By: Howard E. Bogard, Esq.
Every health care provider has “credit balances,” which occur when a provider receives more money than it is owed for services rendered. Credit balances can be caused by a number of factors, including incorrect coding, duplicate payments, medical necessity errors, overpayments by patients or payers and miscalculated coinsurance or out-of-pocket costs. Health care providers should establish formal procedures to work credit balances on a regular and consistent basis in order to return such balances to the appropriate payer or patient in a timely manner. If the beneficiary of a credit balance cannot be identified or found, Alabama law requires that the applicable overpayment amount be submitted to the State as unclaimed property.
A failure to return credit balances to a commercial insurer in a timely manner may result in a breach of the agreement between the provider and insurer, thereby giving the insurer the right to terminate the provider agreement. However, a failure to return credit balances to Medicare or Medicaid in a timely manner can result in significant financial penalties well in excess of the amount of the credit balance. On November 1, 2024, the Centers for Medicare and Medicaid Services (“CMS”) revised its rules regarding the identification, reporting and return of Medicare and Medicaid credit balances and in doing so imposed on providers strict time-frames to return overpayments owed to either program (the “Final Rule”). The Final Rule becomes effective January 1, 2025.
By way of background, the federal overpayment rule, sometimes referred to as the “60-Day Refund Rule,” was enacted as part of the 2010 Affordable Care Act and requires providers to report and return Medicare and Medicaid overpayments within 60 days after the overpayment is “identified.” A failure to comply with the 60-Day Refund Rule can result in the imposition of a civil monetary penalty of up to $24,947 for each separate overpayment. Further, a failure to timely refund an overpayment to Medicare or Medicaid may result in the violation of the federal False Claims Act (“FCA”), which includes additional financial penalties and, in some cases, may subject the provider to a government imposed compliance plan called a Corporate Integrity Agreement.
Prior to the adoption of the Final Rule, CMS took the position that an overpayment is deemed to have been “identified” when the recipient has either actually determined or should have determined “through the exercise of reasonable diligence” that it received an overpayment and has “quantified the amount of the overpayment.” CMS had suggested that “most” overpayment investigations should be completed within 180 days, but did not impose a formal deadline. Accordingly, investigations undertaken in good faith and with reasonable diligence could last beyond the 180-day period.
Following a 2018 ruling by the U.S. District Court for the District of Columbia finding that the “reasonable diligence” standard under the then existing 60-Day Refund Rule was improper, CMS revised its definition of “identified” in the Final Rule to align it with the FCA definition of “knowingly.” Specifically, CMS revised the definition of when an overpayment has been “identified,” thus triggering the 60-day report-and-return clock, as follows: “A person has identified an overpayment when the person knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in [the federal civil False Claims Act].” For purposes of FCA liability, the term “knowingly” is defined as having “actual knowledge” of false information and/or acting in “deliberate ignorance” or “reckless disregard” of the truth or falsity of information. Thus, a failure to actively and routinely work credit balances could trigger a finding that the provider acted in deliberate ignorance or reckless disregard of the need to return the overpayment.
Under the Final Rule, CMS has, for the first time, established a hard deadline to return any Medicare or Medicaid overpayments to avoid liability. The Final Rule provides that when an initial overpayment has been identified (under the FCA definition of “knowingly”) and the provider conducts a “timely, good-faith investigation” to determine whether related overpayments exist, the 60-day deadline for reporting and returning the initially identified overpayment and related overpayments will remain suspended until the earlier of:
(A) The date that the investigation of related overpayments has concluded and the aggregate amount of the initially identified overpayments and related overpayments is calculated; or
(B) The date that is 180 days after the date on which the initial overpayment was identified.
The end result is: (1) a maximum of 180 days to investigate and quantify in good faith any overpayment with the clock starting at the point the provider has “actual knowledge” of the first overpayment or acts in deliberate ignorance or reckless disregard of the first overpayment, plus (b) another 60 days to return the overpayment, which runs from the earlier of the date the investigation is concluded or 180 days after the date the initial overpayment was identified.
If a provider does not undertake a “timely, good-faith investigation” with respect to a possible overpayment, the provider only has 60 days to return the overpayment. If a provider does undertake a “good-faith investigation” the 60-day period is suspended for up to 180 days to investigate both the initially identified overpayment but also “related overpayments” that are suspected to “arise from the same or similar cause” as the initially identified overpayment. This approach by CMS results in a provider having no more than 180 days to resolve all factually similar overpayments, even if the provider identifies a related overpayment on, for example, day 150 of the investigation. Further, if the provider has not completed its good faith investigation within the 180-day time period, it faces FCA liability based on a finding that it was not acting in good faith due to the failure to complete the investigation in a timely manner.
For larger institutions, such as hospitals and nursing homes, meeting the 180-day time period may prove to be very challenging, especially for complex or multi-faceted related overpayments. Nonetheless, it is important for all providers to act diligently in identifying, investigating and returning any credit balances owed to the Medicare and Medicaid programs in a timely manner and to document the date of identification and the provider’s “good faith” investigation process.
Howard Bogard is a Partner at Burr & Forman LLP and works exclusively with health care providers on corporate and regulatory matters. He can be reached at (205) 458-5416 or at hbogard@burr.com.
