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Health Care Blog

Exercising Reasonable Care to Identify and Address Potential Overpayments

When the Center for Medicare and Medicaid Services (CMS) finally issued final regulations under the 60-day repayment rule, it implemented a new standard requiring a provider to affirmatively exercise reasonable diligence to identify potential overpayments.  This was a change from the proposed regulations that held providers to a much lower affirmative duty to exercise diligence to find potential overpayments.  When a provider receives “credible information” that indicates a potential overpayment, affirmative steps must be taken in a timely and good faith manner to investigate.  Failure to meet the standard of reasonable diligence can result in significant penalties under the False Claims Act (FCA).  In some cases criminal liability can attach as well; particularly when evidence strongly indicates a problem might exist and a deliberate decision is made not to investigate or repay an amount due.

By now most health care providers are at least generally aware of the 60-day repayment rule.  That rule originated as part of the Affordable Care Act in 2010.  The rule provides that the failure to repay a known overpayment within 60 days after discovery results in potential penalties under the FCA.  This means a simple overpayment is multiplied by a factor of three.  Additionally, penalties can be assessed in amounts ranging from a minimum of $11,000 and a maximum of approximately $22,000 per claim.  Financial exposure under the FCA can be very substantial; particularly when there is a systematic billing error that impacts a large number of claims over a significant period of time.  The lookback period for imputed False Claims is 6 years, which amplifies the potential exposure when the “tip of the iceberg” is discovered in a current year audit.

The initial statutory provision left some ambiguity regarding application of the 60-day repayment rule.  One significant ambiguity relates to when the 60-day time period begins to run.  The statute states the 60-day period commences upon “identification” of the overpayment but included no clarification of when a provider is deemed to have identified the existence of an overpayment.  It was not clear whether identification occurred when there was an allegation that an overpayment exists, when an amount of overpayment was calculated, when the existence of the overpayment was verified, or at some other time.  It was also unclear whether actual knowledge of an overpayment was required or whether knowledge could be imputed in certain circumstances.

CMS provided clarification on the issue of identification in the final regulations, but the clarification places significant burdens on providers.  Under the final rules, the provider is deemed to have identified an overpayment not when actual knowledge is obtained, but rather when the provider “should have” identified the overpayment through the exercise of “reasonable diligence.”  The new standard requires providers to conduct a timely and good faith investigation when it receives credible information an overpayment might exist.  Failing to take reasonable steps to investigate will result in imputed knowledge and deemed “identification” of the overpayment.  In other words, the 60-day clock starts to run when the investigation should have commenced.

It is useful at this point to mention what constitutes an overpayment that invokes the statutory requirement.  An overpayment exists when the provider receives any funds to which they are not entitled.  There is no requirement of an amount threshold, substantiality, or materiality.  Any overpayment invokes the statute and becomes a potential false claim if not repaid within the 60-day period.  There are situations where the amount of overpayment is so small that the provider might determine it not worth the resources to identify, quantify and repay.  When making this determination, it should be kept in mind the FCA will apply if a whistleblower case is brought or a government investigation is commenced and finds the overpayment.  FCA liability can result in large penalties; particularly where there are multiple claims involved.  It should also be kept in mind that criminal statutes impose felony penalties for the willful failure to return known overpayments.

Overpayments that are self-discovered and repaid before they become false claims are relatively easy to manage.  Once the FCA potentially attaches, these situations become increasingly complicated to manage.  The OIG Self Disclosure process should be considered where potential for significant penalties is present.  The Self Disclosure Protocols permit resolution at a minimum of 1.5 times the amount of the overpayment.  Full disclosure of the facts and investigation is required as part of the self-disclosure process.  Only civil penalties are subject to settlement under the protocol.  The wrong facts disclosed as part of the SDP process can lead to criminal charges against the entity or individuals.  Criminal charges cannot be settled using the SDP.

Where amounts are smaller, a provider may decide to repay without going through the protocol process.  A determination of which option is right in the specific situation should be made with the involvement of legal counsel that has experience with these issues.

Proper operation of a compliance program is the best defense to mitigating exposure under the 60-day rule.  Prompt investigation should be conducted whenever there is a credible allegation of an overpayment.  Compliance risk identification and proactive auditing can also help mitigate risk by identifying problems early and by demonstrating the compliance process is being effectively operated.  This will help avoid allegations that overpayments should have been discovered sooner through the exercise of a reasonable compliance program.  Most importantly, ignoring alleged overpayments is never an answer that mitigates risk.  All credible allegations must be investigated and appropriate repayment should be made using one of the available methods.  The requirements of the final rule should be baked into compliance program policies and procedures and staff should be educated on the need to investigate and return overpayments within required timeframes.