On May 12, the Department of Health and Human Services, Office of Inspector General (OIG) published a proposal rule updating its regulations to codify changes made by the Affordable Care Act, which authorizes civil monetary penalties, assessments, and exclusion for:

• Failure to grant OIG timely access to records, upon reasonable request;
• Ordering or prescribing while excluded when the excluded person knows or should know that the item or service may be paid for by a federal health care program;
• Making false statements, omissions or misrepresentations in an enrollment or similar application to participate in a federal health care program;
• Failure to report and return a known overpayment;
• Making or using a false record or statement that is material to a false or fraudulent claim; and
• Certain prohibited marketing and enrollment-related activities undertaken by Medicare Advantage (MA) organizations and Part D plan sponsors or their providers or other contractors.

In addition to incorporating these new violations, the proposed rule seeks to clarify the penalty for failure to report and return overpayments by the later of 60 days after the date the overpayment was identified or the date any corresponding cost report is due, if applicable.  The proposed rule interprets the penalty as a per day penalty, up to $10,000 for each day a person fails to report and return an overpayment.  However, the OIG acknowledges that Congress did not specify a per day penalty and, as a result, is soliciting comments on whether to interpret the penalty as a per item or service penalty, up to $10,000 for each item or service for which the provider or supplier identified an overpayment.

The proposed rule does not clarify when an overpayment is “identified,” a concept that was first addressed by the Centers for Medicare & Medicaid Services (CMS) in a February 2012 proposed rule that has not been finalized.  In the February 2012 proposed rule, CMS stated that a person has identified an overpayment if the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment.  According to CMS, defining identification in this way gives providers and suppliers an incentive to exercise reasonable diligence to determine whether an overpayment exists and that without such a definition, some providers and suppliers might avoid performing self-audits, compliance checks and other activities to determine whether an overpayment exists.  Clarification of this issue is of particular importance to providers and suppliers given the potential False Claims Act liability for failure to timely report and return overpayments.

Notably, CMS proposed using the same language contained in the February 2012 proposed rule regarding when an overpayment is identified in its proposed rules to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs.  However, in its final rule published May 23, CMS revised its definition of an “identified overpayment” to state that an MA organization or Part D plan sponsor (collectively, Plan Sponsor) has identified an overpayment when it has determined, or should have determined through the exercise of reasonable diligence, that the Plan Sponsor has received an overpayment.  CMS stated in commentary that due to the nature of the Part C and Part D programs, “identified” does not include quantifying the overpayment amount, but rather, identifying that the data are incorrect and will result in an overpayment.  Once the Plan Sponsor has determined that it has identified the existence of an overpayment, it has 60 days to submit to CMS the corrected data that are the basis of the overpayment (CMS will re-run the payment data to determine the overpayment amount and initiate recoupment).  CMS’ revisions to its definition of identified overpayment for the Part C and Part D programs may serve as a possible foreshadowing of how it will define and interpret identified overpayments in the final Part A and Part B rule.

Providers and suppliers as well as Plan Sponsors are encouraged to provide comments to the proposed rule, which must be submitted no later than 5 pm EDT on July 11, 2014.