The Centers for Medicare & Medicaid Services (CMS) proposed a rule late last year that would impose standards on healthcare providers and suppliers to report and return overpayments from Medicare that mirror aspects of the False Claims Act (FCA). Failures to report Medicare overpayments have long been the basis for FCA violations, but CMS regulations had previously imposed what some viewed as functionally a negligence standard on providers and suppliers (i.e., they were required to exercise "reasonable diligence" to identify and return overpayments). In 2021, a federal district court concluded that the reasonable diligence requirement impermissibly sought to impose a negligence standard for FCA claims. In an apparent response to that case, the proposed regulation replaces the reasonable diligence requirement with the FCA's knowledge requirement (i.e., actual knowledge, deliberate ignorance or reckless disregard of the overpayment).


The proposed rule would amend existing regulations for Medicare Parts A, B, C and D and is designed to implement aspects of the Patient Protection and Affordable Care Act (ACA). Under the ACA, healthcare providers or suppliers have an obligation to report and return the Medicare overpayment by the later of (i) 60 days after the overpayment is identified or (ii) the date any corresponding cost report is due. The ACA refers to the FCA for enforcement of this provision. See  42 U.S.C. § 1320a-7k(d)(3). Indeed, failure to report and return an overpayment within the allotted time frame can amount to a reverse false claim, which is codified in 31 U.S.C. § 3729(a)(1)(G) and occurs when a defendant knowingly avoids paying an obligation to the government, which, in certain circumstances, can include failing to return an overpayment to the government. 

In UnitedHealthcare Ins. Co. v. Azar, the court concluded that using the FCA as an enforcement tool for failure to report and return overpayments was inconsistent with regulations imposing a negligence standard (i.e., a lower intent requirement) on providers and suppliers for identifying overpayments. See  330 F. Supp. 3d 173, 191 (D.D.C. 2018), rev'd in part on other grounds sub nom. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867 (D.C. Cir. 2021), cert. denied, 142 S. Ct. 2851 (U.S. June 21, 2022) (No. 21-1140). The court concluded that CMS exceeded its authority by effectively replacing the knowledge requirement of the FCA with a negligence standard, as "[n]ot being Congress, CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation." Id.

The newly proposed CMS rule adopts by reference the FCA's definition of "knowingly," which means that a person (i) has actual knowledge of information, (ii) acts in deliberate ignorance of the truth or falsity of the information, or (iii) acts in reckless disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b)(1). Under the proposed rule, a provider or supplier 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. The provider or supplier would then be required to refund overpayments within 60 days of such identified overpayment.

Under the current rule, identification of an overpayment does not occur until there has been, or should have been, a determination through reasonable diligence that (i) an overpayment was received and (ii) the amount of any such overpayment is also quantified. See  42 C.F.R. § 401.305. Only after the provider or supplier has identified and quantified the overpayment does the 60-day clock begin to run on returning the overpayment to the government.

Proposed Rule

The proposed rule would remove the following reasonable diligence language at 42 C.F.R. § 401.305(a)(2):

A person 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. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

This language would be replaced with the new proposed 42 C.F.R. § 401.305(a)(2)

A person has identified an overpayment when the person "knowingly" receives or retains an overpayment. The term "knowingly" has the meaning set forth in 31 U.S.C. 3729(b)(1)(A).

Looking Ahead

This proposed rule aligns regulatory requirements with the FCA and potentially helps ease an area of uncertainty regarding standards for FCA liability. The proposed rule is also an important reminder of the importance of providers and suppliers having robust compliance systems surrounding Medicare billings. Providers and suppliers need to be aware that compliance-related failures to report and repay overpayments could lead to a violation of the proposed rule and liability under the FCA. 

Public comments on the proposed rule are due by February 13, 2023.

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