CMS Seeks Changes to the Identification of Overpayments

Since the implementation of the 60-day Rule requiring the return of overpayments within 60 days of identification, Part A and B providers have been deemed to have identified an overpayment when, upon acting in reasonable diligence, an overpayment is known and quantified. On December 27, 2022, however, the Centers for Medicare and Medicaid Services (CMS) published a Notice of Proposed Rulemaking requesting comment on its proposed revision of 42 CFR §401.305(a)(2) and §§ 422.326(c) and 423.360(c) to establish liability for an overpayment based on the knowledge definition of the False Claims Act statute, 42 U.S.C. 1320a-7k(d)(3).   

From 2018 to 2022, CMS was party to litigation challenging the “reasonable diligence” standard for searching and identifying overpayments on the ground that the “reasonable diligence” standard would make a provider liable for mere negligence. The basis for the challenge is that CMS overstepped its rulemaking authority under the Administrative Procedure Act when implementing the regulation for Medicare Parts C and D. The appropriate test established by the Court is the ACA’s definition of knowledge under the False Claims Act: “The District Court noted that ‘(t)he False Claims Act—which the ACA refers to for enforcement, see 42 U.S.C. 1320a-7k(d)(3)—imposes liability for erroneous (‘false’) claims for payment submitted to the government that are submitted “knowingly’ … a term of art defined in the FCA to include false information about which a person ‘has actual knowledge,’ ‘acts in deliberate ignorance of the truth or falsity of the information,’ or ‘acts in reckless disregard of the truth or falsity of the information.” [UnitedHealthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173, 190 (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)at 190.] 

Since the “reasonable diligence” standard is found in regulations for Parts A and B as well as Parts C and D, CMS is proposing an amendment of all regulations to align the standard for determining liability for an overpayment. CMS states that it will “replace [reasonable diligence] with language at section 1128J(d)(4)(A) that gives the terms “knowing” and “knowingly” the same meaning given those terms in the False Claims Act at 31 U.S.C. 3729(b)(1)(A). See UnitedHealthcare, 330 F. Supp. 3d at 191 (finding that this language would be consistent with a 2000 agency rule, the FCA, and the Affordable Care Act’s reference to the FCA).” 

The proposed regulatory amendments are: 

• Medicare Parts A and B: Amendment of 42 CFR §401.305(a)(2) to change the standard for an “identified overpayment” to “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.”
• Medicare Parts C and D: Amendment of 42 CFR §§ 422.326(c) and 423.360(c) to change the standard for an “identified overpayment” to “an MA organization or Part D sponsor 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.” 

Comments are encouraged and may be submitted electronically to https://www.regulations.gov/ by 5 p.m. ET, February 13, 2023.