The Centers for Medicare & Medicaid Services issued its long-anticipated final rule clarifying the 60-day overpayment refund obligation (the 60-Day Rule) first established in a 2016 regulation for Medicare Part A and B providers and suppliers arising from the Affordable Care Act. The Final Rule—which becomes effective January 1, 2025—sets revised standards for identifying and returning overpayments to Medicare. The Final Rule lacks a clear bright line standard for overpayment refund obligations, with CMS amending the 60-Day Rule by relying on definitions from the civil False Claims Act that remain imprecise and murky.
As previously discussed in our July 24, 2024 Law Flash, the 60-Day Rule requires that a Medicare overpayment be reported and returned within 60 days “after the date on which the overpayment was identified.”[1] The current Medicare Part A and B regulations implementing the 60-Day Rule, published in 2016, provide 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.”[2] A knowing failure to comply with the 60-Day Rule may result in liability under the False Claims Act (FCA), with up to treble damages and per-claim penalties.
CMS’s decision to revise the 60-Day Rule was prompted by a 2018 federal district court decision in UnitedHealthcare Insurance Co. v. Azar that found CMS’s “reasonable diligence” standard in the 60-Day Rule was invalid because it improperly imposed FCA liability for mere negligence, conflicting with FCA’s “knowing” standard. CMS also addressed in the Final Rule the circumstances in which a provider may temporarily suspend its obligation to refund an identified overpayment to conduct a further investigation.
In its preamble commentary to the 2016 regulations, CMS stated that the overpayment identification process includes quantifying the overpayment amount and further clarified that “reasonable diligence” is demonstrated by timely, good-faith investigations of credible information of an overpayment, which should take no more than six months except under extraordinary circumstances.
Many providers and healthcare organizations put considerable stock in that preamble language, including the ability to quantify an overpayment before the reporting and refund obligation clock started to run. However, there was no regulatory language allowing for a six-month period to investigate and quantify the overpayment. This lack of a formal regulatory standard led to confusion for those subject to and tasked with interpreting the 60-Day Rule, particularly because FCA liability can flow from a knowing retention of a Medicare overpayment.
The newly issued Final Rule introduces several updates and clarifications to address concerns raised since the regulations implementing the 60-Day Rule were published in 2016. Key changes include:
Under the 60-Day Rule prior to this change, an overpayment was identified when the provider/supplier, through the exercise of reasonable diligence, determined that it received an overpayment and quantified the amount of the overpayment. Under the 60-Day Rule, as amended, a person has identified an overpayment when an entity or individual “knowingly receives or retains an overpayment” by: (1) having actual knowledge of the overpayment; or (2) acting in deliberate ignorance or reckless disregard of the overpayment.
Importantly, in a response to a comment on the importance of quantifying overpayments, the Final Rule clarifies that the 60-day clock starts immediately once a person has identified an overpayment, regardless of whether the precise overpayment amount has been quantified at the time of identification. Absent a basis for suspending the 60-day clock (as discussed below), the precise amount of the overpayment must be calculated within 60 days of identification to meet the 60-day deadline.
To address concerns voiced by suppliers and providers who commented on the importance of providing time to investigate, calculate, and report and return certain overpayments, the Final Rule allows for the suspension of the 60-Day Rule for 180 days for the purpose of conducting a timely, good faith investigation to determine the existence of related overpayments that may arise from the same or similar cause or reason as the initially identified overpayment. While CMS acknowledged this 180-day suspension period in the preamble to the 2016 rules, before now, the agency had never implemented in regulation the ability to suspend the deadline for repaying an overpayment pending a good faith and timely investigation.
In the preamble to the Final Rule, CMS provides the following example of how the 180-day suspension period for investigations into overpayments would practically work:
Assume that, on day 1, a person identifies an overpayment (as the term is defined at § 401.305(a)(2)) arising from a physician's failure to properly document the medical record to support the coding of a specific claim, and the person has reason to believe that this may be a common practice of the physician, so there could be more affected claims. Once the overpayment has been identified on day 1, the report and return obligation at § 401.305(b)(1) applies, and the person has 60 days to report and return the overpayment. However, the 60-day deadline may be suspended for up to 180 days to conduct and conclude a good faith investigation to determine whether related overpayments that arise from the same or similar cause or reason as the initially identified overpayment exist. If the person does NOT conduct an investigation, or the investigation is not timely or not conducted in good faith, the identified overpayment must be reported and returned by day 60. If the person does conduct a timely, good faith investigation, suspension of the report and return obligation under § 401.305(b)(3) begins when the person begins the investigation. The suspension of the 60-day deadline ends when the investigation is concluded and the initially identified overpayment and related overpayments, if any, are calculated, or by day 180, whichever is earlier. Once the suspension of the 60-day deadline ends, the person has the remainder of the 60-day period to report and return the overpayment. For example, assuming the investigation to determine the existence of related overpayments was begun on day 10 (that is, the tenth day after the initial overpayment was identified), the overpayment must be reported and returned within 50 days after either (1) completion of the investigation or (2) day 180, whichever is earlier. However, the suspension described in § 401.305(b)(2) may also be applicable. For example, if the person is reporting the overpayment to the OIG Self-Disclosure Protocol, as provided for in § 401.305(b)(2) the overpayment return requirement may be further suspended in accordance with that provision.
Notably, the time between identifying the initial overpayment and the beginning of the investigation is included in the 60-day clock, indicating that the investigating individual or entity may not have 60 days after concluding the investigation to submit the overpayment. Additionally, in instances where the individual or entity has no reason to believe there are other related overpayments, an investigation is not warranted and the provider would have only 60 days to repay the overpayment (i.e., there is no 180-day suspension period).
IMPLICATIONS FOR THE HEALTHCARE INDUSTRY
Compliance with the 60-Day Rule is critically important to all healthcare providers and suppliers that participate in Medicare and Medicaid. Providers and suppliers should have explicit and actionable processes and procedures to comply with this requirement, especially since the knowing retention of an overpayment may create significant liability.
Under the former 60-Day Rule, quantification of the overpayment was often the critical and practical event that triggered when the 60-day period began to run. By removing that quantification standard, the Final Rule leaves providers and suppliers more exposed to the vagaries of varying interpretations of what constitutes a timely and good faith investigation.
CMS’s decision to set forth in regulation the conditions under which providers and suppliers can suspend the overpayment refund obligation for 180-days is a welcome and perhaps practical acknowledgement that providers and suppliers need time to identify and quantify overpayments. However, that 180-day period of suspension alone may not, practically speaking, provide much respite from a legal obligation with fangs.
Application of the FCA “knowledge” standards for determining when a provider has identified an overpayment, when those FCA standards are themselves subject to ambiguity, varying interpretations, and changes stemming from FCA court decisions, does little to address many of the concerns expressed by commenters to the proposed rule who are called upon to manage complex Medicare payment reconciliation scenarios.
Practically speaking, is this Final Rule a sea change for the revenue cycle management and compliance teams at providers and suppliers? Perhaps not. But we suspect this Final Rule will add fuel to the fire since whistleblowers already regularly include a “failure to refund overpayments” claim in their qui tam FCA complaints.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: