On February 11, 2016, the Center for Medicare and Medicaid Services (CMS) issued the much-anticipated final rule concerning Section 6402(a) of the Affordable Care Act, the so-called “60 Day Rule,” regarding requirements report and return an overpayment. This rule is of critical importance to healthcare providers seeking to avoid liability for reverse false claims under the False Claims Act (FCA).
On February 11, 2016, the Center for Medicare and Medicaid Services (CMS) issued the much-anticipated final rule concerning Section 6402(a) of the Affordable Care Act, the so-called “60 Day Rule.” This section requires Medicare and Medicaid providers, suppliers and managed care contractors to report and return an overpayment by the later of “60 days after the date upon which the overpayment was identified or the date any corresponding cost report was due, if applicable.” CMS delayed adopting the rule to address public comments concerning, among other things, (1) the meaning of “identify” (i.e., what starts the 60-day clock); and (2) the length of the “lookback period.” This rule is of critical importance to healthcare providers seeking to avoid liability for reverse false claims under the False Claims Act (FCA).
Under the new regulation, 42 C.F.R. § 401.305, the 60-day clock starts when a provider has identified an overpayment, which is defined as “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.” Backing off from the proposed 10-year lookback period, CMS finalized a 6-year lookback period.
The key element of the final rule clarifies that the 60-day clock does not start to tick while the provider is conducting its “reasonable diligence” into whether the provider has received an overpayment and is quantifying the amount of the overpayment. While this concept was discussed in the proposed rule’s preamble, many commenters expressed concern about the meaning of the proposed rule’s “reckless disregard or deliberate ignorance of the overpayment” standard and whether it allowed time for the provider to take the steps necessary to determine whether it received an overpayment and, if so, the amount. In addition, some viewed the court’s interpretation of the statute in United States ex rel. Kane v. Healthfirst, Inc., as stating that the 60-day clock began as soon as the provider was “put on notice” of a potential overpayment. CMS’ final rule clearly states that this interpretation of Kane is incorrect—providers have the ability to conduct “reasonable diligence” into the fact and amount of the overpayment prior to the 60-day time period starting. However, CMS does not view the reasonable diligence period as never-ending. The preamble discusses a six month time frame as a “benchmark” for how long the reasonable diligence should take absent “extraordinary circumstances” such as a physician self-referral law (Stark Law) issue. The rule also says that the 60-day clock begins on the day the provider received the information about the potential overpayment and failed to exercise reasonable diligence.
These “should have determined” and “reasonable diligence” concepts have implications for how the government and defendants will interpret the FCA’s reverse false claims provision, which is one way the 60-day rule can be enforced. Under the FCA, a person can be liable for “knowingly concealing, or knowingly or improperly avoiding or decreasing” an obligation to the government. An overpayment that is not reported and returned within 60 days of identification becomes an “obligation.” Thus, we should expect that the government will be interested in examining whether a provider did or did not exercise reasonable diligence in evaluating the propriety of any particular claim.
The most salient practical takeaway from the final rule is the emphasis CMS places on the importance of compliance programs in ensuring that providers meet the “reasonable diligence” concept. CMS says providers “are encouraged to have effective compliance programs as a way to avoid receiving or retaining overpayments… [U]ndertaking no or minimal compliance activities” could result in the government finding the provider did not comply with this rule “based on a failure to exercise reasonable diligence” if the provider received an overpayment.
Other noteworthy aspects of the final rule include:
Acknowledging that providers can use any appropriate process, such as the claims adjustment, credit balance, OIG’s Self-Disclosure Protocol, or CMS’ Self-Referral Disclosure Protocol to satisfy the obligation to report and return. This is a change from the proposed rule’s required use of the voluntary refund process to report and return.
Clarifying that the final rule’s standards and requirements are not retroactive.
Providing more specific guidance on the rule’s application to the cost reporting process.