Here’s a scenario that radiology practices are likely to face at some point:

The practice has identified a billing error or a compliance problem impacting Medicare coverage that resulted in the practice having received an overpayment from Medicare. Although the fact that an overpayment occurred is known, the amount of the overpayment has yet to be determined. Practice leaders are aware that the Affordable Care Act requires repayment of an overpayment within 60 days of identifying it and that retaining an overpayment may result in significant penalties under the False Claims Act. While the practice is aware of the issue, the leadership is concerned whether a refund can be made within 60 days because a comprehensive audit must be conducted in order to determine the size of the overpayment.

Paul W. Pitts, Partner, Reed Smith, Life Sciences Health Industry Group

So the question is: when does the clock start ticking on the 60-day requirement?

The answer is unclear. But two recent cases highlight the importance of being cognizant of the 60-day overpayment refund obligation. A recent ruling in a Federal District Court and a recent multi-million dollar settlement agreement demonstrate the need to watch that clock carefully, and to act in good faith to identify, quantify and promptly refund Medicare and other Federal program overpayments.

Continuum Health. Last year, the U.S. Department of Justice joined a whistleblower’s False Claims Act (FCA) suit accusing New York’s Mount Sinai Health System of failing to return hundreds of Medicaid overpayments within 60 days of identifying them. The DOJ asserted that Continuum Health Partners Inc.—now a part of Mount Sinai—knew as a result of an internal review that more than 900 Medicaid claims had been wrongly paid to them.

But instead of disclosing the overpayments and returning them promptly, according to the DOJ, Continuum fired the employee who identified the overpayment and “did nothing further” with the findings. Over the course of the next two years, according to the allegations, Continuum gradually repaid the $1 million worth of overpayments—but only in response to a civil investigative demand from the government.

U.S. District Judge Edgardo Ramos ruled this summer that an overpayment by Medicare or Medicaid must be returned within 60 days of “the date on which the overpayment was identified.” Unfortunately, the ruling—rejecting motions to dismiss the False Claims Act litigation—provides little other guidance. The court simply ruled that identification occurs when a health care provider is put on notice of a possible overpayment. In reaching its decision the court rejected Continuum’s argument that the clock should start when an overpayment is conclusively ascertained.

Pediatric Services of America Healthcare. Separately, a home health-care provider has recently agreed to pay $6.88 million to resolve allegations it failed to refund overpayments from government programs. The U.S. claimed that Pediatric Services of America Healthcare failed to refund overpayments from TRICARE and the Medicaid programs of 20 states, according to the settlement agreement.

This is reported to be the first time that allegations over failure to make prompt overpayment refunds resulted in a False Claims Act investigation and a subsequent settlement agreement.

Proposed rule

In 2012, CMS proposed—but has not finalized—new regulations stating that an overpayment will be considered “identified” if the provider has “actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment.” The proposed rule and preamble language were silent as to whether the actual knowledge refers to the existence of an issue or whether actual knowledge exists only when the amount of the overpayment is quantified.

CMS did, however, provide examples of instances when an overpayment has been “identified” and requires repayment, including the very vague example of where a provider experiences a significant increase in Medicare revenue and there is no apparent reason for the increase.

With these recent events, it’s clear that overpayments are receiving much greater scrutiny by the government and whistleblowers. Unfortunately, when the 60-day clock starts to run and when that time window ends remains exceedingly murky.

One thing, however, is clear. Unless CMS issues a final rule that says otherwise, radiology groups and other health care providers should work diligently to identify and quantify potential Medicare and Medicaid overpayments when they learn of issues that could lead to a refund.

These recent actions under the False Claims Act make clear that health care providers should act with speed to refund overpayment and not unwisely dismiss employee concerns about billing practices. Given the complexity of medical billing, and the potential damages under the False Claims Act, more investigations, settlements and even cases concerning the prompt refund of overpayments are likely to arise, all of which underscore the need for an effective compliance plan and internal monitoring and auditing programs.

The authors are attorneys at Reed Smith LLP and members of the firm’s Life Sciences Health Industry Group. Thomas Greeson tgreeson@reedsmith.com is a partner resident in the firm’s Falls Church, Virginia office. Paul Pitts ppitts@reedsmith.com is a partner in the firm’s San Francisco office

Straight from PPACA: The Overpayment Requirement
Section 6402 of the Patient Protection and Affordable Care Act reads as follows:
(d) REPORTING AND RETURNING OF OVERPAYMENTS.-
(1) IN GENERAL.-If a person has received an overpayment, the person shall-
(A) report and return the overpayment to the Secretary, the State, an intermediary, a carrier, or a contractor, as appropriate, at the correct address; and
(B) notify the Secretary, State, intermediary, carrier, or contractor to whom the overpayment was returned in writing of the reason for the overpayment.
(2) DEADLINE FOR REPORTING AND RETURNING OVERPAYMENTS.-
An overpayment must be reported and returned under paragraph (1) by the later of-
(A) the date which is 60 days after the date on which the overpayment was identified; or
(B) the date any corresponding cost report is due, if applicable.
(3) ENFORCEMENT.-Any overpayment retained by a person after the deadline for reporting and returning the overpayment under paragraph (2) is an obligation (as defined in section 3729(b)(3) of title 31, United States Code) for purposes of section 3729 of such title.
(4) DEFINITIONS.-In this subsection:
(A) KNOWING AND KNOWINGLY.-The terms 'knowing' and 'knowingly' have the meaning given those terms in section 3729(b) of title 31, United States Code.
(B) OVERPAYMENT.-The term ''overpayment'' means any funds that a person receives or retains under title XVIII or XIX to which the person, after applicable reconciliation, is not entitled under such title.