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The Final 60-Day Rule: the Good, the Bad, and the Ugly

As we announced yesterday, the Centers for Medicare & Medicaid Services (CMS) has finally published the long-awaited Final Rule governing the return of Medicare Part A and Part B overpayments within 60 days (the “Final Rule”).  The proposed rule, which was published nearly four years ago, led to a great deal of consternation among providers and suppliers, and thus it is no surprise that CMS received over 200 comments.  The Final Rule thankfully provides a more workable approach than the proposed rule, but it demands that a provider have a proactive compliance program designed to monitor for potential overpayments and to lead to a timely investigation of credible information of receipt of an overpayment.

Compliance with the Final Rule is crucial because the potential penalties for non-compliance could be ruinous. Providers and suppliers who fail to timely identify and return overpayments face potential liability under the Civil Monetary Penalties Law as well as exclusion from the federal health care programs.  In addition, under the False Claims Act (FCA), retaining an overpayment is defined as an “obligation,” and “knowingly conceal[ing] or knowingly and improperly avoid[ing] or decreas[ing] an obligation” can be the basis for treble damages and penalties under the FCA.

Key Provisions of the Final Rule

Several provisions of the Final Rule will drive providers and suppliers’ efforts to comply with its requirements.

1. The term “identified” requires a determination of the overpayment and—a crucial addition—“quantification” of the amount of the overpayment.

The meaning of the phrase “identified an overpayment” determines when the 60-day clock starts to run.  CMS stated in the Final Rule that a provider or supplier has identified an overpayment if it: (1) “has, or should have through the exercise of reasonable diligence,” determined that it has received an overpayment; and (2) has quantified the amount of the overpayment.  To prevent the so-called ostrich defense, CMS said in the Final Rule that providers and suppliers “should have” identified and quantified an overpayment “if the person fails to exercise reasonable diligence and the person in fact received an overpayment.”

Several aspects of CMS’s definition of the term “identified” will impact how providers and suppliers must monitor, investigate, quantify, and report overpayments.  For example:

  • Reasonable diligence – According to CMS, reasonable diligence requires both proactive compliance measures (conducted in good faith by qualified individuals) to monitor for potential overpayments and timely, good-faith investigation into “credible information” of a potential overpayment.

    • CMS declined to provide specific guidance on the compliance processes required to comply with the Final Rule; instead, CMS pointed to the resources available through the Medicare Learning Network and the compliance educational material on OIG’s website

    • CMS discussed that providers and suppliers can demonstrate reasonable diligence by conducting a timely, good-faith investigation into “credible information” of a possible overpayment. However, absent “extraordinary circumstances,” the investigation cannot exceed 6 months. The six-month timeframe may be difficult to meet, especially given that the Final Rule requires analysis of six years of data through the six-year look-back period (discussed below).

  • Quantification and use of sampling – The Final Rule includes quantifying the overpayment amount as a necessary part of identifying an overpayment, accounting for the difference between determining that an overpayment had been received and the auditing work necessary to quantify the overpayment amount. Moreover, the Final Rule makes clear that the overpayment amount may be determined by employing frequently used methods such as statistical sampling and extrapolation. The methodology used to quantify and overpayment must be disclosed.

2. CMS reduced the “look back” period.

CMS reduced the look-back period to six years. According to CMS, this timeframe is practical because it aligns with the FCA statute of limitations, and providers and suppliers commonly retain records for six to seven years based on state and federal requirements.

Providers and suppliers may be disappointed that CMS changed the look-back time period from 4 years to 6 years for overpayments based on Stark Law violations submitted through the CMS Self-Referral Disclosure Protocol (SRDP) after the Final Rule’s effective date.

3. Re-opening deadlines are a one-way street.

The Final Rule amends the rules allowing for a request to a Medicare contractor to reopen initial determinations to permit reporting and returning overpayments (42 C.F.R. § 405.980(c)(4)). However, the Final Rule does not permit identification and claiming of underpayments for the same six-year period. In fact, CMS declined to allow providers and suppliers more than the current one-year period to rebill a claim to correct an identified underpayment. Moreover, the Final Rule does not allow netting of underpayments against overpayments. CMS declared that underpayment issues are outside the scope of this rulemaking.

4.  Existing processes should be used to report and return overpayments. 

In response to comments advocating reliance on existing processes to return overpayments, CMS allowed for the use of applicable claims adjustment, credit balance, self-reported refund, or other reporting processes established by the applicable Medicare contractor to report an overpayment. In addition, providers and suppliers, where appropriate, satisfy their 60-day reporting obligations by utilizing the disclosure processes in the OIG Self-Disclosure Protocol or the CMS SRDP, as applicable. The Final Rule includes several nuances around use of these processes, and it discusses the implications of failure to reach a settlement through either process.  A provider or supplier  utilizing either protocol should review carefully.

The Final Rule also removed the 13 elements of a report that CMS included in the proposed rule. For example, under the proposed rule, a report had to provide a description of how the error was identified and the reason for the overpayment. That information is no longer required by the Final Rule (but may be required by the Medicare contractor’s existing processes).

5. The Final Rule includes a notable FCA discussion.

The preamble to the Final Rule also includes a notable discussion regarding the FCA. Although commenters requested confirmation that a report of an overpayment is a “public disclosure” under the FCA and therefore bars liability under the FCA’s qui tam provisions, CMS (not surprisingly) did not respond substantively, explaining that it is interpreting Section 1128J, not the FCA.

For more details, refer to this comparison of the proposed and final rules.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume VI, Number 43


About this Author

Brian P. Dunphy, Pharmaceutical Attorney, Mintz Levin, Anti-Kickback Lawyer,Health Care Enforcement & Investigations Health Care Compliance, Fraud & Abuse, and Regulatory Counseling Complex Commercial Litigation

Brian has handled a wide range of health care litigation matters, government investigations, and voluntary disclosures for an array of health care providers, life sciences companies, and private equity funds and their portfolio companies. He defends clients against allegations of false claims for payment to the government, in SEC investigations and enforcement proceedings, and represents clients in complex business disputes. Brian also counsels clients on health care regulatory issues, including telemedicine laws, compliance with the federal Physician Payments Sunshine Act and analogous...

Laurence J. Freedman, Litigation Attorney, Mintz, Enforcement Defense Law

Larry has a deep understanding of what drives government enforcement actions, and how to defend against them, in the health care and life sciences industries. As a trial lawyer and then official in the Civil Fraud Section of the U.S. Department of Justice, he litigated and supervised hundreds of False Claims Act and qui tam cases nationally. In his litigation practice, Larry has successfully represented hospitals and health care systems, laboratories, pharmaceutical and device manufacturers, and health care executives against fraud and abuse allegations and investigations brought by federal and state agencies. He is consistently recognized among the nation’s leading health care defense attorneys.

Larry’s health care and life sciences litigation practice focuses on defending clients against allegations and investigations of fraud and abuse involving governmental programs. He is highly experienced in representing clients against actions brought by federal and state agencies including the US Department of Justice (DOJ), the Department of Health and Human Services Office of the Inspector General (HHS OIG), the United States Attorneys’ Offices, and state OIGs and Medicaid Fraud Control Units (MFCUs).

Larry’s practice is based on his 24-years of experience handling complex civil litigation, often in the context of parallel proceedings, and achieving global resolutions. In addition to enforcement defense, Larry counsels clients through internal investigations, corporate compliance, investor due diligence reviews, and health care bankruptcies involving governmental liabilities. His clients include hospitals and health systems, dialysis providers, clinical laboratories, medical equipment companies, pharmaceutical and device manufacturers, and health care executives.

Prior to private practice, Larry served as an Assistant Director with the Civil Fraud Section of the DOJ and focused solely on the False Claims Act and its qui tam provisions. At DOJ he supervised hundreds of qui tam cases filed in US district courts throughout the country, was part of the leadership team for the pharmaceutical enforcement initiative, and managed high-profile actions often involving multiple US Attorneys’ Offices and federal agencies.

Prior to his position as Assistant Director, Larry served with the Civil Fraud Section as a trial attorney focused on health care fraud and defense procurement. He co-led the notable investigation and prosecution of national independent clinical laboratories known as “Operation LABSCAM.” For his achievements, Larry was highly-recognized by the Attorney General with the Department’s highest and second highest awards, as well as multiple awards from the HHS OIG and the MFCUs.

Following law school, Larry served as a law clerk for the Honorable Richard Cardamone of the U.S. Court of Appeals for the Second Circuit.