On February 12, 2016, the Centers for Medicare & Medicaid Services (“CMS”) published a long-awaited Final Rule regarding Section 6402(a) of the Affordable Care Act—the so-called “60-day rule”. The 60-day rule outlines the obligation of providers and suppliers to report and return Medicare overpayments within 60 days of their “identification”. A provider or supplier who retains Medicare overpayments beyond the 60-day period faces the risk of False Claims Act (FCA) liability, Civil Monetary Penalties Law (CMPL) liability, and exclusion from federal health care programs.
Section 6402(a) of the Affordable Care Act added section 1128J(d) to the Social Security Act (“the Act”). Section 1128J(d) of the Act requires a Medicare or Medicaid provider or supplier to return and report an overpayment “by the later of: (A) the date which is 60 days after the date on which the overpayment was identified; or (B) the date any corresponding cost report is due, if applicable”.
Since Section 6402(a) of the ACA was enacted in 2010, there has been confusion about what it means to identify an overpayment for the purposes of starting the 60-day clock, how far back a provider or supplier must look back to identify an overpayment, and the obligations a provider or supplier has once it has identified an overpayment.
Under the Final Rule, the 60-day clock starts when a provider or supplier has identified an overpayment and defines “identified” as occurring 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 if the person fails to exercise diligence and the person in fact received an overpayment”. CMS clarified in the Final Rule that the 60-day time period does not begin to run until after the reasonable diligence period is completed, and agreed with commentators that “part of identification is quantifying the amount, which requires a reasonably diligent investigation”.
The CMS also clarified that reasonable diligence means a timely, good faith investigation of credible information, which should take no longer than six months from the receipt of credible information, except under extraordinary circumstances.
The Final Rule recognizes that providers and suppliers must exercise reasonable diligence by being both proactive and reactive. Proactive reasonable diligence includes implementing compliance activities, conducted in good faith by qualified individuals, to monitor for the receipt of overpayments. Reactive reasonable diligence would include having qualified individuals undertaking investigations in a timely manner “in response to obtaining credible information of a potential overpayment”.
Providers and suppliers should understand that failure to initiate reasonable diligence efforts could start the running of the 60-day clock on the day the provider or supplier received credible information of a potential overpayment. Providers and suppliers should also recognize that failure to initiate reasonable diligence efforts with all deliberate speed after obtaining overpayment information could result in knowingly retaining an overpayment because the provider or supplier “acted in reckless disregard or deliberate ignorance of whether it received an overpayment”.
Under the Final Rule, the CMS finalized a 6-year lookback period rather than the 10-year lookback originally suggested by the Proposed Rule. Under the Final Rule, providers and suppliers must report and return overpayments identified “within 6 years of the date the overpayment was received”.
Other important provisions of the Final Rule:
Overpayments caused by errors or third parties outside of the provider’s or supplier’s control, including CMS system errors, are also subject to the 60-day time period. Therefore, providers and suppliers will need to ensure implemented compliance activities also monitor for overpayment errors from third parties outside the provider’s or supplier’s control.
To satisfy the obligation to report and return overpayments under the final rule, a provider or supplier must use “an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process” to report and return overpayments.
The final rule goes into effect March 14, 2016, and applies to Medicare Part A and Part B provider and suppliers. An earlier Final Rule, published in May 2014 applies to overpayments under Medicare Parts C and D. No final rules has been published that addresses requirements for Medicaid and some states are developing their own requirements.
To find out more about the Final Rule from CMS and its impact on health care and your business, contact Fraser Trebilcock at 517.482.5800.