United States: Final CMS Rule On The Reporting And Returning Of Medicare Overpayments Is A Wake-Up Call For Physicians

Last Updated: June 9 2016
Article by Wilson Hayman

Effective March 14, 2016, a final rule published in February 2016 by the Centers for Medicare and Medicaid Services (CMS) implements the 60-day rule included in the Affordable Care Act (ACA) (31 U.S.C. § 1320a-7k(d)). ACA requires providers and suppliers who receive Medicare funds to report and return overpayments by the later of either (1) 60 days after the date on which the overpayment was identified, or (2) the date any corresponding cost report is due, if applicable. Hospitals must also notify in writing the Secretary of DHHS, the state, an intermediary carrier, or contractor to whom the overpayment is returned of the reason for the overpayment. In addition, ACA provides that any overpayment retained by a person after the deadline is a violation that potentially triggers the provisions of the Federal False Claims Act, with substantial civil penalties plus treble the amount of damages sustained by the government due to the acts of that person, Civil Monetary Penalties and exclusion from federal health care programs.

The final rule addresses several concerns raised by providers about the proposed rule published on February 16, 2012. It clarifies the meaning of overpayment "identification" that triggers the 60-day period for the reporting and repayment of overpayments, and it reduces the "lookback" period for overpayments to providers from 10 years to six years. At the same time, it serves as a wake-up call for hospitals to implement these particular requirements of the ACA as enunciated in the new rule. We will answer some of the most important questions about the significance of the final rule for hospitals in this article.

To What Providers and Overpayments Does the Final Rule Apply?

The final rule applies only to Medicare Part A and Part B providers and suppliers, including hospitals. CMS has previously published separate rules covering the reporting and returning of overpayments for Medicare Part C and Part D, and a final rule concerning Medicaid overpayments has not yet been published. For hospitals that file cost reports with the Medicare program for Medicare Part A inpatient and outpatient services, the overpayments must be reported and returned by the date any corresponding cost report is due. For other services such as physician, lab, CORF and home health services reimbursed under Medicare Part B, the overpayments must be reported and returned by 60 days after the date on which the overpayment was identified.

The rule defines "overpayment" as any funds that a person has received or retained under the Medicare program to which the person is not entitled to retain. It includes payments for claims that lack sufficient documentation or medical necessity, primary payments by Medicare when a primary payment from a non-Medicare payer has been received, and even overpayments caused by a Medicare contractor or that were otherwise outside of the provider's control.

When is an overpayment identified?

For Medicare Part B services, CMS in its commentary indicates that the 60-day time period begins either (a) when the provider has completed reasonable diligence in investigating a potential overpayment and "identified" an overpayment, or, (b) if the provider failed to conduct reasonable diligence but had in fact received an overpayment, the day the provider first received credible information of a potential overpayment. The final rule provides that a provider has "identified" an overpayment "when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment." It thus clarifies that the process of determining and quantifying an overpayment must be completed before the 60-day period begins. CMS also indicates that reasonable diligence and a timely, good faith investigation of credible information may require up to six months from receipt of the credible information before the overpayment is "identified." Added to the 60-day period, this permits a total of up to eight months for due diligence, and CMS has acknowledged that extraordinary circumstances may require additional time. Written documentation of this process should be retained to demonstrate compliance with the rule.

What does the "reasonable diligence" standard mean in identifying overpayments?

"Reasonable diligence" according to CMS requires both (1) proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments, and (2) investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment. To exercise reasonable diligence under this standard, CMS considers it necessary for a hospital to have an effective compliance program that monitors the accuracy and appropriateness of the hospital's Medicare claims.

What does this standard mean from a practical standpoint?

CMS indicates that when a hospital or other provider receives information about a potential overpayment, the provider has a duty to make a reasonable inquiry. Such information may include, among others things, notice from a government agency, the hospital's discovery of a billing error that results in increased reimbursement, the discovery of services provided by an unlicensed or excluded individual, or an increase in the provider's Medicare revenue for no apparent reason. If the reasonable inquiry reveals an overpayment, then the provider has 60 days to report and return the overpayment. If the provider fails to make a reasonable inquiry conducted with all deliberate speed, then the provider could be found to have acted in reckless disregard or deliberate ignorance of whether he or she had received an overpayment. Failure to conduct reasonable diligence per se is not a violation of the statute, but failure to report and return an overpayment in fact received, and that the provider should have identified, renders the provider liable. Providers need to calculate an overpayment amount that is reliable and accurate, and may use statistically valid sampling methodologies and extrapolation to calculate the overpayment amount.

For Medicare Part A services, a hospital normally must return the overpayment at the time the cost report is filed. Sometimes CMS makes interim payments to a hospital through the cost year and the hospital reconciles these payments with covered and reimbursable costs at the time the cost report is due. The final rule creates the following two exceptions to the rule that the applicable reconciliation occurs with the hospital's submission of a cost report:

  • When a hospital receives more recent CMS information that affects the Supplemental Security Income (SSI) ratio used in calculating the disproportionate share hospital (DSH) payment adjustment, the provider is not required to return any overpayment resulting from the updated information until the final reconciliation of the hospital's cost report occurs; and
  • When the hospital knows that an outlier reconciliation will be performed, the hospital is not required to estimate the change in reimbursement and return the estimated overpayment until the final reconciliation of that cost report has been settled.

However, if a hospital self-identifies an overpayment after applicable reconciliation and the filing of a cost report, the hospital must follow this rule and return the overpayment within 60 days by the filing of an amended cost report.

What is the significance of the six-year lookback period?

The final rule establishes a lookback period of six years after the date the overpayment was received, a change from the 10-year lookback period in the proposed rule. A hospital must report and return the overpayment only if the hospital, using reasonable diligence, identifies the overpayment within six years of the date the overpayment was received. It is important for hospitals to review and revise their policies as needed to address this lookback period because the current Condition of Participation for hospitals regarding medical records retention only requires a retention period of five years. CMS has indicated that it will also amend its reopening rules so that a contractor will be able to reopen and revise its initial determination related to any overpayment reported and returned during the six-year lookback period in this final rule. This means that upon receiving findings of a Recovery Audit Contractor (RAC) audit (or other Medicare audit) that identifies overpayments, a hospital may have a duty to determine and quantify overpayments going back six years, prior to the three-year period covered by the RAC audit. Similarly, if a Medicare Administrative Contractor identifies an overpayment during a cost report audit, the hospital has a responsibility to conduct reasonable diligence on other cost reports in the lookback period to determine if it has received an overpayment for years not covered by the audit.

How are physicians to report and return overpayments?

The final rule states that hospitals should use the existing, most applicable process, including claims adjustment, credit balance (for hospitals), self-reported refund, or other appropriate process, to satisfy the obligation to report and return overpayments. The most applicable process could also include amending or reopening a previously filed cost report. Hospitals may request a voluntary offset from the contractor instead of submitting a check with the overpayment reporting form.

Although several of the changes made to the proposed rule are favorable to providers, the final rule creates a duty of reasonable diligence requiring providers to proactively monitor receipts and practices, as well as a duty to respond to credible information of a possible overpayment in a timely manner. Hospitals must incorporate these duties into a strong compliance program or risk substantial penalties if overpayments from any source are ultimately found.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Wilson Hayman
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.