The Centers for Medicare & Medicaid Services has issued its Calendar Year 2025 Medicare Physician Fee Schedule Proposed Rule, scheduled for publication in the Federal Register on July 31, 2024. In response to industry concerns from previous comment periods, the proposed rule adds further revisions to the so-called 60-Day Rule, including formally establishing a six-month period to investigate and calculate overpayments.
By now, most healthcare providers will be generally familiar with what is commonly referred to as the 60-Day Rule, the federal law that requires an overpayment to be reported and returned within 60 days “after the date on which the overpayment was identified.”[1] The current Medicare Part A and B regulations implementing the 60-Day Rule, published in 2016, provide 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.”[2]
In preamble commentary to the 2016 regulations, the Centers for Medicare & Medicaid Services (CMS) stated that the identification process includes quantifying the overpayment amount and further clarified that “reasonable diligence” is demonstrated by timely, good-faith investigations of credible information of an overpayment, which should take no more than six months except under extraordinary circumstances.
Despite this preamble commentary, there was no language in the regulations themselves addressing a six-month period to conduct reasonable diligence and quantify the overpayment. The absence of such specific regulatory language had the potential of creating confusion for those subject to and tasked with interpreting the 60-Day Rule, particularly because False Claims Act (FCA) liability can flow from a knowing retention of a Medicare overpayment.
As discussed in greater detail in our January 2023 LawFlash, CMS issued a proposed rule in December 2022 (the 2022 Proposed Rule), which included a material change to the 60-Day Rule regulations in response to litigation that found that use of the “reasonable diligence” standard set forth in the regulations to identify overpayments improperly created FCA liability for mere negligence.
To address this issue, CMS proposed eliminating the “reasonable diligence” standard and replacing it with the FCA knowledge standard, i.e., a provider has “identified” an overpayment when the provider has actual knowledge of the overpayment or acts in reckless disregard or with deliberate ignorance of the overpayment. The 2022 Proposed Rule also eliminated the requirement that an overpayment be “quantified” before the 60-day reporting requirement is triggered (that is, before the overpayment has been “identified”).
THE 2025 PFS PROPOSED RULE
On July 10, 2024, CMS issued the Calendar Year 2025 Medicare Physician Fee Schedule Proposed Rule (2025 PFS Proposed Rule), which is scheduled for publication in the Federal Register on July 31, 2024. In Section III.O of the 2025 PFS Proposed Rule, CMS explains that it is moving forward with the proposed changes to the 60-Day Rule regulations announced in the 2022 Proposed Rule but, in response to public comments, it will be proposing additional revisions to the regulations.
Among these changes is a proposal for an additional regulatory subsection that would formally establish—as previously only mentioned in preamble commentary—the allowance of a six-month investigation period during which time the 60-day deadline to report and return an overpayment would be temporarily suspended to allow Part A providers and Part B suppliers adequate time to investigate and calculate potential overpayments.
The newly proposed Section 401.305(b)(3) provides as follows:
(i) The deadline for reporting and returning overpayments will be suspended when both of the following occurs: (A) A person has identified an overpayment but has not yet completed a good-faith investigation to determine the existence of related overpayments that may arise from the same or similar cause or reason as the initially identified overpayment; and (B) The person conducts a timely, good-faith investigation to determine whether related overpayments exist. (ii) If the conditions of paragraph (b)(3)(i) of this section are satisfied, the deadline for reporting and returning the initially identified overpayment and related overpayments that arise from the same or similar cause or reason as the initially identified overpayment will remain suspended until the earlier of: (A) The date that the investigation of related overpayments has concluded and the aggregate amount of the initially identified overpayments and related overpayments is calculated; or (B) The date that is 180 days after the date on which the initial identified overpayment was identified.
Because the six-month period to conduct a good-faith investigation and quantify the overpayment only appeared in preamble commentary under the current 60-Day Rule, there was some concern that CMS may choose to omit that language when finalizing the 2022 Proposed Rule. The 2025 PFS Proposed Rule eliminates those concerns by including language regarding the six-month suspension in the proposed regulation itself.
CMS provides the following example of how this new regulatory language would be practically applied:
Assume that, on day 1, a person identifies an overpayment arising from a physician’s failure to properly document the medical record to support the coding of a specific claim, and the person has reason to believe that this may be a common practice of the physician, so there could be more affected claims. At this point, the person has up to 180 days to conduct and conclude a good faith investigation to determine whether related overpayments that arise from the same or similar cause or reason as the initially identified overpayment exist. If the person does NOT conduct an investigation, or the investigation is not timely or not conducted in good faith, the identified overpayment must be reported and returned by day 60. If the person does conduct a timely, good faith investigation, suspension of the report and return obligation under § 401.305(b)(3) begins on day 1. The suspension ends when the investigation is concluded and the initially identified overpayment and related overpayments, if any, are calculated, or by day 180, whichever is earlier. The overpayment must be reported and returned within 60 days after either completion of the investigation or day 180, whichever is earlier. However, the suspensions described in § 401.305(b)(2) may also be applicable. For example, if the person is reporting the overpayment to the OIG Self-Disclosure Protocol, as provided for in § 401.305(b)(2) the overpayment return requirement may be further suspended in accordance with that provision.
As a practical matter, providers and suppliers should expect that the proposed regulatory changes addressing the 60-Day Rule found in the 2025 PFS Proposed Rule and 2022 Proposed Rule will be finalized by CMS. As such, it is important such providers and suppliers revisit and amend, as necessary, their policies and procedures on identifying, investigating, and repaying an overpayment.
Industry comments are due no later than 5:00 pm ET on September 9, 2024. Please contact your Morgan Lewis lawyer if you would like counsel on formulating or submitting comments on the proposed rule.
[1] 42 USC § 1320a-7k(d)(2).
[2] 42 CFR 401.305(a)(2).
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