CMS Issues Long-awaited Final Rule Regarding the Identification and Return of Medicare Overpayments

Yesterday the Centers for Medicare & Medicaid Services (CMS) issued a final rule which clears up ambiguity in the implementation and enforcement of Medicare's infamous "60-Day Rule." This final rule provides long-awaited guidance to health care providers on when an overpayment is "identified" for the purposes of triggering the 60-day clock for reporting and returning overpayments to Medicare.

Quick Overview of 60-Day Rule
By way of background, the 60-Day Rule is part of the Affordable Care Act of 2010 (ACA), and requires, in relevant part, that a health care provider report and return any overpayment received from Medicare within 60 days after the provider has "identified" the overpayment. Failure to report and return an overpayment within the 60-day window can result in liability under the False Claims Act (FCA).

"Identifying" Overpayments – A Historical Overview
CMS released a proposed rule in February 2012 stating that, for the purposes of the 60-Day Rule, an overpayment is “identified” when the provider either "has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of an overpayment." CMS never finalized that proposed rule, however, and the issue of when an overpayment is officially "identified" remained a source of confusion among health care providers for several years. Then, in August 2015, the United States District Court for the Southern District of New York issued an opinion in Kane v. Healthfirst, Inc., et al. stating that "identification" occurs when a health care provider is "put on notice" of a possible overpayment. This decision, which marked the first judicial interpretation of the 60-Day Rule in the FCA context, sent shockwaves through the health care community (see previous Health Law Update here). Many commentators believed that the opinion set the threshold too low for starting the 60-day repayment clock.

Final Rule Takeaways for Health Care Providers
Here are the main takeaways from the final rule:

• The 60-day "clock" does NOT start ticking until you quantify the amount of the overpayment. With this final rule, CMS officially addressed what it means to "identify" an overpayment. The rule states that identification has occurred when a provider “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.” CMS also stated that, absent extraordinary circumstances, providers will generally have six months from the receipt of credible information to investigate possible overpayments before the 60-day clock starts ticking.
• Six-year look-back period. The final rule stated that providers who discover one overpayment will have to look back six years for similar overpayments. CMS had originally proposed (though never officially adopted) a 10-year look-back period to align with the statute of limitations for bringing FCA lawsuits. CMS abandoned that position with this final rule.
• Medicare Part A and Part B Only. The final rule relates to Medicare Part A and Part B providers and supplies only. Medicare Parts C and D will be addressed by CMS in a separate rulemaking.

• Effective Date. The regulations promulgated by this final rule will be effective on March 14, 2016.

In summary, this final rule provides very helpful guidance for health care providers and will generally give providers more time to respond to overpayment issues before triggering liability under the FCA.

For questions, please contact Sarah Coyne at (608) 283-2435/sarah.coyne@quarles.com, Jon Kammerzelt at (608) 283-2438/jon.kammerzelt@quarles.com, or your Quarles & Brady attorney.