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CMS Finalizes 60-Day Report and Repayment Rule
February 11, 2016

Today, CMS released its final rule (Final Rule) on the reporting and returning of Medicare Parts A and B overpayments by providers and suppliers pursuant to Section 1128J(d) of the Social Security Act (Section 1128J(d)).  This Final Rule implements and clarifies Section 1128J(d) with respect to Medicare Parts A and B, even though the Section 1128J(d)’s statutory reporting and repayment obligations have been effective since it was enacted by the Affordable Care Act in March 2010.  The Final Rule becomes effective 30 days after its publication in the Federal Register, which is scheduled for tomorrow, February 12, 2016.          

The Final Rule departs from the 2012 proposed rule in several key regards.  Some of these changes offer clarity and needed flexibility for providers, but others create potential new risks for providers.          

The Final Rule includes the following key provisions:

  • Shorter 6-Year Lookback Period.  The final rule provides for a 6-year lookback period for reporting and returning overpayments, a reduction from the 10-year period previously proposed.
  • “Reasonable Diligence” Rather than Proposed Constructive Knowledge Standard.  The Final Rule requires that providers exercise reasonable diligence, which includes both “proactive” compliance activities and timely “reactive” investigations in response to credible information of a potential overpayment.  Previously, CMS had proposed using the concept of actual knowledge, reckless disregard, and deliberate indifference to determine when a false claim has been identified, based on the definition of “knowing” and “knowingly” in Section 1128J(d) and the Civil False Claims Act.  The Final Rule no longer seeks to interpret the terms “knowing” and “knowingly.”
  • Benchmark Six-Month Investigation Period.  While the Final Rule does not contain a time limit for investigations, CMS does note that, except in “extraordinary circumstances,” reasonable diligence would require not more than 6 months for a timely, good faith investigation of credible information.  “Extraordinary circumstances” may include unusually complex investigations, natural disasters, and a state of emergency.
  • Implication for Stark Self-Disclosures. In the perambulatory language, CMS states that providers and suppliers reporting overpayments through the CMS Stark Self-Referral Disclosure Protocol (“SRDP”) after the effective date of the Final Rule will be subject to a 6-year lookback period.  However, providers and suppliers reporting SRDP overpayments prior to the effective date of the Final Rule will be governed by the 4-year lookback period currently applicable to the SRDP process, and will not be expected to return overpayments from the fifth and sixth years through other means.
  • Quantification is Part of the Overpayment Identification Process.  The Final Rule clarifies that identification requires both the determination that an overpayment was received and quantification of the amount of the overpayment.  This explicit acknowledgement that a reasonably diligent provider does not identify an overpayment until it has been quantified addresses a key omission in the proposed rule.
  • Affirmative Obligation for Proactive Compliance Activities.  The proposed rule emphasized provider’s obligations to investigate suspected overpayments, but the Final Rule introduces the notion that reasonable diligence includes proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments.  This shift in emphasis underscores the importance of robust compliance activities, which may vary based on the setting size or provider type.
  • Accommodating Payment Plans.  The Final Rule offers pragmatic relief to providers facing particularly burdensome repayment obligations by suspending the deadline for returning overpayments when the provider requests an extended repayment schedule, which are subject to the CMS rather strict rules on qualification. 
  • Underpayments Not Covered.  Although providers sometimes seek to incorporate underpayments to reduce the amount of an overpayment, CMS explicitly excludes the treatment of underpayments from the scope of the Final Rule.
  • Applicable Reconciliation Limited to Cost Report Filing. The Final Rule also finalizes CMS’ proposed policy to limit “applicable reconciliation,” which affects the creation of a report and return obligation, to cost report reconciliation, i.e., in situations where CMS makes interim payments to a provider throughout the cost reporting year and the provider reconciles those payments with covered and reimbursable costs at the time the cost report is due.  Under the Final Rule, CMS considers “applicable reconciliation” to occur when the cost report is filed, with the exception of reconciliation related to Supplemental Security Income ratios used in the calculation of disproportionate share hospital payment adjustment and related to the outlier reconciliation. 

The Final Rule sets forth CMS’ policy with respect to provider and supplier overpayments from durable medical equipment Medicare administrative contractors, or Part A/Part B Medicare administrative contractors.  While CMS had previously finalized a separate rule for Medicare Part C and Part D plans at 42 C.F.R. sections 422.326 and 423.360, it still has not proposed a rule with respect to Medicaid overpayments.  Nonetheless, CMS emphasizes that despite the absence of rulemaking as to the implementation of Section 1128J(d) with respect to Medicaid, the requirements of Section 1128J(d) are currently effective with respect to Medicaid overpayments.

We will be providing our clients and friends with an in-depth assessment of these issues and other raised by CMS’ final rule at our webinar next Thursday, February 18, 2016, from 1:00 p.m.-2:30 p.m. (EST)/ 10:00 a.m.-11:30 a.m. (PST).  Please email us at webinar@health-law.com and we will send you a registration link shortly.

For additional information, please contact the following individuals:  Lloyd Bookman or John Hellow in Los Angeles at 310.551.8111; Mark Reagan, Katrina Pagonis or Felicia Sze in San Francisco at 415.875.8500; Mark Johnson in San Diego at 619.744.7300; or Robert Roth in Washington, D.C. at 202.580.7700.

For media inquiries, please contact Barrett McBride at 916.456.5855.