The Centers for Medicare & Medicaid Services has proposed to redefine what it means to “identify” a Medicare overpayment. The proposal would remove the requirement that providers, suppliers, managed care organizations, and plan sponsors use “reasonable diligence” and adopts the False Claims Act’s “knowingly” standard.

• Reverses CMS’s previous position
• Provides Medicare participants more leeway in their day-to-day compliance efforts
• Does not remove the obligations to monitor reimbursement, conduct audits, and investigate credible evidence of potential overpayments

The Centers for Medicare & Medicaid Services (CMS) is proposing to redefine what it means to “identify” a Medicare overpayment. Buried in a late December publication, the new definition seems to be an about-face from CMS’s previous comments in rulemaking implementing the 2010 Affordable Care Act (ACA) overpayment requirement. Specifically, the proposed revisions remove the requirement that Medicare providers, suppliers, managed care organizations, and plan sponsors (“Medicare participants”) use “reasonable diligence” to identify an overpayment. CMS proposes that “[a] person has identified an overpayment when the person knowingly receives or retains an overpayment,” with “knowingly” having the same meaning as in the False Claims Act (FCA). While this change appears to relax certain obligations to investigate suspected overpayments, the net effect on day-to-day compliance activities is likely to be minor. The proposed rule is scheduled to be published in the Federal Register on December 27, 2022, and comments are due to the CMS by February 13, 2023.

The Affordable Care Act and Prior Regulations

The ACA requires Medicare participants who have received an overpayment to report and return the overpayment within 60 days of identifying it—as a result, this requirement is often referred to as the “60-Day Rule.” The ACA defines an overpayment as any funds received and retained under the Medicare and Medicaid programs to which the recipient is not entitled. An overpayment retained past the 60-day deadline is an obligation that could lead to reverse FCA liability.

The ACA did not define what it meant to “identify” an overpayment, so CMS’s regulatory definition was critical to Medicare participants’ compliance efforts. CMS regulations, issued in 2014 (for Medicare Parts C and D) and 2016 (for Medicare Parts A and B), require Medicare participants to conduct “reasonable diligence” to determine whether they have received overpayments and rejected comments that Medicare participants should only have obligations to return overpayments when they have actual knowledge of them. CMS’s existing “reasonable diligence” standard encompasses both proactive compliance activities and responses to credible information about potential overpayments.

CMS’s proposal notes that a group of Medicare Advantage Organizations successfully challenged CMS regulations for the Medicare Parts C & D programs, arguing that by requiring reasonable diligence to identify overpayments, “the final rule impermissibly created False Claims Act liability for mere negligence.” A 2018 district court decision (which was subsequently reversed on other grounds) held that the ACA’s references to the FCA only impose liability for overpayments “knowingly” retained—or, as defined by the FCA, when a person (1) has actual knowledge, (2) acts in deliberate ignorance of the truth or falsity of the information, or (3) acts in reckless disregard of the truth or falsity of the information.

CMS’s New Proposed Rule

CMS’s proposed revisions would drop the “reasonable diligence” standard and adopt the FCA’s “knowingly” standard. Medicare participants would be deemed to have identified an overpayment if they have actual knowledge of the existence of an overpayment or act in reckless disregard or deliberate ignorance of an overpayment.

Practically speaking, however, the proposed revisions may not result in significant changes for Medicare participants’ day-to-day compliance activities. While the revisions may technically relieve Medicare participants of the regulatory responsibility of performing “reasonable diligence,” CMS’s proposal does not permit Medicare participants to ignore credible information about potential overpayments. Medicare participants will still need to evaluate credible information or face potential liability for deliberate ignorance or reckless disregard if they have retained overpayments. One aspect of the “reasonable diligence” standard we believe CMS should maintain, however, is the acknowledgement in the 2016 Preamble discussion that timely good faith investigation of credible information could take up to 6 months (or longer in extraordinary circumstances). Further, as CMS suggested in its 2016 final rule for Medicare Parts A & B, Medicare participants should conduct proactive reviews to ensure they have properly received Medicare payments.

In short, while CMS’s proposal arguably provides Medicare participants more leeway in their day-to-day compliance efforts with respect to potential overpayments, it by no means removes their obligations to monitor reimbursement, conduct audits, and investigate credible evidence of potential overpayments.

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