Medicare Overpayments: CMS Issues Final Regulations Implementing Changes to 60-day Refund Rule

On Friday, November 1, 2024, the Center for Medicare & Medicaid Services (CMS) issued the display copy of the final rule interpreting the 60-day Refund Rule for Medicare Parts A/B (Traditional Medicare) and C/D (Medicare Advantage (MA) and the Prescription Drug Plans) established by the Affordable Care Act (Final Rule). The Final Rule will be published in the Federal Register on December 9, 2024, with an effective date of January 1, 2025. The 60-day Refund Rule is included as part of the 3000+ page 2025 Physician Fee Schedule Final Rule. 

Summary. The Final Rule’s overpayment provisions are a significant change to the existing regulations, which date back to 2016 for the Parts A/B rules and 2014 for the Parts C/D Rule. Most importantly, the Final Rule adopts that part of the 2022 Proposed Rule[1]that drops the standard of “reasonable diligence” as to when a person has identified an overpayment.[2] The Final Rule adopts a revised standard that tracks and cites to the Federal False Claims Act for a person that “knowingly receives or retains an overpayment.” This revised standard covers situations where the person (as defined) has actual knowledge of the existence of the overpayment or acts in reckless disregard of or deliberate ignorance of the overpayment. The statute itself does not define what it means to “identify” an overpayment, likely suggesting a future opportunity for a Loper Bright challenge to the new regulation.

The Final Rule also adopts the provision in the Proposed 2025 Physician Fee Schedule [see our previous analysis of the 2025 Proposed Rule for the Physician Fee Schedule] which added a provision to the 2022 proposed revisions formalizing the six-month period for good faith investigation of an overpayment by temporarily suspending the 60-day overpayment refund deadline. This provision had previously only appeared in the preamble to the 2016 rules without mention in the 2022 Revisions.   

Note that while the themes are the same, the details of and expectations of the 60-day Refund Rule vary in some ways because of the differing payment methodologies for traditional Medicare and managed care (Parts C and D). The Parts C and D regulations by their terms only apply to the MA organization and the Part D sponsor.[3] Another significant difference is that the 180-day period for investigation is not included in the Part C/D regulations. Among other points explaining this difference, CMS notes that with respect to risk adjustment data for Part C and prescription drug event data for Part D, there are alternative administrative means for correction that may be pursued outside of the 60-day time frame. 

History of the 60-Day Refund Rule

The 60-day Refund Rule, created by the 2010 Affordable Care Act, requires a person, defined as a provider of services, supplier, Medicaid managed care organization, Medicare Advantage organization and Part D plan sponsors. to report and return Medicare and Medicaid overpayments within 60 days of identifying them. See Section 1128J(d) of the Social Security Act, 42 U.S.C. § 1320a-7k(d), referenced here as the “60-day Refund Rule.”

Failure to comply with the 60-day Refund Rule can result in the imposition of a civil monetary penalty under 42 C.F.R. § 1003.210(a)(8) with a maximum penalty of US$24,947 for 2024. In addition, improper retention of an identified overpayment may provide grounds for allegation of a violation of the Federal False Claims act, which includes potential recoveries for whistleblowers, treble damages, per claim penalties, and in some cases a Corporate Integrity Agreement as part of a settlement.

What’s New.  Regulations detailing the Part A/B Overpayment Refund Rules can be found in 42 C.F.R. Part 401, Subpart D. Regulations addressing Parts C/D are at 42 C.F.R. §§ 422.326(c) and 423.360(c) respectively, effective January 1, 2025. 

The Preamble Discussion

Preambles to final regulations summarize the comments submitted by the public in response to the proposed rule, and CMS’ responses to those comments. They responses are often indicative of the position that CMS will take as it implements revised regulations. The most significant comments for the 60-day Refund Regulations are summarized below. 

• As might be expected, there were many comments objecting to application of the False Claims Act standard of knowledge to the identification of overpayments. Many commentors felt that they needed more guidance as to how this standard would be applied. CMS responded to several such comments by pointing to available precedent under the False Claims Act. 
• There were several comments proposing alternatives to the 180-day suspension of the deadline for a good faith investigation for reporting and returning an identified overpayment, but no change in CMS’ position from the proposed rule. 
• One commenter felt the terminology in the regulation referencing “receive” and “retain” should be defined, to which CMS responded by citing to the “plain meaning of the terms.” CMS also referred to the “plain meaning” of terms such as “good faith investigation.”
• CMS notes that “[w]ith respect to quantification of the overpayment…[after identification in accordance with the regulation] the person has 60 days to report and return the overpayment . . ., even if the person has not yet calculated the precise amount of the overpayment at the time of identification.” Although the language is not entirely clear, the preamble suggests that a suspicion of related but not yet quantified overpayments may trigger an additional 180-day suspension, with CMS citing to 42 C.F.R. § 401.305(b)(3).
• CMS indicates its view that the 60-day period for reporting and refund starts when the initial overpayment is identified, at which point the 180-day suspension may be triggered.
• Contrary to what the 2016 Preamble might suggest, CMS notes that revised section 401.305(b)(3) does not impose an independent obligation to investigate related overpayments when a person has actual knowledge of an overpayment. “However, other laws, such as the Federal False Claims Act, may impact whether a person must investigate overpayments.” CMS further notes that if there is no reason to believe there are other related overpayments, the person is not acting in deliberate ignorance or reckless disregard, and has no obligation to investigate, calculate, and report and return such overpayments. 

What Providers and Suppliers Should Do Now  

Providers and suppliers should revisit their overpayment policies to align with the new standards set forth in the revised regulations, which appear to be significantly less onerous than the “reasonable diligence” standard in CMS’ earlier regulations. 

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[1] 87 Fed. Reg. 79452, 79559 (Dec. 27, 2022). 

[2] The existing regulation (pre-2025) at 42 C.F.R. § 401.305(a)(2)) provides 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. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

[3] As taken from the display copy, 42 C.F.R. § 422.326(c) will provide as follows: “Identified overpayment. The MA organization has identified an overpayment when the MA organization knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in 31 U.S.C. § 3729(b)(1)(A).” For Part D, the new provision in 42 C.F.R. § 423.360(c) reads similarly. “Reporting and returning of overpayments. “Identified overpayment. The Part D sponsor has identified an overpayment when the Part D sponsor knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in 31 U.S.C. § 3729(b)(1)(A).”  Note that this language does not reference MA providers or suppliers (only the MA organization) Part D suppliers (only the Part D sponsor).