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THE NEW DUTY TO REFUND OVERPAYMENTS

August 5, 2011

One of the most important changes created by the Health Care Reform Act is the establishment of an explicit duty to refund Medicare and Medicaid overpayments within 60 days of identification. While this “60 day rule” sounds simple, it is anything but, as all providers and suppliers struggle to determine both how and when this rule applies without regulatory guidance from the Centers for Medicare & Medicaid. Physicians and provider groups should pay particular attention to the 60 day rule as billing responsibilities are generally delegated to staff. In the normal course of business, a physician may not even be aware that his or her office staff has received and deposited an overpayment due to a simple mistake in billing. Failure to refund an overpayment within 60 days now constitutes an “obligation” under the Federal False Claims Act, which means that the overpayment may be considered to be a false claim. False claims, of course, can be the subject of qui tam lawsuits, government investigations, MAC/RAC audits, among others, and, if liability is found, then damages can be assessed at three times the amount of the claim and civil monetary penalties.

What does the law provide?

In general, the Patient Protection and Affordable Care Act, PPACA Section 6402(d) provides that when a person has received an overpayment, the person shall report and return the overpayment to the Secretary, the State, an intermediary, a carrier or a contractor and notify the recipient in writing of the reason for the overpayment within 60 days of identification. “Overpayment” is defined as any funds that a person receives or retains under Medicare or Medicaid to which the person, after applicable reconciliation, is not entitled to. While this requirement seems straightforward, it is anything but.

What is an overpayment?

The statute defines an overpayment as a payment that a person is not entitled to. This could mean that services were billed for but not rendered, that the services provided were not medically necessary, that the services were billed at a higher code than actually provided, that the services were provided in violation of the Stark Laws, or that the services were not of a sufficient quality. In short, there are many ways for physicians and their staff to make mistakes in billing that would mean that they were not entitled to receive payment. Identification of a billing problem, however, does not always mean that an overpayment has been received. Careful review and investigation may be necessary to determine whether an overpayment exists.

What does it mean to identify an overpayment?

One of the most difficult problems that physicians and other providers face is determining when the 60 day time limit is triggered. What does it mean to identify an overpayment? Does the 60 day clock start when a report is received by one physician that another physician in the group has improperly billed for evaluation and management of a particular patient? Does the 60 day clock start when the allegation is confirmed for one of the physician’s patients? Does it start when the practice begins to investigate the physician’s billings for the past year? Does it start only after the investigation has been completed and a determination weighing all the facts has been made by the physician group’s in-house or outside counsel has made a legal opinion considering all possible defenses that an overpayment has been received?

As these questions illustrate, thorny issues are presented when an overpayment is alleged to have been received, and there is no federal regulatory guidance that addresses how an overpayment is identified. Taking a very aggressive stance, New York’s Office of Medicaid Inspector General has said that a provider does not have to know the amount of the overpayment to trigger the 60 day time frame, but that an overpayment was received[i]. A more reasonable position may be that a provider’s 60 days is not triggered until the group has a reasonable time to investigate the facts and determine the amount of the overpayment if any. The real problem is that determining whether an overpayment has been received probably involves complex reimbursement questions, which may be of a legal nature and involve significant factual questions that may both include reviewing medical records as well as interviewing staff and possibly patients.

How is an overpayment returned?

Assuming that a physician has determined that an overpayment has been made, another important question is to whom and how is a payment returned. The statute permits the report and return of an overpayment to be made to the Secretary, the State, an intermediary, a carrier, or a contractor, as appropriate, at the correct address. It is important to also note that the statute requires that the provider explain in writing the reason for the overpayment. One of the most difficult decisions that a provider must make is deciding whether it has made a simple billing error that merely requires a repayment or whether evidence of other wrongdoing exists that could expose the provider to criminal or civil False Claims Act violations or administrative sanctions. This decision should influence how and to whom the report and refund should be made. Compliance with the overpayment statute does not guarantee that the provider will not face other sanctions related to the overpayment when it is a serious violation. For serious violations that involve false claims or Stark violations, a provider may want to use the Office of Inspector General’s Self-Disclosure Protocol. While there are substantial requirements for the disclosure that include repayment of double damages, this may be attractive when false claims are apparent. On the other hand, for billing mistakes, repayment should be made to the Medicare or Medicaid contractor. Where there is conflicting guidance, a provider may choose to seek guidance from the Centers for Medicare & Medicaid Services. Where there is possible civil or criminal exposure, there are a number of options that include the local United States’ Attorney’s Office, the Office of Inspector General, and the Kentucky Attorney General’s Office.

Conclusion

While there has been significant disagreement about when a provider has a duty to refund an overpayment, the Health Care Reform Act created an unequivocal duty to refund overpayments. Because of the complexities of reimbursement and the myriad statutes and regulations regulating the health care industry, physicians and other providers must be alert to this duty and handle allegations of overpayment carefully including the reporting of the overpayment.

Lisa English Hinkle is a Member of McBrayer law. Ms. Hinkle chairs the healthcare law practice and is located in the firm’s Lexington office. Contact Ms. Hinkle at lhinkle@mcbrayerfirm.com or (859) 231-8780, ext. 1256, or reach out to any of the attorneys at McBrayer. We take a team approach to deliver effective counsel to all our clients, so other attorneys in the firm may perform these services as well.

Services may be performed by others.

This article does not constitute legal advice.