The Fraud Enforcement and Recovery Act of 2009 created a "reverse false claim" for failing to report and refund an overpayment, even if the recipient was faultless in receiving the overpayment. Reverse false claims were now active violations of the federal False Claims Act. The following year, Congress added a requirement in the Affordable Care Act (ACA) that an overpayment must be refunded within 60 days of its "identification," but left unanswered the question of when the overpayment is “identified" so as to trigger the 60 day clock. In 2012, The Centers for Medicare and Medicaid Services (“CMS”) issued a notice of proposed rulemaking which interpreted the ACA provision to mean that an overpayment was “identified” when a person had “actual knowledge of the overpayment or acted in reckless disregard or deliberate ignorance of the existence of an overpayment.”
In 2015, the United States District Court for the Southern District of New York became the first court to rule on the issue of when an overpayment was identified, in a case called Kane v. Healthfirst, Inc. In that case, the government took the position that a mere email to management notifying of a potential overpayment triggered the 60 day period. The defendants argued that notice of a potential overpayment did not trigger the 60 day period. Instead, the defendants argued that the 60 day period should begin when the provider had conclusive knowledge that an overpayment had occurred and when that overpayment was quantified.
Although the egregious facts in this case could not have been helpful to the provider’s position, the U.S. District Court sided with the government. The Court opined that the defendants’ interpretation produced an absurd, untenable and congressionally unintended result of leaving to the provider exclusively the ability to decide when, if ever, the 60 day clock started. The Court acknowledged that the government’s interpretation imposed a difficult and potentially unworkable burden on recipients of federal payments to investigate and determine the existence of an actual overpayment, quantify it and repay it, all within 60 days of receiving notice, but the Court noted and trusted that prosecutorial discretion would militate against enforcement actions being brought against defendants who worked diligently to identify overpayments, even if the repayment turned out to be untimely (i.e., beyond the 60 day time period described in ACA.
Many attorneys practicing in this area of the law predicted that the Court’s endorsement of the government’s position was certain to be cemented into CMS’s Final Rule, when published. Imagine the industry’s surprise when, on February 11, 2016, CMS issued a much more reasonable Final Rule, which essentially adopted the defendants’ position in Healthfirst Inc. with some qualifications. The Final Rule will, when codified, be found at 42 CFR § 401.305 (81 Fed. Reg. 7654 (Feb. 12, 2016)), and provides that the 60 day clock starts when the provider has (1) identified an overpayment and (2) quantified the amount of the overpayment. Specifically, the Final Rule defined identification as a point "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. 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 significance of the Final Rule is that CMS now gives the provider the ability to conduct an investigation with "reasonable diligence” into the existence and amount of an overpayment before the 60 day clock starts ticking.
The period of reasonable diligence is not without limits, however. CMS addressed the Healthfirst Inc., Court’s concern about recipients being in control of when the 60 day clock started. In the Preamble to the Final Rule, CMS indicated that, in the absence of extraordinary circumstances, such an investigation should take no more than six months. If a provider receives notice of a potential overpayment and then fails to exercise reasonable diligence, then the 60 day clock begins on the date the provider received notice.
So the CMS spotlight has shifted from when a provider had notice to whether the provider exercised reasonable diligence after receiving notice. The takeaway for providers is that they should examine and amend their compliance program, if necessary, to ensure it contains a process to meet the "reasonable diligence" requirement. All timetables for internal investigations should be structured for completion well before the six month failsafe point. Even if the compliance program is facially compliant, a provider who conducts minimal or no compliance activities may find the government concluding that the provider violated the repayment rule.
The Final Rule contains some other provisions of note:
-CMS backed off the 10 year look-back period in the Proposed Rule and will require providers to look back six years upon receiving notice of a potential overpayment and refund similar overpayments made during that time period. While six years is still a long time, it is a lot better than 10 years.
-The Final Rule is prospective only and not retroactive, meaning that it does not apply to pending enforcement actions.
-Providers may elect among a number of processes to refund the overpayment, including OIG's Self Disclosure Protocol, CMS’s Self-Referral Disclosure Protocol, a claims adjustment and a credit balance. The Proposed Rule had proposed that an overpayment be refunded only via the voluntary refund process.
Cavender C. “Chris” Kimble is a partner in the Birmingham office of Balch & Bingham, and serves as co-chair of its Health Law Practice Group.