CMS Clarifies When Medicare Overpayments Must Be Identified

On February 11, 2016, the Centers for Medicare & Medicaid Services (CMS) issued a final rule on reporting and returning Medicare overpayments within sixty (60) days of identification.  42 CFR 401 and 405.  Under Section 6402(a) of the Affordable Care Act, Medicare overpayment must be reported and returned by the later of sixty (60) days after the date on which the overpayment was identified, or the date any corresponding cost report is due.  The final rule promulgated by CMS clarifies when an overpayment is “identified” for purposes of 6042(a), shortens the lookback period on overpayments to six years, and states how to report and return overpayments.

Under the rule, an overpayment has been "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.”  Reasonable diligence includes both “proactive compliance activities to monitor claims and reactive investigative activities undertaken in response to receiving credible information about a potential overpayment.”  Quantifying the amount of the overpayment “may be determined using statistical sampling, extrapolation methodologies, and other methodologies as appropriate.”

Further expounding on the reasonable diligence standard, CMS offers a non-exhaustive list of circumstances in which overpayment should have 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.
  • 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.

The rule also extends the period of time in which the overpayment must be "identified."  Reasonable diligence can be demonstrated through “timely, good faith investigation of credible information, which is at most six (6) months from receipt of the credible information, absent extraordinary circumstances.”  Accordingly, providers will have, at most, six (6) months from receipt of the credible information to "identify" the overpayment through investigation, and will have a sixty (60) day period thereafter to report the overpayment after it is "identified."

Moreover, the rule shortens lookback period for receipt of overpayment from ten years to six years, in large part because the False Claims Act’s statute of limitations is six years.

Finally, the rule states that providers and suppliers must use an “applicable claims adjustment, credit balance, self-reported refund, or another appropriate process to satisfy the obligation to report and return overpayments.”

The final rule is effective come March 14, 2016, and applies only to Medicare Parts A and B health care providers and suppliers.

If you have any questions regarding Medicare compliance, or broader health care law issues, please do not hesitate to contact our firm.

               Author: George P. Holmes                Practice Area: Health Care Law                Date: February 12, 2016

Disclaimer: The information provided herein (1) is for general information only; (2) does not create an attorney-client relationship between the author or the author’s firm and the reader; (3) does not constitute the provision of legal advice, tax advice, or professional consulting of any kind; and (4) does not substitute for consultation with professional legal, tax or other competent advisors.  Before making any decision or taking any action in connection with the matters discussed herein, you should consult with a professional legal, tax and/or other advisor who should be provided with all pertinent facts relevant to your particular situation. The information provided herein is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information.

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