Under the new rule, when the clock begins to run for providers to report and return overpayments—when an overpayment has been "identified"—has changed.
The Centers for Medicare & Medicaid Services (CMS) issued a Final Rule as part of the 2025 Physician Fee Schedule, which revises requirements for reporting and returning overpayments of Medicare and Medicaid funds. The Final Rule, which took effect January 1, 2025, amends CMS's regulation interpreting the federal overpayment statute in two key ways:
- It revises the definition of when an overpayment is "identified" to trigger the 60-day return period; and
- Establishes a 180-day timeframe for investigating additional related overpayments.
The federal overpayment statute has long required any person who receives an overpayment of Medicare or Medicaid funds to return the overpayment to the appropriate government official or contractor within 60 days after identifying the overpayment (the 60-day return period).1 The underlying statute (the Affordable Care Act) does not set a standard for the "identification" of an overpayment.
Failure to do so results in the retained overpayment becoming a potential false claim subject to enforcement under the federal False Claims Act (FCA).2 The FCA can give rise to damages of three times the amount of the overpayment, plus a significant penalty for each "claim."3
Change in How CMS Defines an "Identified" Overpayment
The CMS' overpayment rule previously prescribed that "[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." (emphasis added)4 The 60-day trigger for reporting and returning overpayments, allowed providers to undertake a reasonable diligence in their investigation of information concerning a potential overpayment in order to quantify the amount before the 60-day clock started.
Under the new rule, when the clock begins to run for providers to report and return overpayments—when an overpayment has been "identified"—has changed. Dispensing with the "reasonable diligence" standard for identifying an overpayment, under the Final Rule, CMS now determines that "[a] person has identified an overpayment when the person knowingly receives or retains an overpayment."5 The term "knowingly" in this context 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.6
The Final Rule now adopts the language of the False Claims Act's scienter requirement for the information of the overpayment. As such, the 60-day return period now begins once an overpayment of a claim is identified (by actual knowledge, willful blindness or reckless disregard of information), even if the provider has not yet completed an investigation that would quantify the amount of the overpayment. Providers will need to evaluate their internal compliance processes to ensure that when information is identified or uncovered that would establish an overpayment, they do not wait until the amount has been identified before preparing to report the overpayment. The types and threshold of information identified in a process or investigation that will trigger the "identification" under the Final Rule to start the 60-day clock will require careful judgment and thoughtful evaluation by providers.
180-Day Period to Investigate Overpayments
In addition to changing the trigger for when an overpayment is "identified" to initiate the obligation to report and return, the Final Rule provides for an additional period in which to conduct further investigation. The Final Rule suspends the 60-day return period for up to 180 days when an initial overpayment is identified, for the provider to conduct a timely, good faith investigation to determine whether related overpayments exist. In such instances, the 60-day return period is suspended until the earlier of: (a) the date the investigation is concluded and the amount of the initially identified overpayment and related overpayments (if any) are calculated or (b) 180 days after the date on which the initial identified overpayment was identified.7 Once the suspension period ends, the provider has the remainder of the 60 days to report and return the overpayment.
Under the Final Rule, if the provider does not actually conduct an investigation, the investigation is untimely, or it is not conducted in good faith, the overpayment must be reported and returned within 60 days of identification of the overpayment.8 Likewise, under the Final Rule, if the provider has actual knowledge of an overpayment, but no reason to believe that there are other related overpayments, no investigation would be called for, and the provider would have 60 days after identifying the isolated overpayment to report and return it.9 While the Final Rule includes ahypothetical scenario describing the application of the 180-day investigation period, whether, when and how providers avail themselves of the 180-day investigation period will require careful judgment.
Providers are advised to work with experienced counsel to advise them on their policies and procedures for overpayments when further investigation is required. Providers should evaluate and establish standards and processes ahead of time for making these assessments when payment issues arise.
For More Information
If you have any questions about this Alert, please contact Daniel R. Walworth, Christopher H. Casey, Frederick R. Ball, Erin M. Duffy, Arti Fotedar, any of the attorneys in our White-Collar Criminal Defense, Corporate Investigations and Regulatory Compliance Group, any of the attorneys in our Health Law Practice Group, or the attorney in the firm with whom you are regularly in contact.
Footnotes
1. 42 U.S.C. § 1320a-7k(d).
2. See42 U.S.C. § 1320a-7k(d)(3).
3. See31 U.S. Code § 3729(a)(1)(G).
[4] 42 CFR 401.305(a)(2).
5. 42 C.F.R. § 401.305(a)(2) (2025).
6. See31 U.S.C. 3729(b)(1)(A).
7. 42 C.F.R. § 401.305(b)(3)(ii) (2025).
8. See42 C.F.R. § 401.305(b)(3)(i) (2025).
9. See42 C.F.R. § 401.305(b)(3)(i) (2025).
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