CMS Proposes Small but Significant Change to 60-Day Overpayment Refund Rule

In a proposed rule issued on December 27, 2022 to make technical changes to the Medicare Advantage Program, the Centers for Medicare and Medicaid Services (CMS) buried in the regulatory arcana a material legal change to the 60-day overpayment rule that impacts entities participating in Medicare Parts A and B, not just the Medicare Advantage Program (i.e., Medicare Part C).

CMS is proposing to revise the standard for “identification” of an overpayment under what is commonly referred to as the 60-Day Rule. Federal statute establishes an overpayment must be returned within 60 days “after the date on which the overpayment was identified.” 42 USC 1320a-7k(d)(2).

Currently, the regulation implementing this statutory provision states, “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. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” 42 CFR 401.305(a)(2).

CMS is proposing to revise the regulation by eliminating the “reasonable diligence” standard and replacing it with the False Claims Act (FCA) knowledge standard. CMS states that this change is the result of litigation which found that by requiring the “exercise of reasonable diligence” in identifying overpayments, the regulation impermissibly creates FCA liability for mere negligence.

In its place, CMS proposes that a provider has “identified” an overpayment (and therefore must report and refund within 60 days) when the person knowingly receives or retains an overpayment. The term “knowingly” has the same meaning as set forth in 31 USC 3729(b)(1)(A)—the FCA standard that includes actual knowledge of the existence of an overpayment or acting in reckless disregard or with deliberate ignorance of the overpayment. See 87 Fed. Reg. 79452, 79559 (Dec. 27, 2022).

While the proposed rule appears to address some litigation concern for CMS, the proposal goes further by eliminating the current regulatory language that an overpayment has to be quantified before the 60-day reporting requirement is triggered—that is, before the overpayment has been “identified.”

In preamble commentary to its February 12, 2016 final Medicare Part A and B overpayment rule, CMS stated that the identification process includes quantifying the overpayment amount. CMS also explained that the “reasonable diligence” is demonstrated by timely, good faith investigation of credible information of an overpayment, which should take no more than six months, except under “extraordinary circumstances.”

PRACTICAL EFFECT OF THE PROPOSED CHANGE

CMS took almost six years to promulgate the final Medicare Part A and B overpayment regulation, following substantial industry comment. Ironically, the language being proposed now was also proposed by CMS in 2012, but ultimately not adopted when CMS finalized the current regulation.

As a practical matter, the process of identifying and quantifying an overpayment is frequently complex and may involve significant data analysis. CMS recognized that the process of identifying an overpayment (including the quantification of that overpayment) can take, for legitimate reasons, an extended period of time. Accordingly, CMS established a “reasonable diligence” standard and specifically noted that quantifying the amount of an overpayment was necessary before the 60-day report and refund clock would start. Replacing that standard with an FCA “knowing” standard, with no reference to quantifying an overpayment, will likely provide less, not more, structure to the rule.

Industry comments are due no later than 5:00 pm on February 13, 2023. We expect industry comments to be robust. Contact your Morgan Lewis lawyer if you would like counsel on formulating or submitting comments on the proposed rule.