The CMS Proposed Regulations for the 60-Day Refund Rule: The Good, the Bad, and the Ugly

On February 13, 2012, CMS finally issued a set of proposed regulations for compliance with the “60-Day Refund Rule”. The proposed rule is published at 77 Fed. Reg. 9179 (February 16, 2012).

Buried in the 2010 Patient Protection and Affordable Care Act (PPACA)(often referred to as the “Healthcare Reform Law” or “Obama Care”) was a significant modification to the federal healthcare False Claims Act (FCA), commonly referred to as the “60-Day Refund Rule”. Thus rule includes as an FCA obligation and requirement that all physicians and other healthcare provider and suppliers who participate in Medicare or Medicaid, Medicaid managed care entities, and Medicare Advantage and Part D plans, report and repay any overpayment by Medicare or Medicaid for an item or service within 60 days of the date on which the overpayment is “identified” or by a later date on which the next cost report is due (if the provider submits cost reports). Failure to timely report and repay an overpayment in compliance with this rule can result in the imposition of penalties under the federal Civil Monetary Penalties (CMP) law.

Despite the potentially severe repercussions of failure to comply with the 60-Day Refund Rule, for two years now, healthcare providers and suppliers have been without meaningful guidance from CMS on how to properly meet the rule’s requirements. The proposed regulations issued by CMS provide some helpful compliance guidance (the good), fails to address other open issues (the bad), and proposes some scary interpretations of the rule requirements (the ugly).

The good: One area of significant uncertainty for providers was when exactly does the 60-day period begin. It is a common situation where a provider discovers a repeated coding error, such as a misuse of modifier-59 by the provider’s billing company. Although the provider might not know yet whether the net effect of resubmitting the claim correctly coded would result in a determination that an overpayment has been made. Often an extensive amount of work by an outside consultant who audits the billings and determines how the should be resubmitted must ensue before the provider can fully determine the net effect of the mistake and whether an overpayment may have occurred. The provider was left with uncertainty as to whether the 60-day period commenced as soon as the error was discovered, or did not commence until the audit was completed and full net effect of the coding error determined. The proposed regulations provide that overpayment is “identified” when the provider has “actual knowledge of the existence of an overpayment, or acts in reckless disregard or deliberate ignorance of the overpayment.” Addressing the concern described above, CMS further acknowledged that an overpayment is not yet “identified” (and therefore the 60-day period does not begin) until after the provider has an opportunity to undertake a “reasonable inquiry” into the alleged cause of the overpayment. A provider is required, however, to promptly conduct a reasonable inquiry once it is aware that a potential overpayment has been made. A provider cannot avoid the 60-Day Rule by sticking its head in the sand, or unreasonably delaying investigation of the problem. Likewise, CMS asserts that if “a government agency informs a provider or supplier of a potential overpayment, the provider or supplier has an obligation to accept the finding or make a reasonable inquiry.” It is not clear how formal of a notice is required to trigger this obligation (informal letter, RAC letter, remittance advice, etc.)

The Bad: The proposed rules only apply to Medicare Part A and Medicare Part B. The PPACA provisions regarding the 60-DAy Rule, however, also apply to Medicaid, Medicare Advantage, and Medicare Part-D plans. Providers are left without any regulatory guidance with respect to how to comply with the 60-Day Rule with respect to over payments from these other programs.

The Ugly: The most striking (and scariest for providers) provision in the CMS proposed rules is the 10-year look back period. CMS is interpreting the statute to require a look-back period for overpayments of 10-years. This is a puzzling interpretation for CMS, and far too onerous for providers. CMS stated it chose the 10-year period to match the outside statute of limitations under the FCA. This greatly expands a provider’s exposure for corrections of claims, however, since the Medicare regulations currently provide for reopening of claims only for a periods of three or  four years when there is not fraud of other provider integrity issues. If this portion of the proposed rule is incorporated into the final rules, providers would have far greater liability exposure and a heavily increased burden to audit ten years back upon discovery of an error that may serve as a basis for overpayment. Providers and suppliers should submit comments on this proposed rule strenuously urging CMS to reduce the look-back period to match the current Medicare period for reopening claims.

Providers need to keep in mind that, although these are proposed rules, the 60-Day Rule obligation to report and remit overpayments is already in effect under the statutory PPACA authority. Providers need to be complying now with the 60-Day Rule.

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