Tips to avoid Medicare overpayment penalties

Editor’s Note: Welcome to Medical Economics' blog section which features contributions from members of the medical community. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The series continues with this blog by William H. Maruca, a partner at Fox Rothschild with extensive experience in healthcare law. The views expressed in these blogs are those of their respective contributors and do not represent the views of Medical Economics or UBM Medica.

William H. MarucaIf you have received a Medicare overpayment and have not returned it within 60 days of identifying that overpayment, you may be liable for False Claims Act penalties.  That’s an easy rule to summarize but a more difficult one to apply, especially when determining when the 60-day clock begins to run.

In February, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that should make that process clearer, and issued a fact sheet summarizing the rule.

The Fraud Enforcement and Recovery Act of 2009 (FERA) amended the False Claims Act to formally adopt the concept of “reverse false claims,” i.e. knowingly retaining an overpayment.   The Affordable Care Act (ACA) gave FERA sharper teeth by requiring providers to report and return an overpayment no later than 60 days from the date on which the overpayment is “identified” (or by the date any corresponding cost report is due, if applicable). 

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In the final rule, CMS states that a person has identified an 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.

The rule also established a maximum lookback period that states that overpayments must be reported and returned only if a person identifies the overpayment within six years of the date the overpayment was received.

Next: Repayments and overpayments

Repayments may be suspended if the provider has made a submission under the OIG Self-Disclosure Protocol (for False Claims and Anti-Kickback violations) or the CMS Self-Disclosure Protocol (for Stark self-referral violations) and will remain suspended as long as the provider is in the Protocol until a settlement is reached.

CMS recognized that overpayments vary, and the response to them should be tailored to the reason for the overpayment although all overpayments must be reported and returned regardless of the reason it happened-be it a human or system error, fraudulent behavior, or otherwise.

 CMS noted that the nature of the overpayment would affect a provider’s decision about the most appropriate mechanism and recipient of the overpayment report and refund.

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In adopting the “should have determined” standard, CMS recognized that the overpayment obligations adopted by Congress could deter providers from undertaking internal audits because of the mistaken belief that if you don’t know you have received an overpayment, you don’t have to report or refund it.  

The rule states “a person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” The ostrich defense will not help a provider who fails to monitor payments for their accuracy or fails to investigate credible indications of overpayments.

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In the preamble to the rule, CMS notes that the term “reasonable diligence” covers both proactive compliance activities to monitor claims and reactive investigative activities undertaken in response to receiving credible information about a potential overpayment.  Undertaking no or minimal compliance activities to monitor the accuracy and appropriateness of a provider or supplier’s Medicare claims would expose a provider or supplier to liability.

Next: Avoiding recklessness and deliberate ignorance charges

CMS included several examples of overpayments in the Federal Register that were intended as illustrations only and not an exhaustive list:

• A provider of services or supplier reviews billing or payment records and learns that it incorrectly coded certain services, resulting in increased reimbursement.

• A provider of services or supplier learns that a patient death occurred prior to the service date on a claim that has been submitted for payment.

• A provider of services or supplier learns that services were provided by an unlicensed or excluded individual on its behalf.

• A provider of services or supplier performs an internal audit and discovers that overpayments exist.

• A provider of services or supplier is informed by a government agency of an audit that discovered a potential overpayment and the provider or supplier fails to make a reasonable inquiry.

• A provider of services or supplier experiences a significant increase in Medicare revenue and there is no apparent reason-such as a new partner added to a group practice or a new focus on a particular area of medicine-for the increase.

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A provider’s failure to make a reasonable inquiry, including failure to conduct such inquiry with all deliberate speed after obtaining the information, could result in the provider or supplier knowingly retaining an overpayment because it acted in reckless disregard or deliberate ignorance of whether it received such an overpayment. 

The terms “reckless disregard or deliberate ignorance” have a long history under the False Claims Act and case law has established a provider’s duty to investigate potential irregularities when they become aware of them.

Next: Examining court case examples

One notable standard adopted by CMS makes clear that an overpayment must be quantified before it can be reported and returned. To quantify an overpayment, CMS adopted the standard of reasonable diligence, demonstrated through the timely, good faith investigation of credible information, which is at most six months from receipt of the credible information, except in extraordinary circumstances. CMS therefore provides a total of eight months after credible information is received (6 months for timely investigation and two months for reporting and returning).

One court has ruled that quantification of the amount owed is not necessary to establish an overpayment reporting and refund obligation, at least in the absence of reasonable diligence. 

In 2015, the federal district court for the Southern District of New York ruled in Kane v. Healthfirst, Inc. et al. and U.S. v. Continuum Health Partners Inc. et al.that a provider is required to report and return payments in circumstances where there is an established duty to pay money to the government, even if the precise amount due has yet to be determined.  

In the Kane case, qui tam whistleblower Robert Kane was assigned to identify any improper claims and payments that resulted from a software glitch, and was fired days after he sent an email to management listing his preliminary findings which cited more than 900 potentially improperly paid claims totaling more than $1 million. His employer allegedly dragged out the investigation of the overpayments over two years, and in fact, over half of the initially identified claims were later determined not to be overpayments. 

Arguably, this was a case of lack of reasonable diligence that prevented the quantification of the overpayments, which would have started the 60-day clock under the new final rule.

Next: Triggering the False Claims Act

The CMS final rule makes it clear that all providers need to implement an effective compliance program that proactively reviews payments to catch their own errors and those of payors, and that provides for timely and thorough investigation of credible evidence of potential overpayments so that they can be reported and refunded within the deadlines. 

Failure to do so may trigger the False Claims Act and its penalties of up to three times the overpayment plus $11,000 per claim. It may be painful to refund Medicare payments, but that pain can be multiplied many times if they are not paid back on time.