On February 11, 2016, the Centers for Medicare & Medicaid Services (CMS) published a final rule on the reporting and return of overpayments within 60 days, an obligation commonly known as the “60-day rule.” The final CMS rule, which relates to Medicare Part A and Part B only, eases some of the requirements for healthcare providers and suppliers compared to what CMS originally proposed four years ago. Given that the failure to timely report an overpayment can lead to False Claims Act (FCA) exposure, the final rule has significant FCA implications for healthcare providers.
Under the “reverse false claim” provision of the FCA, 31 U.S.C. § 3729(a)(1)(G), liability can exist when a provider or supplier “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” An “obligation” includes the retention of any overpayment. The Affordable Care Act explicitly states that the 60-day rule is an “obligation” for purposes of the FCA.
Changes and FCA-Related Takeaways
Set forth below are the key FCA-related takeaways from the final CMS rule on overpayments:
- Six-Year Lookback Period. The final rule imposes a six-year “lookback period,” meaning that an overpayment must be reported and returned only if a person identifies the overpayment within six years of the date the overpayment was received. CMS noted that a six-year lookback period is consistent with the more commonly applicable six-year statute of limitations under the FCA. A six-year lookback period reduces the requirement for providers from the 10-year period CMS originally proposed.
- Meaning of “Identified.” CMS clarified that an overpayment is “identified” 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” with a reasonable degree of certainty. CMS noted in its final rule that “reasonable diligence” requires “proactive compliance activities” and investigations to uncover potential overpayments. The proposed rule contained a narrower definition that mirrored the FCA’s knowledge standard, stating that an overpayment was identified when a person had “actual knowledge” of the overpayment or acted in “reckless disregard or deliberate ignorance” of its existence. The final rule thus seemingly expands the definition of “identified” to include acts that may not rise to the level of fraud subject to FCA liability.
- Six-Month Benchmark for Timely Investigation. CMS set a six-month benchmark for what it considers a timely investigation under the “reasonable diligence” standard for identifying overpayments. Under this benchmark, providers and suppliers have six months from the receipt of credible information to conduct a good faith investigation, absent “extraordinary circumstances,” which is a fact-specific question. CMS also noted that it is “certainly advisable” for providers and suppliers to maintain records that document their reasonable diligence efforts and that could help refute any allegation that a provider or supplier acted with the requisite intent under the FCA.
- No Clarity on Public Disclosure Bar. CMS declined to confirm, as requested by commenters, that the reporting of an overpayment is a “public disclosure” that could bar substantive liability under the FCA’s qui tam.
Impact on Kane Ruling
CMS’ final rule contradicts the momentous district court decision in U.S. ex rel. Kane v. Healthfirst, Inc., 120 F. Supp. 3d 370 (S.D.N.Y. 2015), which offered the first judicial interpretation of the meaning of “identified” in the statute. The district court held that “identified” means that “the sixty day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.” The district court explicitly rejected the defendant’s argument that the 60-day time period was not triggered when the overpayments had not yet been confirmed and quantified.
Contrary to the district court’s opinion in Kane, the final CMS rule states that an overpayment is identified when a provider or supplier not only determines that it has received an overpayment, but also has quantified the overpayment. Critically, however, CMS’ final rule applies only to Medicare Part A and Part B, whereas the Kane case involved overpayments made by Medicaid. Thus, district court’s interpretation of “identified” may continue to influence FCA reverse false claims liability in the Medicaid context.