CMS Issues Final 60-Day Overpayment Rules

Legal Alert

On February 12, 2016, the Centers for Medicare and Medicaid Services (“CMS”) finalized highly anticipated rules clarifying the obligations of Medicare Parts A and B providers and suppliers to report and return overpayments within 60 days.


The new rules implement a section of the Affordable Care Act that requires a person who has received a Medicare or Medicaid overpayment to report and return it to the government within 60 days of identification of the overpayment (or for cost-reporting entities, by the date any corresponding cost report was due) or face steep penalties, including liability under the False Claims Act and the Civil Monetary Penalties Law, as well as exclusion from participation in any federal health care program.

Although CMS initially proposed rules interpreting this statute on February 16, 2012, final regulations were delayed so that CMS could address strong criticism regarding the vagueness of the rules and their broad scope. These final rules attempt to resolve industry concerns by, among other things clarifying when an overpayment is “identified” for purposes of calculating the 60-day period and reducing the number of years a provider or supplier must look back to report overpayments from ten to six.

Identification of an overpayment:

The obligation to report and return an overpayment is triggered when a provider or supplier “identifies” the overpayment. The final 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.” CMS clarified that “reasonable diligence” requires providers and suppliers to undertake ongoing, proactive compliance activities to monitor claims, as well as reactive investigative activities into a potential overpayment. According to CMS, this definition ensures that a provider or supplier cannot avoid the obligation to return an overpayment by failing to investigate credible evidence that an overpayment has occurred (the so-called “ostrich defense”). It also exposes providers and suppliers to potential liability if they undertake no or minimal compliance activities.

CMS also provided needed clarification regarding the time a person has to investigate a potential overpayment before having to pay back the government. The duty to conduct a “reasonably diligent inquiry under the circumstances” is triggered when a provider or supplier “receives credible information” of a potential overpayment. The 60-day period only begins, however, when the reasonably diligent inquiry is complete and the overpayment is quantified. CMS declined to set a time limit for completion of the inquiry before the 60-day period begins, but stated that reasonable diligence could be demonstrated through a “timely, good faith investigation” lasting no longer than six months absent “extraordinary circumstances.” However, if a provider or supplier has received an overpayment and fails to conduct a reasonably diligent inquiry, CMS will consider the 60-day period to have begun on the date the person received credible evidence of the overpayment. Providers and suppliers should thus maintain documentation of all investigation activities related to overpayments so that they may demonstrate reasonable diligence.

Look-back period reduced to six years:

Under the proposed rules, CMS would have required a supplier or provider to report and return any overpayment identified within 10 years of the date the overpayment was received, a period based on the outer limit of the False Claims Act statute of limitations. In response to strong objections, including that such a long look-back period would impose significant administrative burdens, CMS has adopted a six-year look-back period. According to CMS, this period is consistent with the most commonly used statute of limitations for False Claims Act actions and other laws, as well as certain medical record and HIPAA documentation retention requirements. It is, however, two years longer than the time period Medicare contractors are allowed to reopen paid claims absent fraud or similar fault. As of the effective date of the final rules, providers and suppliers will need to report and return overpayments having occurred within six years, measured from the date an overpayment is identified.

Process for reporting and returning simplified:

The final rule adopts more flexible procedural requirements for reporting and returning overpayments. Providers and suppliers may fulfill their overpayment obligations using the existing voluntary self-reported refund process, as would have been required under the proposed rules, but may also use applicable claims adjustment, credit balance reporting, or other appropriate processes. CMS also eliminated the requirement that providers and suppliers report on 13 specific data elements when submitting information regarding an overpayment. Instead, CMS will allow providers and suppliers to adhere to the information requirements applicable to the particular process used. However, if a provider or supplier uses a statistical sampling methodology to quantify the overpayment, a description of this methodology must be included on or with the applicable form.

Rules effective March 14, 2016 and will not be retroactive:

The final rules become effective March 14, 2016 and are not retroactive. Those providers and suppliers that have reported and returned overpayments and made a good faith attempt to comply with the statutory requirements by March 14, 2016 need not take further action to comply with the specific requirements set forth in these final rules. Providers and suppliers reporting and returning overpayments on or after March 14, 2016 will need to fully comply with the rules, including use of a six-year look-back period.

The health care team at Stoel Rives is ready to assist you with meeting these new overpayment obligations.














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