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The Issue of Overpayments


The Issue of Overpayments

Usually when you find that crumpled $20 bill in the pocket of your favorite pair of jeans, you get a smile on your face. It is an unexpected find. Maybe you remember how it got there. Maybe you don't. Regardless, it is in your jeans, and it is yours now – even if it might not have been yours in the first place!

But, when that extra money shows up in your client's jeans and you are doing the laundry, then we have a problem. A billing company has to figure out if those are actually the client's jeans, who owns that money, how it got there, whether it should actually be a $10 bill, and whether it was even supposed to be in that particular pair of jeans in the first place. Then, based on what you find out, you may have to tell your client they can't keep the money.

Good luck!

However, the underlying principle here is one we've all been taught since childhood: we should return what does not belong to us. The government's perspective on this is simple: when a client receives money to which they are not entitled, the billing company's role is to help the provider find the proper owner and assist the provider in returning the money. As the Office of the Inspector General (OIG) states, "Billing companies should institute procedures to provide for timely and accurate reporting to both the provider and the healthcare program of overpayments."

As such, processing and returning overpayments is not optional, it is a federal mandate (see 63 FR 70144, Dec. 18, 1998). If not handled properly, overpayments can create costly ramifications for your clients and you.

What's the Cause?
Let's first look at why overpayments happen and what you should do to handle them. There are four main contributors to overpayments in the healthcare industry: the patient, the healthcare provider, the billing company, and the payor. Each can contribute to overpayments in different ways. Causes arise in a variety of situations, including the use of incorrect patient demographics, miscalculating deductibles, applying claims to the wrong account, using incorrect contract payment rates, or receiving duplicate payments. In light of all these possibilities, identifying the cause of an overpayment is not always easy.

Since payments in today's world often end up dumped together into a large electronic holding tank, overpayments can become challenging to identify and sort through – particularly amidst the constant pressure to get new payments posted and fresh bills out the door. In fact, the pressure of performing "new work" is often the very reason billing companies miss signals that an overpayment has occurred. Lacking an immediate return on investment, sorting through overpayments frequently becomes that much less of a priority, which only makes the neglected stack grow higher. This is a cruel cycle, but a very common one. However, as we'll see, it is not one to be avoided.

Identifying and Returning Overpayments
In 1998, the OIG issued specific compliance guidance for billing companies. In it, the OIG assigned to billing companies the responsibility for identifying and assisting your clients in the return of overpayments. As a billing company, you are tasked with working with your clients to investigate anything you know to be amiss, which includes the investigation of overpayments. If evidence of misconduct (e.g., unreported overpayments) is found on the part of one of your clients, the OIG outlines a proper initial response:

  • Refrain from submitting those claims that appear questionable.
  • Notify your client in writing within 30 days of discovering the questionable payment.
  • Work with your client to satisfactorily resolve the suspected misconduct.

But after completing these steps, the OIG advises that additional action may be needed if your client's misconduct continues and takes a turn toward the intentional or fraudulent. In this case, the OIG instructs you to do one of the following three things:

  • Refrain from submitting any false or inappropriate claims.
  • Terminate your contract with said client immediately.
  • Report the misconduct to the appropriate federal or state authorities no later than 60 days after identifying credible evidence of a violation or by the date on which a corresponding cost report was due.

For many years, this guidance set the standard for billing companies.

However, when the Affordable Care Act was passed in 2010, it created an express duty that individual and institutional healthcare providers report and return "overpayments" received from Medicare or Medicaid to the government "by the later of" 60 days after the date on which the overpayment was "identified" or by the date on which a corresponding cost report was due.

This reporting requirement became commonly known as the 60-Day Rule, but there were a number of unanswered questions relating to the concepts of "identifying" an overpayment and what a person must do when it became aware of an overpayment.

In February 2016, the Centers for Medicare & Medicaid Services (CMS) published the much-awaited "Final Rule" to clarify the 60-Day Rule. The Final Rule clarifies that an overpayment has not been "identified" until a provider or supplier has – or should have – determined evidence of an overpayment through "reasonable diligence" and quantified the amount of the overpayment. The "should have" in this case is included in the rule's wording to prevent parties from burying their heads in the sand and failing to reasonably investigate potential overpayments.

According to CMS, "reasonable diligence" encompasses both proactive compliance activities conducted by qualified individuals to monitor potential overpayments, as well as timely investigations made in response to credible suspicions of an overpayment. It's a legal standard that requires parties to be both proactive and reactive, putting measures in place to flag potential overpayments from the start.

When quantifying an overpayment amount, the Final Rule permits the use of common methods such as statistical sampling and extrapolation as long as the quantification method is disclosed in your shared findings. Additionally, where applicable, reporting obligations can potentially be satisfied through the disclosure processes in the OIG Self-Disclosure Protocol or the CMS SRDP, but a provider or billing company should review the related rules carefully before proceeding.

A provider generally will have up to a maximum period of six months to conclude its reasonable diligence into the amount of the overpayment – a timeline that poses its own set of challenges if the problem has become unmanageable. Essentially, an overpayment is not considered "identified" until the amount of the refund has been "quantified." That means providers have potentially only as much as an eight-month window in which to address an overpayment: no more than six months for timely investigation, plus 60 days for reporting and refunding the overpayment.

Unfortunately, refunding federal overpayments isn't usually as easy as sending a check to CMS. When processing a refund, a healthcare provider must report and return the overpayment to one of the following, as applicable: the U.S. Secretary of Health and Human Services or a state fiscal intermediary, carrier or contractor, along with a written explanation for the overpayment. The Final Rule does however support the use of existing processes to return overpayments, including applicable claims adjustments, credit balances, self-reported refunds or other reporting processes established by the applicable Medicare contractor. Practically, this requires knowledge of your particular contractors and familiarity with the processes unique to each.

However, you should not skirt the Final Rule and ignore a client's overpayments. Your inaction may be interpreted by law as an intentional attempt to conceal information from the government – a potential liability that could extend to the billing company in addition to the healthcare provider.

The Legal Consequences
If allowed to go unchecked, overpayments can trigger a number of penalties and pitfalls for healthcare providers and suppliers, including: Medicare and Medicaid penalties, class action litigation, misstated revenues, wasted time and resources, as well as lost payment opportunities. For example, banks have now begun looking at a company's overpayments when reviewing loan applications, dropping applicants for falsely reflecting cash on-hand. Additionally, there is a risk clients may drag billing companies to court, suing them for negligence. In light of this, it's vital billing companies understand and stay on top of such laws and timelines associated with overpayments so those directives don't end up getting the best of you.

An overpayment not reported prior to the applicable deadline under the 60-Day Rule becomes an "obligation" to the Federal Government under the "reverse" false claim provision of the False Claims Act. See 42 U.S.C. § 1320a-7k(d)(3). In other words, under the 60-Day Rule, a healthcare provider who does not report and return an overpayment is exposed to liability for what the healthcare provider kept from the government. In such cases, the provider would be liable not only for what is withheld from the government but also an additional civil monetary penalty of no less than $10,781 and no more than $21,563 per claim – plus the potential for three times the amount of damages sustained by the government.

Take a minute to digest those numbers! Think back to that imaginary $20 bill found in your client's jeans. If that was from a federal payor and was not promptly returned under the 60-Day Rule, then your client now owes the $20 plus a minimum of $10,781. Yikes. And guess whom your client is going to blame if you failed to process it properly.

Exposure to False Claims Act liability also significantly increases the stakes for guilty parties, as it allows whistleblowers to file qui tam actions on behalf of the government and share in any recovery – thereby incentivizing whistleblowing while also increasing governmental penalties. In short, overpayment cases are a whistleblower's dream. If an employee gets fired with prior knowledge of a buildup of overpayments, they have solid ammunition to seek retribution almost immediately.

While the duty to report an overpayment generally first falls to a provider, if the provider fails to act, a billing company is not necessarily in the clear. According to the False Claims Act, "any person" who "knowingly presents or causes to be presented" a false claim can be held liable. This suggests liability can be imposed for the mere "presentment" of a claim without having to prove if the submitting party was aware the claim was false or not.

When the Fraud Enforcement and Recovery Act of 2009 (FERA) was passed, it expanded this False Claims Act liability by eliminating the requirement for intent to be established in order for a party to be held liable. Instead, FERA states under its "reverse false claims" provision that if a third-party billing company is simply aware of an overpayment, their decision to continue working with clients who fail to issue refunds could be interpreted as "knowingly concealing" or "knowingly and improperly avoiding or decreasing an obligation" to refund money to the federal government. In short, a billing company could find itself implicated if it is aware of overpayments but fails to take appropriate action if the client refuses to process refunds in accordance with applicable laws.

While it is true a billing agent doesn't have final authority to force a provider to return an overpayment, the concern is that the government or a qui tam plaintiff, in bringing an action against the provider, could also bring suit against the billing agent as a co-defendant.

In recent years, this heightened scrutiny speaks to the subtle yet noticeable shift in government expectations on who is responsible for reporting and returning overpayments, and no billing company should consider itself safe. Know your laws, put proactive compliant measures in place and make sure you don't end up liable for mishandling overpayments – even if it was just a simple $20 bill in the back pocket of your client's favorite jeans.

Mark Cunningham, JD, is a healthcare attorney and shareholder at Chambliss Law Firm in Chattanooga, Tennessee. He chairs the firm's Health Care Section and has nearly 20 years of experience serving as counsel for leading healthcare participants on a regional and national level.