ABA Health eSource
June 2010 Special Edition

Provider Uncertainties in the Refund of Overpayments

By Neely S. Griffith and Mollye M. Demosthenidy, Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P., New Orleans, LA

AuthorAuthorThe Patient Protection and Affordable Care Act (“Affordable Care Act”), as amended by the Health Care and Education Reconciliation Act of 2010 and the Fraud Enforcement Recovery Act of 2009 (“FERA”), significantly elevated healthcare provider responsibilities for ferreting out and returning payments erroneously received from federal healthcare programs, such as Medicare and Medicaid. This article describes some of the key changes and analyzes the uncertainties and potential pitfalls providers face as a result of these changes in the overpayment refund process.

Legislative Changes

In enacting FERA, Congress significantly expanded liability for “reverse” false claims under the False Claims Act (“FCA”). Before FERA, the reverse false claims provision prohibited a person from knowingly making, using or causing to be made or used, “a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the [g]overnment.” 1 FERA expanded this standard for liability by eliminating the need for a false record or statement.  Now, liability can be imposed where a person “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 2   Additionally, FERA makes clear that the term “obligation” includes an established duty arising from “the retention of any overpayment.” 3 As a result, retention of an overpayment may now serve as the basis for reverse FCA liability if the government or relator can establish that the claimant knowingly concealed or knowingly and improperly avoided repayment. 4

Effective March 23, 2010, the Affordable Care Act requires a provider to report and return a Medicare or Medicaid overpayment within sixty (60) days of identification of the overpayment or the date the corresponding cost report is due, whichever is later. 5 The provider must also provide the party to whom the overpayment was returned written reasons for the overpayment. The Affordable Care Act defines the term overpayment as “any funds that a person receives or retains under title XVIII or XIX [Medicare and Medicaid, respectively] to which the person, after applicable reconciliation, is not entitled under such title.” 6

Failure to return an overpayment within the required time period can be costly. The Affordable Care Act authorizes the imposition of civil monetary penalties of $10,000 per item or claim, as well as treble damages, for a provider who fails to report and return known overpayments. 7 Additionally, Section 6402 of the legislation affirms that any overpayment retained after the 60-day deadline constitutes an “obligation” for FCA purposes, thus exposing a provider to penalties of up to $11,000 per claim and treble damages under the FCA’s damages provision. 8 The combined effect of these legislative changes is to increase dramatically potential liability for providers in terms of civil monetary penalties and civil FCA liability in connection with retention of an identified overpayment after the statutory deadline for return.

Complicating matters further, the Affordable Care Act does not offer any guidance on what the term “identified” means (for example, actual knowledge, reckless disregard, or deliberate ignorance). 9 Accordingly, what constitutes an “identified” overpayment is, at this point, unknown and likely to be the subject of significant litigation, unless sufficiently clarified by an agency rulemaking. 10

Stark Violations and Stark Self-Referral Disclosure Protocol

These statutory ambiguities are particularly problematic in the context of technical violations of the physician self-referral law, commonly referred to as Stark. In general terms, the Stark law prohibits physicians from making referrals reimbursable under Medicare for designated health services (“DHS”) to entities with which they or their family members have a financial relationship, absent an exception, and prohibits the submission of a Medicare claim for DHS provided pursuant to a prohibited referral. 11 The Stark law is a strict liability statute; no intent is necessary to establish a violation. The period during which referrals are prohibited is referred to as the “period of disallowance.” 12

The period of disallowance begins at the time the relationship fails to satisfy the requirements of an exception. 13 The period of disallowance depends on the circumstances surrounding the noncompliance; it can, in some instances, be difficult to assess and subject to interpretation. 14 When the noncompliance is unrelated to compensation, the period of disallowance ends no later than the date the financial relationship satisfies all the requirements of an exception. 15 When the noncompliance is related to compensation, the period of disallowance ends no later than the date on which (1) the excess compensation is returned or additional required compensation is paid to the proper party; and (2) the financial relationship satisfies the requirements of an exception. 16

As noted above, the Affordable Care Act defines “overpayment” to include funds received under Titles XVIII and XIX to which the person is not entitled. Thus, payments made pursuant to a prohibited referral or during the period of disallowance have the potential to constitute an “overpayment” under the statute. The result is that failure to return overpayments received in violation of Stark within sixty (60) days of “identification” of a non-compliant relationship (or the date the corresponding cost report is due, if later) may subject the provider to the enhanced civil monetary penalties discussed above, as well as FCA liability for penalties and treble damages. These amounts are, of course, in addition to the existing potential Stark statutory penalties of up to $15,000 per claim. 17 Accordingly, an unintended, technical Stark violation can quickly escalate into serious penalties and even false claims liability, depending on the length of the period of disallowance and the number of referrals made by the physician to the entity.

Such unintended and seemingly inequitable results for technical Stark violations may be somewhat mitigated by the new Stark self-referral disclosure protocol (“SRDP”) set forth in the Affordable Care Act. Under the Act, the Secretary of Health and Human Services (“HHS”) is required to establish an SRDP for healthcare providers to enable them to disclose an actual or potential violation of the Stark law by September 2010. 18 The SRDP must identify the person, official, or office to whom the disclosure should be made and must include instructions on the implication of the SRDP on corporate integrity agreements and corporate compliance agreements. 19 The legislation further gives HHS the discretion to reduce the amount due for Stark violations to an amount less than what the statute specifies. 20 In settling the violation, HHS may consider the nature and extent of the improper or illegal practice, the timeliness of the self-disclosure, and the provider’s cooperation in providing additional information related to the disclosure, among other factors the Secretary deems appropriate. 21

Unfortunately, the SRDP will not be available to providers until September 2010, at the earliest.  As such, providers who currently suspect or have identified Stark-related overpayments that may qualify for disclosure under the SRDP face a dilemma. While providers in such circumstances may be tempted to delay repayment until the SRDP is in place in hopes of reducing the amount ultimately owed, knowingly withholding identified overpayments past the new statutory deadline for reporting and returning could expose the provider to reverse false claims liability for “knowingly and improperly avoiding” an obligation to repay the government. Whatever course of action a provider takes, however, it must be vigilant in evaluating billing for referrals associated with physician relationships that fall within the purview of Stark, and if an overpayment is identified, work with counsel to determine the most appropriate method of disclosure and repayment. 

1 31 U.S.C. 3729(a)(7) (2008).
2 P.L. 111-21, §4(a)(1).
3 Id at §4(a)(2).
4 31 U.S.C. 3729(b)(1).
5 P.L. 111-148, §6402(a).
6 Id.
7 P.L. 111-148, §6402(d)(2).
8 31 U.S.C. 3729(a).
9 P.L. 111-148, §6402(a).

Although the statutory subsection which requires the return of the overpayment goes on to define the terms “knowing” and “knowingly,” the section does not use the terms “knowing” or “knowingly.”

11 42 U.S.C. 1395nn(g)(1).
12 42 C.F.R. 411.353(c)(1).
13 Id.
14 In the preamble to the 2009 IPPS final rule, CMS makes clear that the regulation prescribes only the "outside period" of disallowance for certain situations, or the date by which parties can be assured that referrals for DHS are not prohibited provided that compensation on a going-forward basis fully complies with an exception. The regulation thus does not prevent the parties involved from asserting that the period of disallowance actually ended at a point in time before the prescribed outside period, and the final determination will involve a close examination of the particular facts surrounding each case. See 73 FR 48700.
15 42 C.F.R. 411.353(c)(1)(i).
16 42 C.F.R. 411.353(c)(1)(ii) and (iii).
17 42 U.S.C. 1395nn(g)(3).
18 P.L. 111-148, §6409(a).
19 Id.
20 P.L. 111-148, §6409(b).
21 Id.

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