CMS answers key question around Medicare overpayment refund obligations

Practice leaders are aware that the Affordable Care Act requires repayment of an overpayment within 60 days of identifying it and that retaining an overpayment may result in significant penalties under the False Claims Act. 

Last fall, we described here a scenario that many radiology practices are likely to face at some point:

• The radiology group has identified a billing error or a compliance problem impacting Medicare coverage that resulted in the practice having received an overpayment from Medicare. 

• Although the fact that an overpayment occurred is known, the amount of the overpayment has yet to be determined.

• While the practice is aware of the issue, the leadership is concerned about meeting the 60-day stipulation because a comprehensive audit must be conducted in order to determine the size of the overpayment. 

So the question has been: When does the clock start ticking on the 60-day requirement?

On February 12, the Centers for Medicare & Medicaid Services (CMS) published in the Federal Register its final overpayment refund rule, which provides some needed clarity in response to this question. The final rule implements a mandate of the Affordable Care Act requiring providers and suppliers to report and return Medicare overpayments by no later than 60 days after the date on which the overpayment was “identified.”  The rule is effective March 14, 2016; the full text of the rule is available here.

More flexible standard

Paul W. Pitts, Partner, Reed Smith, Life Sciences Health Industry Group

CMS reports that it received many comments on the proposed rule expressing concern about the difference between determining that an overpayment has been received and the auditing work necessary to calculate the overpayment amount.  Responding to these concerns, the final rule adopts a more flexible standard that starts the 60-day clock when a determination is made that payment was received in excess of the amount owed and the amount of the overpayment is quantified. 

This welcome change to the rule allows health care providers some reasonable time to calculate the total amount paid in error, whether that is done by identifying each claim, using statistical sampling, extrapolation methodologies, or other methodologies as appropriate.

Of course the rule doesn’t allow providers to avoid an overpayment obligation—or delay a refund—by failing to investigate potential errors or refusing to promptly quantify an overpayment.  The new rule states that 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.  

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 and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.”

When credible information is obtained concerning a potential overpayment, there needs to be reasonable diligence to determine whether an overpayment has been received and, importantly, reasonable time to quantify the amount. 

Reporting and returning overpayments

With regard to how to report and return overpayments, the final 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, which CMS states “preserves our existing processes and preserves our ability to modify these processes or create new processes in the future.”

Overpayments must be reported and returned if a person identifies the overpayment within six years of the date the overpayment was received.  As a result, any identified coding, billing or documentation errors committed within the past six years are subject to refund. 

Initially, CMS proposed a look-back period of 10 years, because it is the outer limit of the False Claims Act statute of limitations.  Here again, CMS reports that many providers objected to such an onerous rule. While a six-year look-back period is a welcome improvement over a 10-year period, it remains a burdensome obligation and heightens the importance of maintaining all billing and coding related documentation for a minimum of six years.

Last fall, we recommended that radiology groups and other health care providers work diligently to identify and quantify potential Medicare overpayments when they learn of issues that could lead to a refund. That remains true under the final rule as well, with the adoption by CMS of its “reasonable diligence” standard for (1) whether a health care provider or supplier has determined that an overpayment of Medicare payments has occurred and (2) the provider/suppler has quantified the size of the refund that will have to be made.

Our advice regarding these matters remains the same. Given the complexity of medical billing, and the potential damages under the False Claims Act, more investigations, settlements and even cases concerning whether prompt refund of overpayments were diligently investigated are likely to arise.

Much care should be given to the potential of an overpayment and the timely determination of the amount of possible overpayments. Publication of the final rule underscores the need for an effective compliance plan and internal monitoring and auditing programs.