply?
Abandoning the originally proposed 10-year lookback period, CMS explained it decided upon the six-year look back period because it was consistent with False Claims Act and civil monetary penalty statutes of limitations and general medical records retention periods. The lookback period runs from the date the overpayment is identified.

How do we return overpayments?
Originally relying on the existing voluntary refund process, CMS has revised the final rule to allow for repayments to be made by claims adjustment, credit balance, self-reported refund, “or another appropriate process to report and return overpayments.” CMS explains that “[t]his position preserves our existing processes and preserves our ability to modify these processes or create new processes in the future.”

CMS also notes that when overpayment amounts are extrapolated, providers should explain how the overpayment was calculated. Additionally, CMS notes in its release that reporting through CMS’ Self-Referral Disclosure Protocol or the OIG’s Self-Disclosure Protocol complies with the rule if the reporting provider is “actively engaged in the respective protocol.” Such participation in those protocols must also result in a settlement agreement.

Takeaway: CMS finally provides more definitive guidelines for labs and other providers about when and how to return overpayments, effectively overruling a court’s stringent interpretation of the 60-day time deadline for repayments.