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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions