The Department of Health and Human Services’ (HHS) Center for Medicare and Medicaid Services (CMS), is set to publish a final rule that will provide some much needed relief to healthcare providers from the burdens of the so-called 60-Day Overpayment Rule.  The final rule clarifies (1) the 60 day period for refunding overpayments is not triggered until both the fact and amount of an overpayment are known; (2) the standard for knowledge is not “actual knowledge,” but when the provider would have identified the overpayment had it exercised reasonable diligence; and (3) the manner in which the refund must be made.

The 60-Day Overpayment Rule is a product of the Affordable Care Act.  The Affordable Care Act established a new section of the Social Security Act, Section 1128j(d)(1), which requires the recipient of an overpayment of dollars to report and return the overpayment within 60 days after the date on which the overpayment was identified.

The final rule applies to payments made only under Medicare Parts A and B.  (CMS promulgated a separate rule for Medicare Parts C and D.)  Unlike the proposed rule, which used an “actual knowledge” standard to define the term “identified,” the final rule establishes a “reasonable diligence” standard.  Under the “reasonable diligence” standard, “a person has identified an overpayment when the person has or should have, through the exercise of reasonable diligence, determined both that the person has received an overpayment and quantified the amount of the overpayment.”  This language also clarifies an ambiguity in the proposed rule, which did not define what it meant to identify an overpayment.

The final rule also establishes a six year limitation on a provider’s obligation to look back to identify overpayments. According to CMS, “Creating this standard for identification provides needed clarity and consistency for providers and suppliers on the actions they need to take to comply with requirements for reporting and returning of self-identified overpayments.”  This limitation offers some certainty for providers concerning their obligation to affirmatively identify and repay overpayment.  Exactly when an overpayment should have been discovered—through the exercise of reasonable diligence—is likely to be disputed between providers and the government.

Finally, the final rule provides, “providers and suppliers must use an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process to satisfy the obligation to report and return overpayments.” The likely purpose of prescribing manner of repayment is to prevent providers from simply mailing in the repayment in the hope the agency does not become aware of a potentially more serious billing issue.

We previously reported on one case in which the government aggressively prosecuted a provider for violating the 60 day overpayment rule.  Although it is now clearer that the exercise of “reasonable diligence” will shield a provider, it is unlikely that this final rule will at all deter the government from continuing to aggressively prosecute allegations of health care fraud and abuse.