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CLIENT ALERT: CMS Issues Final Rule on Reporting and Returning of Overpayments

March 2016
Susan B. Orr, Esquire

On February 12, 2016, CMS published the Final Rule regarding the Reporting and Returning of Overpayments which provided much needed clarity as to when providers were required to report and return overpayments. 

The Affordable Care Act requires providers and suppliers receiving funds under the Medicare program to report and return overpayments they received to the Medicare carrier or contractor within sixty (60) days after the date on which the overpayment was “identified.”   It further provide that any overpayment retained after the deadline would be considered a liability under the False Claims Act.

Identification of an Overpayment.

Under the earlier proposed rules, providers struggled with the concept was to when an overpayment was actually “identified”. The question that arose was whether the sixty (60) day period included the time spent quantifying the actual overpayment or did it simply stop the clock to allow providers time to do so.

The Final Rule states that a person has identified the 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.”   Therefore, we now know that the sixty (60) days only starts to run once the provider discovers the overpayment and has determined the actual amount of the overpayment to be returned to CMS. CMS also clarified that the definition of “overpayments” includes all overpayments received by the provider in error regardless of whether the provider was the cause of the overpayment or whether CMS erred in issuing payments to the provider.

Providers must exercise “reasonable diligence” to uncover overpayments. CMS states that providers are said to have used reasonable if they perform proactive compliance activities including monitoring of billing and payments and performing audits as part of the providers’ compliance plan as well as performing reactive investigative activities in response to receiving credible information about a potential overpayment such as from an employee or from CMS itself. Therefore, providers should establish compliance plans and conduct periodic audits to uncover any coding and billing irregularities that would give rise to overpayments.  Furthermore, once a provider has received information that suggests a possible overpayment possibly from an employee or even CMS itself, the provider must make a reasonable inquiry and investigation into the matter. Failing to take such action would result in the provider  knowingly retaining the overpayment and a violation of the False Claims Act.

Look-back Period

The Final Rule also decreased the lookback period for identifying overpayments from ten (10) to six (6) years.  Therefore, only those overpayments received within six (6) years from when the overpayment was actually received need to be reported and returned. The rationale for this reduced lookback period is that six (6) years is more in keeping with federal and state retention requirements.

Reporting and Returning Overpayments

To report and return funds, providers must use a self-reported refunds process, claims adjustment, credit balances or other appropriate processes to report and return overpayments. Providers should generally first look to the existing available forms from the carriers to use when returning overpayments.  If the amount of the overpayment was due to a statistical sampling methodology, the provider must describe the sampling and extrapolation methodology used. CMS reserves the right to revise the processes and create new ones in the future.

If you find yourself with an overpayment or need information as to how to determine an overpayment, please contact Susan Orr, Esquire at Rhoads & Sinon, LLP at 610-423-4200.