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CMS Proposed Rule for Refunding Overpayments Would Align With False Claims Act “Knowledge” Standard

The Centers for Medicare & Medicaid Services (CMS) proposed a rule late last year to harmonize the standard it would apply for providers to identify and refund overpayments with the “knowledge” standard under the False Claims Act (FCA) and the Civil Monetary Penalties Law. Though this proposal purportedly ensures that a lack of “reasonable diligence” cannot create civil liability, it would create significant confusion as to how CMS expects providers and Medicare Advantage organizations (MAOs) to “identify” and quantify potential overpayments before triggering the 60-day period to refund them. The proposed rule, if adopted, would likely become part of the framework for the Department of Justice and Department of Health & Human Services’ Office of Inspector General when evaluating potential liability for the alleged failure to return overpayments.

The statutory changes regarding overpayments, which were added in 2010 as part of the Affordable Care Act, require health care providers, suppliers, Medicaid managed care organizations, MAOs, and prescription drug plan sponsors to report and return overpayments from Medicare or Medicaid within 60 days of identification or by the date any corresponding cost report is due – whichever is later. Retention of the overpayment after the deadline passes results in an “obligation” under the FCA, which creates FCA liability under a so-called reverse false claim theory for knowingly concealing or knowingly and improperly avoiding an “obligation” to pay funds to the United States.

In 2012, CMS issued a proposed rule with respect to overpayments under Medicare Parts A and B. In 2014, CMS implemented a final rule with respect to overpayments in the Medicare Advantage program (Medicare Part C) and prescription drug benefit programs (Medicare Part D) (2014 Overpayment Rule). Four years after it was proposed, CMS adopted a rule governing the return of Medicare Part A and Part B overpayments (2016 Overpayment Rule). The 2016 Overpayment Rule clarified that identification of an overpayment occurs, thereby triggering the start of the 60-day clock, when a person “has, or should have through the exercise of reasonable diligence,” determined that the person received an overpayment and quantified the overpayment amount. CMS explained that reasonable diligence requires proactive compliance measures conducted in good faith by qualified individuals to monitor for potential overpayments and timely investigation into credible information of a potential overpayment. Essentially, the 2016 Overpayment Rule provided an investigation period – generally expected to be up to six months – during which persons could determine the scope of the overpayment and quantify it before “identification” occurred.    

In the 2022 proposed rule, CMS specifically referenced relevant recent litigation involving the 2014 Overpayment Rule. In United Healthcare Ins. Co. v. Azar, MAOs alleged that the 2014 Overpayment Rule requiring MAOs to use “reasonable diligence” in identifying overpayments created FCA liability for mere negligence. The MAOs argued that the standard for identifying overpayments should be the same standard as espoused in the FCA: a “knowing” standard. The FCA defines “knowing” and “knowingly” to mean that a person has “actual knowledge,” acts in “deliberate ignorance” of the truth or falsity of the information, or acts in “reckless disregard” of the truth or falsity of the information. 

The proposed rule acknowledges and seeks to remedy this discord. Under the 2022 proposed rule, an entity has identified an overpayment if it has “actual knowledge” of the existence of the overpayment or acts in “reckless disregard” or “deliberate ignorance” of the overpayment.

But alignment in one area has opened the door for confusion in another. That is, the proposed rule does not address whether, in CMS’s view, it still recognizes the need for an investigation period afforded to persons to enable them to quantify – and therefore identify – the overpayment within the meaning of the 2016 Overpayment Rule. Knowledge of an identified overpayment within the meaning of the proposed rule will occur after quantification of the amount, so the practical effect of the proposed rule should not result in elimination of the investigation period. We suggest that providers, suppliers, and Part C and Part D plans should be permitted to undertake an investigation into credible information concerning potential overpayments before triggering any requirement to return overpayments for purposes of liability under the FCA. 

The public has until 5 p.m. ET on February 13, 2023 to submit comments.  

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As a former official in the Civil Fraud Section of the U.S. Department of Justice, Larry has deep experience handling FCA investigations and qui tam litigation for industry leading health care clients across the country.
Jane Haviland's practice focuses primarily on health care enforcement defense. Jane defends laboratories, physicians, and other clients facing government investigations and whistleblower complaints regarding alleged violations of the federal False Claims Act, the federal anti-kickback statute, the Stark law, and similar state laws.