Medicare’s 60-Day Overpayment Rule: Tough Medicine for Physicians

On February 12, 2016, the Centers for Medicare and Medicaid Services (CMS) published a Final Rule governing the reporting and returning of Medicare overpayments. The Patient Protection and Affordable Care Act (ACA) previously revised the Social Security Act (“Act”) to require a person who has received an overpayment to report and return the overpayment by the later of 60 days after the date on which the overpayment is identified or the date any corresponding cost report is due, if applicable (“60-day rule”). Additionally, the retention of an identified overpayment after the deadline to report and return the overpayment constitutes an obligation under the False Claims Act and subjects Medicare providers and suppliers (collectively, “providers”) to False Claims liability. Under the False Claims Act, physicians are liable for up to $10,000 per claim plus 3 times the amount of damages sustained by the government, and are subject to exclusion from the Medicare program.

The Final Rule implements specific requirements for reporting and returning overpayments and clarifies several important aspects of Medicare’s 60-day rule. The lookback period for reporting and returning identified overpayments is 6 years, as opposed to the 10 years indicated in the 2012 Proposed Rule. Further, the Final Rule only applies to overpayments under Medicare Part A and Part B, however the requirements to return and identify overpayments found in the Act apply to all Medicare and Medicaid providers. The Final Rule also allows providers to utilize various methods for reporting and returning overpayments, including the voluntary refund process, claims adjustments, credit balances, request for voluntary offset, or other reporting process set forth by the applicable Medicare contractor.

Most importantly, since an overpayment must be reported and returned within 60 days after the date on which the overpayment was identified, the Final Rule provides crucial guidance as to the meaning of “identified.” Identification of an overpayment does not mean actual knowledge of the overpayment. A physician has identified an overpayment when the physician has, or should have through the exercise of reasonable diligence, determined that the physician has received an overpayment and quantified the amount of the overpayment. Further, a physician should have determined that he or she received an overpayment and quantified the amount of the overpayment if the physician fails to exercise reasonable diligence and the physician in fact received an overpayment. Thus, the 60-day time period begins when either the overpayment is identified and quantified through reasonable diligence, or on the day the physician received credible information of a potential overpayment, failed to exercise reasonable diligence and in fact received an overpayment. CMS indicated that absent extraordinary circumstances, investigations should be completed within 6 months, and overpayments thus reported and returned within a total of 8 months.

CMS’ interpretation of identified presents several important considerations for physicians. CMS stated that its definition of identification incentivizes Medicare providers to exercise reasonable diligence to determine whether an overpayment exists. Absent such an interpretation, CMS believes that Medicare providers might avoid performing activities to determine whether an overpayment exists, such as self-audits, compliance checks, or other research. Under the Final Rule, physicians’ receipt of information concerning a potential overpayment creates a duty to make a reasonable inquiry to determine whether an overpayment exists. For example, a physician may receive a credible telephone hotline complaint, review billings and determine that the physician or another person incorrectly coded certain claims, conduct an internal audit and discover an overpayment exists, or receive information from a government agency of an audit that discovered a potential overpayment. If the reasonable inquiry reveals an overpayment, the physician has 60 days to report and return the overpayment. Conversely, if the physician fails to make a reasonable inquiry, including failure to act with deliberate speed after obtaining information regarding a potential overpayment, the physician will be deemed to knowingly retain an overpayment because it failed to exercise reasonable diligence.

CMS also stated that in addition to reactive investigations to information regarding a potential overpayment, reasonable diligence also requires proactive compliance activities conducted in good faith. CMS provides that failure to undertake “minimal compliance activities” to verify the accuracy of Medicare claims could result in failure to exercise reasonable diligence under the 60-day rule. This proactive requirement creates significant liability for all Medicare providers, and results in an indirect mandate for all Medicare physicians to conduct reasonable compliance activities. CMS acknowledges that compliance activities may appropriately vary based on the type and size of the provider.

Similarly, the Final Rule impacts physicians subject to Medicare audits or other overpayment notices, which CMS indicates triggers a physician’s obligation to exercise reasonable diligence. Specifically, Recovery Audit Contractor (RAC), Medicare Administrative Contractor (MAC) and Zone Program Integrity Contractor (ZPIC) audit findings, as well as other Medicare contractor and OIG audit findings, are credible information of at least a potential overpayment. CMS believes that contractor overpayment determinations are always a credible source of information for other potential overpayments. If a physician confirms the audit’s findings, the physician may have credible information of receiving a potential overpayment beyond the scope of the audit and thus must conduct reasonable diligence within the 6-year lookback period in order to comply with the 60-day rule.

However, within the Final Rule, CMS indicates that “[i]f the provider appeals the contractor identified overpayment, the provider may reasonably assess that it is premature to initiate a reasonably diligent investigation into the nearly identical conduct in an additional time period until such time as the contractor identified overpayment has worked its way through the administrative appeal process.” Given the current Medicare audit environment, physicians regularly face audits and overpayment demands. Audits often result in overzealous claim denials that may trigger heightened liability under the 60-day rule. Based on CMS’ guidance, a physician’s good faith decision to appeal overpayment determinations may provide a defense to undertaking an investigation of all related potential overpayments. Absent an appeal, physicians will be obligated to investigate related claims outside of the audit time period and report and return any identified overpayments in compliance with the 60-day rule.

In sum, Medicare’s 60-day rule has widespread implications for physicians. The Final Rule, CMS interpretation of identified and other guidance provide crucial guideposts for Medicare providers to comply with the 60-day rule. Violation of the 60-day rule could result in liability under the False Claims Act. Physicians must implement both proactive and reactive compliance measures to monitor the accuracy of Medicare claims and meet the requirements of Medicare’s 60-day rule. The regulations demonstrate Medicare’s increased efforts to protect the Medicare trust fund and physicians should consider these authorities when determining whether to appeal audits and other overpayment demands. Physicians must understand the 60-day rule and its impact on False Claims liability in order to avoid additional civil liability as a result of a Medicare overpayment.