[Federal Register Volume 81, Number 29 (Friday, February 12, 2016)]
[Rules and Regulations]
[Pages 7654-7684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02789]



[[Page 7653]]

Vol. 81

Friday,

No. 29

February 12, 2016

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 401 and 405





Medicare Program; Reporting and Returning of Overpayments; Final Rule

  Federal Register / Vol. 81 , No. 29 / Friday, February 12, 2016 / 
Rules and Regulations  

[[Page 7654]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 401 and 405

[CMS-6037-F]
RIN 0938-AQ58


Medicare Program; Reporting and Returning of Overpayments

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule requires providers and suppliers receiving 
funds under the Medicare program to report and return overpayments by 
the later of the date that is 60 days after the date on which the 
overpayment was identified; or the date any corresponding cost report 
is due, if applicable. The requirements in this rule are meant to 
ensure compliance with applicable statutes, promote the furnishing of 
high quality care, and to protect the Medicare Trust Funds against 
fraud and improper payments. This rule provides needed clarity and 
consistency in the reporting and returning of self-identified 
overpayments.

DATES: These regulations are effective on March 14, 2016.

FOR FURTHER INFORMATION CONTACT: Joe Strazzire, (410) 786-2775.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    On March 23, 2010, the Affordable Care Act was enacted. Section 
6402(a) of the Affordable Care Act established a new section 1128J(d) 
of the Social Security Act (the Act). Section 1128J(d)(1) of the Act 
requires a person who has received an overpayment to report and return 
the overpayment to the Secretary, the state, an intermediary, a 
carrier, or a contractor, as appropriate, at the correct address, and 
to notify the Secretary, state, intermediary, carrier or contractor to 
whom the overpayment was returned in writing of the reason for the 
overpayment. Section 1128J(d)(2) of the Act requires that an 
overpayment be reported and returned 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. Section 1128J(d)(3) of the Act specifies that any 
overpayment retained by a person after the deadline for reporting and 
returning an overpayment is an obligation (as defined in 31 U.S.C. 
3729(b)(3)) for purposes of 31 U.S.C. 3729.
    The requirements in this rule are meant to ensure compliance with 
applicable statutes, promote the furnishing of high quality care, and 
to protect the Medicare Trust Funds against fraud and improper 
payments. This rule provides needed clarity and consistency in the 
reporting and returning of self-identified overpayments. However, even 
without this final rule, providers and suppliers are subject to the 
statutory requirements found in section 1128J(d) of the Act and could 
face potential False Claims Act (FCA) liability, Civil Monetary 
Penalties Law (CMPL) liability, and exclusion from federal health care 
programs for failure to report and return an overpayment. Additionally, 
providers and suppliers continue to be required to comply with our 
current procedures \1\ when we, or our contractors, determine an 
overpayment and issue a demand letter.
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    \1\ https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/MLN-Publications-Items/CMS1243389.html.
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2. Summary of the Major Provisions
a. Meaning of Identification
    Section 1128J(d) of the Act provides that an overpayment must be 
reported and returned by the later of--(i) the date which is 60 days 
after the date on which the overpayment was identified; or (ii) the 
date any corresponding cost report is due, if applicable. This final 
rule states 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. Creating this standard for 
identification provides needed clarity and consistency for providers 
and suppliers on the actions they need to take to comply with 
requirements for reporting and returning of self-identified 
overpayments.
b. Lookback Period
    This final rule states that overpayments must be reported and 
returned only if a person identifies the overpayment within 6 years of 
the date the overpayment was received. Creating this limitation for how 
far back a provider or supplier must look when identifying an 
overpayment is necessary in order to avoid imposing unreasonable 
additional burden or cost on providers and suppliers.
c. How to Report and Return Overpayments
    This final rule states that providers and suppliers must use an 
applicable claims adjustment, credit balance, self-reported refund, or 
another appropriate process to satisfy the obligation to report and 
return overpayments. This position preserves our existing processes and 
preserves our ability to modify these processes or create new processes 
in the future.
3. Summary of Costs and Benefits
    This final rule states that a provider or supplier must (1) report 
and return an overpayment to the Secretary, the state, an intermediary, 
a carrier or a contractor to the correct address by the later of 60 
days after the overpayment was identified or the date the corresponding 
cost report is due, and (2) notify the Secretary, the state, an 
intermediary, a carrier, or a contractor in writing of the reason for 
the overpayment. The costs associated with these requirements are the 
time and effort necessary for providers and suppliers to identify, 
report, and return overpayments in the manner described in this rule. 
We project an annual cost burden of between $120.87 million and $201.45 
million. The former represents our low-end estimate, while the latter 
is our high-end estimate. Our primary, or mid-range, projection is an 
estimate of $161.16 million.
    The requirements in this final rule are meant to ensure compliance 
with applicable statutes, promote the furnishing of high quality care, 
and to protect the Medicare Trust Funds against fraud and improper 
payments. The potential financial benefits of this final rule from the 
standpoint of its effectiveness in recouping overpayments are not 
easily quantifiable, as we do not have sufficient data on which to base 
a monetary estimate of recovered funds.

B. Background

    The Medicare program (title XVIII of the Act) is the primary payer 
of health care for approximately 50 million enrolled beneficiaries. 
Providers and suppliers furnishing Medicare items and services must 
comply with the Medicare requirements set forth in the Act and in CMS 
regulations. The requirements are meant to ensure compliance with 
applicable statutes, promote the furnishing of high quality care, and 
to protect the Medicare Trust Funds against fraud and improper 
payments. As part of our efforts to reduce fraud, waste, and abuse in 
the Medicare program, we twice proposed, but did

[[Page 7655]]

not finalize, rules that would have amended our regulations to codify 
the longstanding responsibility of persons to report and return 
Medicare overpayments. (See the March 25, 1998 (63 FR 14506) and 
January 25, 2002 (67 FR 3662) proposed rules.)
    On March 23, 2010, the Affordable Care Act was enacted. Section 
6402(a) of the Affordable Care Act established a new section 1128J(d) 
of the Act. Section 1128J(d)(1) of the Act requires a person who has 
received an overpayment to report and return the overpayment to the 
Secretary, the state, an intermediary, a carrier, or a contractor, as 
appropriate, at the correct address, and to notify the Secretary, 
state, intermediary, carrier or contractor to whom the overpayment was 
returned in writing of the reason for the overpayment. Section 
1128J(d)(2) of the Act requires that an overpayment be reported and 
returned 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. Section 1128J(d)(3) of 
the Act specifies that any overpayment retained by a person after the 
deadline for reporting and returning an overpayment is an obligation 
(as defined in 31 U.S.C. 3729(b)(3)) for purposes of 31 U.S.C. 3729.
    Section 1128J(d)(4)(A) of the Act defines ``knowing'' and 
``knowingly'' as those terms are defined in 31 U.S.C. 3729(b). In that 
statute the terms ``knowing'' and ``knowingly'' mean that a person with 
respect to information--(i) has actual knowledge of the information; 
(ii) acts in deliberate ignorance of the truth or falsity of the 
information; or (iii) acts in reckless disregard of the truth or 
falsity of the information. 31 U.S.C. 3729(b) also states that knowing 
and knowingly do not require proof of specific intent to defraud. 
Section 1128J(d)(4)(B) of the Act defines the term ``overpayment'' as 
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. Lastly, section 1128J(d)(4)(C) of the Act defines the 
term ``person'' as a provider of services, supplier, Medicaid managed 
care organization (MCO) (as defined in section 1903(m)(1)(A) of the 
Act), Medicare Advantage (MA) organization (as defined in section 
1859(a)(1) of the Act) or prescription drug plan (PDP) sponsor (as 
defined in section 1860D-41(a)(13) of the Act). Section 1128J(d)(4)(C) 
of the Act excludes beneficiaries from the definition of person.
    In the February 16, 2012 Federal Register (77 FR 9179), we 
published a proposed rule that would implement the provisions of 
section 1128J(d) of the Act.

II. Provisions of the Proposed Regulations and Analysis of and 
Responses to Public Comments

    To implement section 1128J(d) of the Act, we proposed to establish 
a new subpart D in part 401 of our regulations, to revise Sec.  
401.607, and to add sections to part 405 of our regulations. In 
response to the February 16, 2012 proposed rule, we received 
approximately 200 timely pieces of correspondence. In this section of 
this final rule, we summarize our proposals, respond to the public 
comments received, and detail the changes made to our proposals.
    Many commenters stated their support for many provisions and goals 
of the proposed rule. Commenters generally agreed that providers and 
suppliers should promptly refund overpayments and maintain efforts to 
prevent and detect improper payments. While these commenters also 
suggested changes to certain provisions of the proposed rule, 
commenters stated that many of the proposed rule's requirements were 
reasonable. Some commenters stated they were pleased that CMS issued 
the proposed rule and believed it would motivate providers and 
suppliers to educate billing staff and practitioners on Medicare 
billing rules. These commenters stated they were hopeful that the rule 
would reduce improper payments and would help ensure the viability of 
the Medicare Trust Funds. Overall, we appreciate the comments 
expressing support for as well as the comments suggesting changes to 
the proposed rule.

A. Scope of Subpart (Proposed Sec.  401.301)

    In proposed Sec.  401.301, we stated that subpart D sets forth the 
policies and procedures for reporting and returning overpayments to the 
Medicare program for providers and suppliers of services under Parts A 
and B of title XVIII. We proposed to implement the requirements set 
forth in section 1128J(d) of the Act only as they relate to Medicare 
Part A and Part B providers and suppliers. Other stakeholders, 
including, without limitation, MA organizations, PDPs, and Medicaid 
MCOs would be addressed in future rulemaking. Since then, in the May 
23, 2014 Federal Register (79 FR 29844), we published a final rule that 
addresses Medicare Parts C and D. No final rule has been published that 
addresses Medicaid requirements
    Comment: A number of commenters expressed concern over the 
limitation of the proposed rule to Medicare Parts A and B. Commenters 
stated that CMS did not articulate any statutory authority or rationale 
for creating this distinction and narrowing the scope of the proposed 
rule to Medicare Part A and Part B providers and suppliers. According 
to commenters, the Medicare payment rules do not create any 
analytically distinct issues for Medicare Part A and Part B providers 
and suppliers over other categories of ``persons'' as defined under the 
proposed rule, thus commenters believed that the rule should similarly 
apply equally to all categories of persons as they relate to Medicare. 
Commenters noted that many providers or suppliers who submit claims to 
Medicare Part A or B also submit claims to managed care plans under 
Part C, plan sponsors under Part D, and Medicaid. Commenters requested 
that CMS include all of Medicare and Medicaid in the final rule or 
quickly issue other proposed rules so all providers and suppliers have 
guidance on their obligations and are treated equally.
    Response: Given the differences that exist between Medicare Parts A 
and B and Medicare Parts C and D and Medicaid, we believe that separate 
rulemaking processes are appropriate to address those differences. 
Those differences include, but are not limited to, how the programs are 
administered and the involvement of Medicare contractors in Part A and 
B, private health insurance plans in Part C, PDP sponsors in Part D, 
and state Medicaid agencies and contractors in Medicaid. The Secretary 
has the programmatic rulemaking authority to issue regulations on 
section 1128J(d) of the Act. We note that section 1128J(d) of the Act 
does not require the Secretary to issue regulations for the statute to 
be effective, and the statute's requirements are in effect in the 
absence of regulation. Providers and suppliers that identify 
overpayments received from Medicare or Medicaid should report and 
return those overpayments to the appropriate payor as required by 
section 1128J(d) of the Act. We appreciate commenters' concerns, but 
will finalize this rule as proposed to apply to Medicare Parts A and B 
only. Additionally, our rules for reporting and returning of 
overpayments in Medicare Parts C and D were recently published in 
separate rulemaking (see the May 23, 2014 final rule (79 FR 29843)).
    We remind all stakeholders that even without a final regulation 
they are subject to the statutory requirements

[[Page 7656]]

found in section 1128J(d) of the Act and could face potential FCA 
liability, CMPL liability, and exclusion from federal health care 
programs for failure to report and return an overpayment. Additionally, 
providers and suppliers continue to be required to comply with our 
current procedures when we, or our contractors, determine an 
overpayment and issue a demand letter.

B. Definitions (Proposed Sec.  401.303)

    We proposed three definitions in Sec.  401.303. We proposed to 
define ``Medicare contractor'' as a fiscal intermediary, carrier, 
durable medical equipment Medicare administrative contractor (DME MAC), 
or Part A/Part B Medicare administrative contractor. We stated that our 
proposed definition captures the different contractors that would be 
involved in receiving reports of overpayments as well as handling the 
return of overpayments, consistent with the statutory requirement. 
Since the publication of the proposed rule, we have ceased using fiscal 
intermediary and carrier contracts, and accordingly we have removed 
these terms from the definition of ``Medicare contractor'' in the final 
rule.
    ``Overpayment'' was proposed to be defined as any funds that a 
person has received or retained under title XVIII of the Act to which 
the person, after applicable reconciliation, is not entitled under such 
title. This is the same definition that appears in the statute. In 
section II.B. of the February 2012 proposed rule (77 FR 9181), we also 
included certain examples of overpayments under this proposed 
definition as including all of the following:
     Medicare payments for noncovered services.
     Medicare payments in excess of the allowable amount for an 
identified covered service.
     Errors and nonreimbursable expenditures in cost reports.
     Duplicate payments.
     Receipt of Medicare payment when another payor had the 
primary responsibility for payment.
    We also stated in the proposed rule that, in certain circumstances, 
Medicare makes estimated payments for services with the knowledge that 
a reconciliation of those payments to actual costs will be done when 
the actual costs or related information becomes available, usually at a 
later date. Interim payments made to a provider throughout the cost 
year are reconciled with covered and reimbursable costs at the time the 
cost report is due. The statutory and proposed regulatory definition of 
the term overpayment acknowledges this practice and provides that an 
overpayment does not exist until after an applicable reconciliation 
takes place. When a provider files a cost report, the provider is 
reporting the provider's reconciliation described previously and 
attesting to the accuracy of the information contained on the cost 
report. Providers must maintain the appropriate documentation 
supporting the costs that are claimed on the cost report. We stated 
that we rely upon the information that providers submit through the 
cost report. Whether it is an initial submission of a cost report or an 
amended one, we believed that providers must accurately report any cost 
report-related overpayments at the time they submit any cost reports to 
CMS.
    Finally, we proposed to define the term ``Person'' as a provider 
(as defined in Sec.  400.202) or a supplier (as defined in Sec.  
400.202). We noted that this proposed definition does not include a 
beneficiary and that our proposal was consistent with the definition of 
a ``person'' in section 1128J(d)(4)(C) of the Act.
    We received a number of comments regarding the definitions in 
proposed Sec.  401.303.
    Comment: A number of commenters expressed support for the proposed 
definition of ``overpayment.'' However, commenters recommended that CMS 
exclude routine, day-to-day business practices from the definition. 
Examples of practices commenters cited included: (1) Items representing 
refunds from the return of a product where a credit will be issued; (2) 
routine changes to dates of service for rental periods as patients 
start and stop therapy, causing a change in rental periods and account 
adjustments; and (3) errors in payment by a Medicare contractor that 
lead to an excess payment. Commenters stated that these and other types 
of overpayments are currently reported and returned through the claims 
adjustment or reversal process and the credit balance reporting 
process. Commenters stated that these existing processes worked well 
and should be recognized in the rule. Many commenters stated that CMS 
should consider these processes as part of the definition of 
``applicable reconciliation'' in proposed Sec.  401.305(c), which would 
mean any amounts refunded through the claims adjustment or reversal and 
credit balance reporting would not fall within the definition of 
``overpayment.'' Commenters stated that amounts refunded through claims 
adjustment/reversal or credit balance reporting do not represent fraud, 
waste, or abuse, which, commenters state, CMS is seeking to curtail in 
this rule. Also, commenters believed that expanding the meaning of 
``applicable reconciliation'' in the ``overpayment'' definition would 
ease the burden of compliance on providers and suppliers.
    Response: We understand the commenters concerns related to the 
definition of overpayment. As explained in the proposed rule, our 
proposed definition of overpayment mirrors section 1128J(d)(4)(B) of 
the Act. We understand the commenters' concerns about the breadth of 
this definition and believe we have appropriately addressed them by 
expanding the ways in which overpayments may be reported and returned 
to include the claims adjustment or reversal and credit balance 
reporting process, as discussed in more detail in section II.C.4. of 
this final rule. This change should reduce the administrative burden 
issue that various commenters raised. We decline to expand ``applicable 
reconciliation'' beyond cost reporting for reasons discussed in greater 
detail later in this section.
    With respect to the statements regarding fraud, waste, and abuse, 
we recognize that many commenters posed questions and concerns about 
this rule's relationship to the prevention of fraud, waste, and abuse, 
and the FCA. While these issues will be addressed in more detail in 
section II.C.1. of this final rule, we recognize that not all Medicare 
overpayments involve fraudulent activity (though some do). Again, 
overpayments are any funds that a person has received or retained under 
title XVIII of the Act to which the person, after applicable 
reconciliation, is not entitled under such title. These funds might be 
received or retained due to fraud or due to more inadvertent reasons.
    Our general aim of this final rule is to strengthen program 
integrity and to ensure that the Medicare Trust Funds are protected and 
made whole and that taxpayer dollars are not wasted. An overpayment 
must be reported and returned regardless of the reason it happened--be 
it a human or system error, fraudulent behavior, or otherwise. However, 
as discussed in section II.C.4., the nature of the overpayment will 
affect a provider's or supplier's decision about the most appropriate 
mechanism and recipient of the overpayment report and refund.
    Comment: A number of commenters requested that overpayments not 
caused by the provider or supplier or that were otherwise outside of 
the provider or supplier's control should be excluded from our proposed 
definition of overpayment. Examples of this situation offered by 
commenters included--(1) a

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CMS system error classifying a Medicare beneficiary as fee-for-service 
when the beneficiary was enrolled in a MA Plan; or (2) if the Medicare 
contractor makes a duplicate payment, pays for a non-covered service 
due to a contractor system edit problem, or fails to implement a 
national or local coverage decision correctly, resulting in an 
erroneous payment.
    Response: We disagree with the commenters that certain types of 
payments, including those made as a result of an error by any 
particular party, should be excluded from the definition of an 
overpayment. We do not see any basis to exclude an overpayment from the 
requirements of section 1128J(d) of the Act because it may not have 
been caused by or was otherwise outside the control of the provider or 
supplier. The plain language of section 1128J(d)(1) of the Act states 
that providers and suppliers are obligated to report and return any 
overpayment that they have received within the specified statutory 
timeframes. We do not believe it is necessary for providers or 
suppliers to make determinations regarding whether they were the cause 
of an overpayment in lieu of reporting and returning any identified 
overpayments as required by this rule.
    Comment: A commenter requested that the overpayment example we used 
in the preamble regarding a patient death occurring before the service 
date on a submitted claim not be considered an overpayment. The 
commenter stated that there could be a gap between the time of the 
patient's exam and the interpretation of images, during which period 
the patient could expire. While the commenter conceded that our example 
of an overpayment situation relating to the relationship between the 
date of a beneficiary's death and the date of service would generally 
be true (for example, in the case of a claim for an operation or an 
office visit with a date of service subsequent to a beneficiary's date 
of death), the commenter believed there are certain circumstances where 
this relationship would not, by itself, be dispositive.
    Response: As we stated in the preamble to the proposed rule, the 
examples were not intended to be an exhaustive list of overpayment 
situations. Nor were they intended to address all potential factual 
permutations and coverage rules that determine whether a particular 
claim is associated with an overpayment. Providers and suppliers should 
analyze the facts and circumstances relevant to a particular situation 
to determine whether an overpayment exists.
    Comment: Regarding our overpayment example ``errors and non-
reimbursable expenditures in cost reports,'' a commenter requested that 
we rephrase our example to read: ``Increases in reimbursement resulting 
from errors and non-reimbursable expenditures in cost reports.'' The 
commenter indicated that the ``increase in reimbursement'' language is 
more accurate.
    Response: We agree that ``increases in reimbursement resulting from 
errors and non-reimbursable expenditures in cost reports'' is a more 
accurate example for purposes of this rule. Providers and suppliers 
need to supply accurate information on their cost report. However, this 
rule concerns reporting and returning overpayments received by the 
provider or supplier. Therefore, if the error or non-reimbursable cost 
at issue did not result in an increase in reimbursement, then no 
overpayment was received and section 1128J(d) of the Act is not 
implicated.
    Comment: Some commenters requested that we specifically define what 
it means to ``over-code'' and how a determination would be made as to 
whether the miscoding was deliberate. For example, a commenter 
referenced a physician billing for an evaluation and management (E&M) 
code as a level III (CPT code 99213), but an auditor determines that 
the documentation for the visit only supports a level II service (CPT 
code 99212). The commenter states that it is unclear from the proposed 
rule whether, in this instance, the physician would be in violation of 
the reporting rules and liable for penalties.
    Response: Over-coding, or the more commonly used term upcoding, is 
illustrated by the example given by the commenter. However, the 
commenter appears to believe that the physician only has an obligation 
to report and return the overpayment if the upcoding was done 
deliberately. To clarify, providers and suppliers must report and 
return overpayments identified as a result of upcoding, whether the 
inappropriate coding was intentional or unintentional. We discuss the 
steps that must be taken when a provider or supplier has identified an 
overpayment in section II.C. of this final rule.
    Comment: A commenter requested CMS retract all of the overpayment 
examples in the proposed rule and republish a proposed rule including 
all specific examples of what CMS considers overpayments. In the 
alternative, the commenter objected to all of the examples except 
duplicate payments because, according to the commenter, these examples 
are inconsistent with Medicare's practice to make estimated payments 
for services with the knowledge that a reconciliation of those payments 
to actual costs will be completed at a later date when the actual costs 
or other relevant information become available. According to the 
commenter, the word ``overpayment'' implies some payment was 
appropriate but the actual amount of payment was over the appropriate 
amount. Thus, the commenter stated that the examples are inconsistent 
with the purpose of the statutory and regulatory definition, with 
industry practice, and with the general industry understanding of what 
an overpayment is in light of the cost report reconciliation process.
    Response: We disagree with both of the commenter's suggestions. As 
stated earlier, the examples were illustrative and not intended as an 
inclusive list of all examples of overpayments. We are unable to make 
blanket statements or address every factual permutation in this 
rulemaking, and thus it is not feasible for us to enumerate all 
specific examples of overpayments. Providers and suppliers should 
analyze the facts and circumstances relevant to their situation to 
determine whether an overpayment exists.
    In instances where interim payments are made based on estimated 
costs, an overpayment is not deemed to exist for purposes of this rule 
until an applicable reconciliation has occurred in accordance with 
Sec.  401.305(c). We also disagree with the commenter's statement that 
Medicare's practice is to make estimated payments for services with the 
knowledge that a reconciliation of those payments to actual costs will 
be completed at a later date. While some payments are cost-based 
estimated payments as acknowledged in the proposed rule, many payments 
are not, such as claims-based payments under fee-for-service or 
prospective payment systems. For example, the first preamble example is 
a Medicare payment for non-covered services which, in most cases, would 
be a claims-based payment that is not an estimated payment subject to 
cost report reconciliation. In addition, we disagree that the term 
``overpayment'' implies that some payment was appropriate. Section 
1128J(d) of the Act defines overpayment to include any funds that a 
person receives or retains to which the person is not entitled after 
applicable reconciliation. In the case of a non-covered service, as 
well as others, the amount to which the person is entitled is zero.
    Comment: Several commenters requested clarification that an

[[Page 7658]]

overpayment consists only of the amount of payment a provider or 
supplier receives in excess of funds it should have received for the 
services rendered. For instance, if a supplier was paid $40 for a claim 
when it should have received $30, the commenters questioned whether the 
overpayment amount is $10 and not the entire $40 amount paid.
    Response: In circumstances where a paid amount exceeds the 
appropriate payment amount to which a provider or supplier is entitled, 
the overpayment is the difference between the amount that was paid and 
the amount that should have been paid. In addition, there are instances 
where payment is made for an item or service specifically not payable 
under the Act (for example, claims resulting from Anti-Kickback Statute 
or physician self-referral law violations or claims for items and 
services furnished by an excluded person), or where the payment was 
secured through fraud. In these types of situations, the overpayment 
typically consists of the entire amount paid.
    Comment: Several commenters requested that CMS clarify in the final 
rule that potential overpayments only exist if a provider or supplier 
retains funds to which it was not entitled to at the time that it 
received the funds. Commenters stated that subsequent changes in law, 
regulation, or guidance (such as coding rules, carrier edits, and 
national and local coverage decisions) should not render payments that 
were proper at the time they were made overpayments at a later date.
    Response: We agree that payments that were proper at the time the 
payment was made do not become overpayments at a later time due to 
changes in law or regulation, unless otherwise required by law. Changes 
in guidance or coverage policy also usually will not alter whether a 
prior payment should be considered an overpayment, although there can 
be circumstances in which guidance is issued to clarify existing law, 
regulation, or coverage rules that would make clear that a past payment 
is an overpayment. Typically, overpayments would be determined in 
accordance with the effective date of any changes in law, regulation, 
or policy. Providers and suppliers should analyze the facts and 
circumstances present in their situation to determine whether an 
overpayment exists.
    Comment: Some commenters stated that the concept of ``overpayment'' 
is not fair in some situations. The commenters stated that certain 
reasons for an overpayment, such as ``insufficient documentation'' or 
``lack of medical necessity'' are extremely difficult to define 
objectively.
    Response: The definition of overpayment is fixed in statute. 
Sufficient documentation and medical necessity are longstanding and 
fundamental prerequisites to Medicare coverage and payment.
    Comment: A commenter requested clarification of the meaning of 
``entitled.'' The commenter stated that, once the statute of 
limitations has run on the government's ability to sue for breach of 
contract or recoupment, the provider has a vested right to the payment 
and is ``entitled'' to the funds. The commenter recommended that the 
final rule recognize that statutes of limitation, setoff, and other 
defenses may be considered in determining whether an overpayment 
exists.
    Response: We believe that the statutory language clearly states 
that ``entitled'' means entitled under title XVIII or XIX of the Act. 
This final rule addresses payments under title XVIII and thus, Medicare 
entitlement depends upon whether the funds were received in conformance 
to the payment rules set forth in the Act and its implementing 
regulations. We do not opine on any theories for the government's 
pursuit of recovering overpayments, whether those theories are at law 
or equitable in nature. The purpose of this rule is to detail the 
providers and suppliers' obligations under section 1128J(d) of the Act 
to report and return overpayments they have received.
    Comment: A number of commenters questioned the treatment of 
underpayments that providers and suppliers may identify in the course 
of identifying overpayments. Some commenters requested an explanation 
of the process by which providers and suppliers may recoup 
underpayments. Other comments proposed that providers and suppliers 
should be allowed to offset identified underpayments against identified 
overpayments when determining the repayment amount. Finally, several 
commenters suggested that the lookback period for overpaid claims 
should be the same as the lookback period for underpaid claims. 
Commenters suggested that we consider allowing providers and suppliers 
more than the currently allowed one year period to rebill a claim to 
correct an identified underpayment. Underpayment lookback periods of 3 
years and 10 years (to match the proposed lookback period) were 
recommended by commenters.
    Response: This final rule implements section 1128J(d) of the Act, 
which concerns overpayments, not underpayments. Thus, underpayment 
issues are outside the scope of this rulemaking. Under existing 
policies, providers and suppliers can seek to address underpayments by 
requesting reopenings under Sec.  405.980(c).
    Comment: Several commenters recommended that we ensure that 
refunded overpayments will be recorded and removed from the total 
amount paid by Medicare Part B for purposes of the sustainable growth 
rate formula (SGR).
    Response: The Medicare Access and CHIP Reauthorization Act repealed 
the SGR. Overpayment refunds were recorded and removed from the total 
Medicare Part B expenditures for purposes of calculating the SGR, 
during the period for which the SGR was in effect under section 1848 of 
the Act.
    Comment: Several commenters questioned whether providers and 
suppliers need to report and return Medicare secondary payer refunds 
under this final rule.
    Response: Yes, overpayments where the provider or supplier received 
primary payment from both a primary payer other than Medicare and a 
primary payment from Medicare (``provider/supplier duplicate primary 
payments'') must be refunded. Overpayments where the provider/supplier 
failed to file a proper claim in accordance with 42 CFR 411.24(l) must 
also be refunded.
    Comment: A commenter appreciated the clarification in the proposed 
rule that the statutory definition of person, for purposes of reporting 
and returning overpayments, does not include beneficiaries and 
encouraged CMS to finalize the proposed definition. Another commenter 
disagreed with the proposed rule's exclusion of beneficiaries from the 
``person'' definition and requested an explanation for the exclusion.
    Response: We appreciate the comment in support of the proposed 
definition and note that the proposed definition of ``person'' is in 
accordance with section 1128J(d)(4)(C)(ii) of the Act which excludes 
beneficiaries from the definition of the term ``person.''

C. Requirements for Reporting and Returning of Overpayments (Proposed 
Sec.  401.305)

    Section 1128J(d) of the Act provides that an overpayment must be 
reported and returned by the later of --(i) the date which is 60 days 
after the date on which the overpayment was identified; or (ii) the 
date any corresponding cost report is due, if applicable. Proposed 
Sec.  401.305(b) contained this requirement. If an overpayment is 
claims related, the provider or supplier would be required

[[Page 7659]]

to report and return the overpayment within 60 days of identification.
1. Meaning of Identified (Proposed Sec.  401.305(a))
    In proposed Sec.  401.305(a)(2), we 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. We stated in the preamble that 
we proposed this definition in part because section 1128J(d) of the Act 
provides that the terms ``knowing'' and ``knowingly'' have the meaning 
given those terms in the FCA (31 U.S.C. 3729(b)(1)). While the 
statutory text does not use these terms other than in the definitions, 
we believed the Congress' use of the term ``knowing'' in the Affordable 
Care Act was intended to apply to determining when a provider or 
supplier has identified an overpayment. We also stated that defining 
``identification'' in this way gives providers and suppliers an 
incentive to exercise reasonable diligence to determine whether an 
overpayment exists. Without such a definition, some providers and 
suppliers might avoid performing activities to determine whether an 
overpayment exists, such as self-audits, compliance checks, and other 
research.
    We also noted in the February 2012 proposed rule (77 FR 9182) that, 
in some cases, a provider or supplier may receive information 
concerning a potential overpayment that creates a duty to make a 
reasonable inquiry to determine whether an overpayment exists. If the 
reasonable inquiry reveals an overpayment, the provider or supplier 
then has 60 days to report and return the overpayment. On the other 
hand, failure to make a reasonable inquiry, including failure to 
conduct such inquiry with all deliberate speed after obtaining the 
information, could result in the provider or supplier knowingly 
retaining an overpayment because it acted in reckless disregard or 
deliberate ignorance of whether it received such an overpayment. For 
example, a provider that receives an anonymous compliance hotline 
telephone complaint about a potential overpayment may have incurred a 
duty to timely investigate that matter, depending on whether the 
hotline complaint qualifies as credible information of a potential 
overpayment. Whether the complaint qualifies as credible information is 
a factual determination. If the provider incurs a duty and diligently 
conducts the investigation, and reports and returns any resulting 
overpayments within the 60-day reporting and repayment period, then the 
provider would have satisfied its obligation under the proposed rule. 
However, if the provider fails to make any reasonable inquiry into the 
complaint, the provider may be found to have acted in reckless 
disregard or deliberate ignorance of any overpayment.
    In order to assist providers and suppliers with understanding when 
an overpayment has been identified, we provided the following examples, 
which were intended to be illustrative and not an exhaustive list of 
circumstances:
     A provider of services or supplier reviews billing or 
payment records and learns that it incorrectly coded certain services, 
resulting in increased reimbursement.
     A provider of services or supplier learns that a patient 
death occurred prior to the service date on a claim that has been 
submitted for payment.
     A provider of services or supplier learns that services 
were provided by an unlicensed or excluded individual on its behalf.
     A provider of services or supplier performs an internal 
audit and discovers that overpayments exist.
     A provider of services or supplier is informed by a 
government agency of an audit that discovered a potential overpayment, 
and the provider or supplier fails to make a reasonable inquiry. (When 
a government agency informs a provider or supplier of a potential 
overpayment, the provider or supplier has a duty to accept the finding 
or make a reasonable inquiry. If the provider's or supplier's inquiry 
verifies the audit results, then it has identified an overpayment and, 
assuming there is no applicable cost report, has 60 days to report and 
return the overpayment. As noted previously, failure to make a 
reasonable inquiry, including failure to conduct such inquiry with all 
deliberate speed after obtaining the information, could result in the 
provider or supplier knowingly retaining an overpayment because it 
acted in reckless disregard or deliberate ignorance of whether it 
received such an overpayment).
     A provider of services or supplier experiences a 
significant increase in Medicare revenue and there is no apparent 
reason--such as a new partner added to a group practice or a new focus 
on a particular area of medicine--for the increase. However, the 
provider or supplier fails to make a reasonable inquiry into whether an 
overpayment exists. (When there is reason to suspect an overpayment, 
but a provider or supplier fails to make a reasonable inquiry into 
whether an overpayment exists, it may be found to have acted in 
reckless disregard or deliberate ignorance of any overpayment.)
    Finally, we also discussed in the proposed rule (77 FR 9183) issues 
associated with overpayments that arise due to a violation of the Anti-
Kickback statute (section 1128B(b)(1) and (2) of the Act). Compliance 
with the Anti-Kickback statute is a condition of payment. Claims that 
include items and services resulting from a violation of this law are 
not payable and constitute false or fraudulent claims for purposes of 
the FCA. In the proposed rule, we recognized that, in many instances, a 
provider or supplier is not a party to, and is unaware of the existence 
of, an arrangement between third parties that causes the provider or 
supplier to submit claims that are the subject of a kickback. For 
example, a hospital may be unaware that a device manufacturer has paid 
a kickback to a physician on the hospital's medical staff to induce the 
physician to implant the manufacturer's device in procedures performed 
at the hospital. Moreover, even if a provider or supplier becomes aware 
of a potential third party payment arrangement, it would generally not 
be able to evaluate whether the payment was an illegal kickback or 
whether one or both parties had the requisite intent to violate the 
Anti-Kickback statute.
    For this reason, we stated that we believe that providers and 
suppliers who are not a party to a kickback arrangement are unlikely in 
most instances to have ``identified'' the overpayment that has resulted 
from the kickback arrangement; therefore would have no duty to report 
or repay it. To the extent that a provider or supplier who is not a 
party to a kickback arrangement has sufficient knowledge of the 
arrangement to have identified the resulting overpayment, we proposed 
that the provider or supplier report the overpayment to CMS in 
accordance with section 1128J(d) of the Act and corresponding 
regulations. Although the government may always seek repayment of 
claims paid that do not satisfy a condition of payment, where a 
kickback arrangement exists, HHS's enforcement efforts would most 
likely focus on holding accountable the perpetrators of that 
arrangement. Accordingly, we would refer the reported overpayment to 
OIG for appropriate action and would suspend the repayment obligation 
until the government has resolved the kickback matter (either by 
determining that no enforcement action is warranted or by obtaining a 
judgment, verdict, conviction, guilty plea, or settlement). Thus, if 
the provider has not identified the kickback or if it reported it when 
it did identify the kickback, our

[[Page 7660]]

expectation is that only the parties to the kickback scheme would be 
required to repay the overpayment that was received by the innocent 
provider or supplier, except in the most extraordinary circumstances.
    Comment: Several commenters noted that section 1128J(d) of the Act 
has two separate provisions addressing overpayments and questioned 
whether the proposed rule conflated those provisions. Section 
1128J(d)(1) of the Act creates the threshold obligation that if a 
person has received an overpayment, the person shall report and return 
the overpayment. Once that threshold obligation is triggered--receipt 
of the overpayment--then section 1128J(d)(2) of the Act addresses the 
timing of fulfilling the obligation to report and return, either the 
later of the date which is 60 days after the date on which the 
overpayment was identified or the date any corresponding cost report is 
due, if applicable. Commenters noted that the proposed rule may 
conflate these two, separate obligations in proposed 42 CFR 
401.305(a)(1), which stated that if a person has identified that it has 
received an overpayment, the person must report and return the 
overpayment in the form and manner set forth in 42 CFR 401.305. 
Commenters stated that this proposed rule language tied the threshold 
obligation to identifying the overpayment and not to receiving the 
overpayment.
    Response: We agree with the commenters and have amended Sec.  
401.305(a)(1) to separate these two concepts. Section 1128J(d)(1) of 
the Act plainly mandates that any overpayment received by a person 
shall be reported and returned. We interpret this language as showing 
the Congress intended to more clearly codify providers and suppliers' 
existing duty to return overpayments they have received, which would 
necessarily include taking appropriate actions to determine whether the 
provider or supplier has in fact received an overpayment. The 
``receipt'' threshold obligation is consistent with both the initial 
standard for identification in the proposed rule and the standard for 
identification in this final rule. We do not believe the Congress 
intended to create a loophole to the threshold ``receipt'' obligation 
through the timing provision for fulfilling this obligation. Limiting 
the standard for identification to actual knowledge would create that 
loophole and would conflict with the plain statutory mandate to report 
and return any overpayments the person has received. In addition, we 
believe we have the responsibility under the Secretary's rulemaking 
authority to interpret the statute in an appropriate manner to create 
safeguards that protect the integrity of its plain mandate--to report 
and return overpayments the person has received.
    Comment: Several commenters agreed with the proposed rule's 
definition of identification. Commenters stated that the proposed rule 
provides appropriate incentives for providers and suppliers to pay 
attention to red flags indicating a potential overpayment may have been 
received. These commenters believe providers and suppliers should be 
encouraged to proceed with diligence to investigate information 
suggesting an overpayment, to report, and take corrective actions, and 
adopt ``best practices'' to prevent overpayments. A commenter stated 
that adoption of this actual and constructive knowledge standard will 
promote consistency and will allow government and providers and 
suppliers to base their conduct and positions on case law interpreting 
those terms. Another commenter acknowledged the need for the reckless 
disregard/deliberate ignorance standard to deter evasive conduct and 
fraudulent concealment. However, the commenter requested that CMS 
further clarify this standard.
    Response: We appreciate the comments and agree with the commenters' 
interpretation of the proposed rule. We continue to believe that the 
proposed standard is an appropriate interpretation of section 1128J(d) 
of the Act within the Secretary's rulemaking authority. As explained in 
this final rule, we have adjusted the standard for identification after 
careful consideration of the numerous comments submitted. We believe 
that the final rule strikes the right balance between creating a 
flexible yet strong standard that applies to many different 
circumstances.
    Comment: Many commenters objected to the proposed inclusion of 
reckless disregard and deliberate ignorance in the standard for 
identification. These commenters claimed that there is no statutory 
basis to apply a standard beyond actual knowledge to the term 
``identified.'' Specifically, commenters disagreed with our statement 
in the preamble that the Congress' use of the term ``knowing and 
knowingly'' in section 1128J(d)(4)(A) of the Act indicates the 
Congress' intent to apply a constructive knowledge standard to 
``identified.'' Commenters noted that these terms are not used 
elsewhere in section 1128J(d) of the Act except the definition section. 
Commenters attributed section 1128J(d)(4)(A) of the Act as a drafting 
error based on the House version of the Affordable Care Act, H.R. 3962, 
which used the term ``knows.'' According to commenters, the replacement 
of the word ``knows'' with ``identified'' in the final version of the 
Affordable Care Act is indicative of Congressional intent not to equate 
the FCA knowledge standard to ``identified.'' The commenters argue that 
had the Congress intended to apply the statute this expansively, it 
would have drafted the provision to extend liability to those who fail 
to report and return an overpayment within 60 days of the date on which 
the overpayment was identified or should have been identified.
    Response: We disagree with the commenters' arguments. While we 
acknowledge that the terms ``knowing'' and ``knowingly'' are defined 
but not otherwise used in section 1128J(d) of the Act, we believe that 
the Congress intended for section 1128J(d) of the Act to apply broadly. 
If the requirement to report and return overpayments only applied to 
situations where providers or suppliers had actual knowledge of the 
existence of an overpayment, then these entities could easily avoid 
returning improperly received payments and the purpose of the section 
would be defeated.
    Comment: Several commenters suggested applying the ``knowing'' 
concept to ``retained'' instead of our proposed approach. Commenters 
believed that applying the constructive knowledge standard to trigger 
the enforcement provisions would be more appropriate than our proposal.
    Response: We considered applying a constructive knowledge standard 
to the term ``retained'' and determined that our approach was both a 
better reading of the law and a better approach to protecting the 
program. As discussed previously, we believe there is a strong 
statutory basis for our rule. Also, modifying ``retained'' does not 
eliminate the programmatic concern of the ``ostrich defense''--that the 
plain mandate to report and return overpayments received would be 
avoided by not taking action to obtain actual knowledge of an 
overpayment. The enforcement provision at section 1128J(d)(3) of the 
Act depends on the person retaining the overpayment after the deadline 
for reporting and returning. If the deadline never passes because the 
person avoids obtaining actual knowledge of the overpayment, then the 
enforcement provision is rendered toothless.
    Comment: Commenters also expressed concern that ``reckless 
disregard'' and ``deliberate ignorance'', as used in proposed Sec.  
401.305(a)(2), are

[[Page 7661]]

ambiguous terms that do not adequately inform providers and suppliers 
of the circumstances that would give rise to a duty to investigate and 
fail to provide sufficient guidance as to what efforts are necessary to 
avoid overpayment liability. Some commenters stated that the proposed 
rule actually provides a disincentive to undertake compliance audits 
for fear of creating liability for identifying an overpayment.
    Response: We appreciate the comments and have revised the 
regulatory provision in the final rule by removing the terms ``actual 
knowledge'', ``reckless disregard'', and ``deliberate ignorance''. The 
final rule states 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 if the person fails 
to exercise reasonable diligence and the person in fact received an 
overpayment. ``Reasonable diligence'' includes both proactive 
compliance activities conducted in good faith by qualified individuals 
to monitor for the receipt of overpayments and investigations conducted 
in good faith and in a timely manner by qualified individuals in 
response to obtaining credible information of a potential overpayment.
    The regulation uses a single term--reasonable diligence--to cover 
both proactive compliance activities to monitor claims and reactive 
investigative activities undertaken in response to receiving credible 
information about a potential overpayment. We believe that compliance 
with the statutory obligation to report and return received 
overpayments requires both proactive and reactive activities. In 
addition, we also clarify that the quantification of the amount of the 
overpayment may be determined using statistical sampling, extrapolation 
methodologies, and other methodologies as appropriate.
    As to the circumstances that give rise to a duty to exercise 
reasonable diligence, we are not able to identify all factual scenarios 
in this rulemaking. Providers and suppliers are responsible for 
ensuring their Medicare claims are accurate and proper and are 
encouraged to have effective compliance programs as a way to avoid 
receiving or retaining overpayments. Indeed, many commenters told us 
that they have active compliance programs and that we should recognize 
these compliance efforts in the final rule. It was also apparent from 
some commenters that they do not currently engage in compliance efforts 
to ensure that the claims they submitted to Medicare were accurate and 
proper and that payments received are appropriate. We advise those 
providers and suppliers to undertake such efforts to ensure they 
fulfill their obligations under section 1128J(d) of the Act. We believe 
that undertaking no or minimal compliance activities to monitor the 
accuracy and appropriateness of a provider or supplier's Medicare 
claims would expose a provider or supplier to liability under the 
identified standard articulated in this rule based on the failure to 
exercise reasonable diligence if the provider or supplier received an 
overpayment. We also recognize that compliance programs are not uniform 
in size and scope and that compliance activities in a smaller setting, 
such as a solo practitioner's office, may look very different than 
those in larger setting, such as a multi-specialty group. Compliance 
activities may also appropriately vary based on the type of provider.
    We note that in discussing the standard term ''reasonable 
diligence'' in the preamble, we are interpreting the obligation to 
''report and return the overpayment'' that is contained in section 
1128J(d) of the Social Security Act. We are not seeking to interpret 
the terms ''knowing'' and ''knowingly'', which are defined in the Civil 
False Claims Act and have been interpreted by a body of False Claims 
Act case law.
    Comment: Several commenters stated that they interpreted the 
preamble to the proposed rule as permitting providers and suppliers 
time to conduct a reasonable inquiry before the 60-day time period 
begins to run. These commenters noted that the preamble provides that 
providers and suppliers may receive information concerning a potential 
overpayment that creates a duty to conduct a reasonable inquiry to 
determine whether an overpayment exists. If the reasonable inquiry 
reveals an overpayment, then the provider has 60 days to report and 
return the overpayment. On the other hand, failure to make a reasonable 
inquiry, including failure to conduct such inquiry with all deliberate 
speed after obtaining the information, could result in the provider or 
supplier knowingly retaining an overpayment because it acted in 
reckless disregard or deliberate ignorance of whether it received such 
an overpayment. Commenters stated that this explanation and the 
examples in the preamble together suggested that once a provider is 
placed on notice of a potential overpayment, it must conduct a 
reasonably diligent inquiry under the circumstances and the 60-day 
period does not start until either the inquiry reveals an overpayment 
or the provider or supplier is reckless or deliberately ignorant 
because it failed to conduct the reasonable inquiry. Commenters 
requested that we clarify whether this interpretation was accurate.
    Response: We agree with the commenters' interpretation of the 
proposed rule and have revised Sec.  401.305(a) and (b) in this final 
rule to clarify the duty to investigate through a reasonable diligence 
standard. When a person obtains credible information concerning a 
potential overpayment, the person needs to undertake reasonable 
diligence to determine whether an overpayment has been received and to 
quantify the amount. The 60-day time period begins when either the 
reasonable diligence is completed or on the day the person received 
credible information of a potential overpayment if the person failed to 
conduct reasonable diligence and the person in fact received an 
overpayment.
    Comment: Commenters questioned how quantification of the 
overpayment fit into the proposed rule. Specifically, commenters stated 
that the proposed rule did not expressly address the difference between 
determining that an overpayment has been received and the auditing work 
necessary to calculate the overpayment amount. Commenters stated that 
the calculation necessarily must happen before the overpayment can be 
reported and returned.
    Response: We agree and have revised the language in Sec.  
401.305(a)(2) to clarify that part of identification is quantifying the 
amount, which requires a reasonably diligent investigation.
    Comment: Commenters expressed concern over whether the proposed 
rule treats failing to conduct a ``reasonable inquiry'' with ``all 
deliberate speed'' as a violation of section 1128J(d) of the Act by 
itself. In other words, commenters questioned whether the mere 
possibility of an overpayment, without there actually being an 
overpayment, can establish liability at any point.
    Response: We understand the commenters' concerns and have amended 
the language accordingly. The final rule clarifies that failure to 
conduct reasonable diligence does not by itself create liability under 
section 1128J(d) of the Act. The statutory obligation is to report and 
return received overpayments; thus a provider or supplier must also 
have received an overpayment that it should have identified before 
liability can exist under section 1128J(d) of the Act.

[[Page 7662]]

    Comment: Several commenters requested clarity on the phrase 
``reasonable inquiry.'' Some commenters suggested defining ``reasonable 
inquiry'' as a good faith investigation that is promptly conducted 
until its conclusion by persons with sufficient knowledge and 
experience to make such determination.
    Response: We appreciate the commenters' suggestions and amended the 
final rule as described in this section by creating a ``reasonable 
diligence'' standard in Sec.  401.305(a)(2). We also appreciate the 
commenters' suggested definition and incorporated various suggestions 
into our discussion of what constitutes ``reasonable diligence,'' as 
explained previously in this section. We also note that although the 
preamble to the proposed rule used both ``reasonable diligence'' and 
``reasonable inquiry,'' for clarity, we used only the term ``reasonable 
diligence'' in this final rule.
    Comment: Commenters suggested that we provide more detail on how to 
judge what is ``reasonable'' about a reasonable inquiry, such as taking 
into account the unique characteristics of the provider or supplier and 
the nature of the problem. Accordingly, commenters suggested defining 
``reasonable inquiry'' as ``reasonably diligent under the 
circumstances, taking into account the size, capacity, workload, 
technological sophistication, and resources of the subject provider or 
supplier and the complexity, uniqueness, and significance of the 
suspected overpayment at issue.'' In addition, commenters recommended 
that we provide a list of illustrative hallmarks of a reasonable 
inquiry, but also stated that some of these hallmarks will be fact-
dependent.
    Response: We appreciate the comments and believe we have provided 
additional explanation of the meaning of ``reasonable diligence'' in 
this final rule. However, we decline to expressly adopt the commenters' 
proposed definitions and suggestions. We believe that the concept of 
``reasonableness'' is fact-dependent.
    Comment: A number of commenters requested clarification on the 
meaning of ``all deliberate speed'' a phrase used in the preamble to 
the proposed rule. Commenters stated that we effectively established a 
time limit for preliminary action before the 60-day clock began to 
toll, yet did not clearly state what this time limit is or what a 
person must do to meet it. Commenters stated that the proposed rule was 
not clear about how to determine whether an ongoing investigation 
occurred with ``all deliberate speed.'' Commenters noted that in many 
circumstances, multiple people will be involved in determining whether 
an overpayment exists and in what amount, such as auditors, billing 
personnel, and legal counsel. Commenters believed we should issue 
additional guidance in the final rule, particularly what documentation 
we expect providers and suppliers to maintain to show compliance with 
the rule. Some commenters suggested that we adopt an approach that 
would allow for a ``reasonable period of time to investigate'' a 
potential overpayment. Other commenters pointed to the Federal 
Acquisitions Regulations (FAR) treatment of the time between first 
learning of an allegation and the requirement to disclose credible 
evidence of an overpayment. The commenters noted that the FAR drafters 
considered but rejected adding a set period of time, such as 30 days, 
to the disclosure requirement. (See the November 12, 2008 final rule 
(73 FR 67074).) Under FAR, failure to timely disclose credible evidence 
of significant overpayment is measured from the date of the 
determination by the contractor that the evidence is credible. (See the 
November 12, 2008 final rule (73 FR 67075).) A few commenters requested 
additional time to conduct the inquiry in the event of an emergency, 
such as a natural disaster affecting the provider or supplier.
    Response: The preamble to this final rule does not include the 
phrase ``all deliberate speed'' as the benchmark of compliance. 
Instead, we adopt the standard of reasonable diligence and establish 
that this is demonstrated through the timely, good faith investigation 
of credible information, which is at most 6 months from receipt of the 
credible information, except in extraordinary circumstances. We 
considered but rejected adopting a ``reasonable period of time to 
investigate'' standard because we concluded that an open-ended 
timeframe would likely be viewed as no more clear than ``all deliberate 
speed'' and establishing a time frame would better respond to 
commenters' concerns on this issue. We choose 6 months as the benchmark 
for timely investigation because we believe that providers and 
suppliers should prioritize these investigations and also to recognize 
that completing these investigations may require the devotion of 
resources and time. Receiving overpayments from Medicare is 
sufficiently important that providers and suppliers should devote 
appropriate attention to resolving these matters. A total of 8 months 
(6 months for timely investigation and 2 months for reporting and 
returning) is a reasonable amount of time, absent extraordinary 
circumstances affecting the provider, supplier, or their community. 
What constitutes extraordinary circumstances is a fact-specific 
question. Extraordinary circumstances may include unusually complex 
investigations that the provider or supplier reasonably anticipates 
will require more than six months to investigate, such as physician 
self-referral law violations that are referred to the CMS Voluntary 
Self-Referral Disclosure Protocol (SRDP). Specific examples of other 
types of extraordinary circumstances include natural disasters or a 
state of emergency.
    As for documentation, it is certainly advisable for providers and 
suppliers to maintain records that accurately document their reasonable 
diligence efforts to be able to demonstrate their compliance with the 
rule.
    Comment: Several commenters recommended that CMS define 
identification as actual knowledge of credible evidence that an 
overpayment has occurred and of the actual amount received in excess of 
what was due. Commenters stated that ``credible evidence'' is a well-
understood concept; that is, information that, considering its source 
and the circumstances, supports a reasonable belief that there has been 
an overpayment. The credible evidence standard differs from a credible 
``allegation'' because, according to commenters, it requires some level 
of diligence to determine whether the information is credible.
    Response: We appreciate the comments but decline to adopt this 
definition of ``identification.'' It limits the obligation to instances 
in which the provider or supplier has actual knowledge, which, as 
discussed previously, we do not believe is consistent with section 
1128J(d) of the Act. As discussed previously, we have clarified that 
providers and suppliers may conduct a timely investigation of credible 
information before the 60-day deadline is triggered. We also decline to 
adopt a ``credible evidence'' standard because we are concerned there 
may be further confusion about the term ``evidence'' because of its 
significance in the litigation context. Instead, as noted previously, 
we have adopted a ``credible information'' standard. We believe 
credible information includes information that supports a reasonable 
belief that an overpayment may have been received. This standard should 
address commenters' concern of being required to investigate every 
instance or complaint concerning a potential overpayment. We recognize 
that providers and suppliers may receive

[[Page 7663]]

information that could be considered not credible. Determining whether 
information is sufficiently credible to merit an investigation is a 
fact-specific determination.
    Comment: Several commenters suggested an alternative definition to 
identification as ``when, after the person receives reliable evidence 
(as defined at 42 CFR 405.902) that it has received an overpayment and, 
through the exercise of reasonable diligence has determined that an 
overpayment exists, the person has quantified the amount of the 
overpayment within a reasonable degree of certainty.'' Commenters 
stated that such a standard would provide some degree of comfort that 
providers and suppliers would not be under a duty to investigate every 
``whiff'' of an overpayment and removes the constructive knowledge 
standard. Commenters also stated this definition would acknowledge that 
an overpayment cannot be reported and returned if it is not quantified, 
as well as the circumstances, such as when statistical sampling and 
extrapolation are used, when it may not be possible to know with 100 
percent accuracy the exact amount of an overpayment. These commenters 
stated that it also acknowledges that in some circumstances providers 
and suppliers may need more time to commence an inquiry. Other 
commenters suggested a similar alternative ``when the person has actual 
knowledge of an overpayment and is able to quantify the overpayment 
with reasonable certainty, or when a person does not initiate an 
inquiry within a reasonable amount of time after receiving credible 
information suggesting the existence of a potential overpayment.''
    Response: We appreciate the comments and incorporated some of these 
ideas into the final rule. We agree that statistical sampling and 
extrapolation are an appropriate component of a provider's reasonable 
diligence in investigating an overpayment and can serve as an 
appropriate way to calculate an overpayment amount. The final rule 
provides guidance for reporting overpayments identified through such 
statistical methods. We also use the term ``credible information'' in 
the preamble as suggested in these comments. We considered but declined 
to adopt the term ``reliable evidence'' as defined at 42 CFR 405.902 
because it is potentially too limited and the term ``evidence'' is 
prone to confusion as ``credible evidence'' discussed previously. 
Finally, we also disagree with the commenters' proposals to the extent 
they suggest identification efforts are limited to reactive 
investigations (and do not include the proactive compliance activities 
necessary to monitor for receipt of overpayments) or actual knowledge 
(and do not include the constructive knowledge standard discussed 
previously).
    Comment: Commenters stated that the 60-day time period should start 
to run on the day that an overpayment inquiry has concluded, confirmed 
that there has been an overpayment, and produced sufficient information 
to calculate the precise overpayment amount. Commenters stated that 
this standard would avoid confusion about when to report.
    Response: We recognize that additional clarity was necessary and 
revised the final rule to clarify that the 60-day time period starts to 
run when the overpayment has been identified based on the standard for 
identified in Sec.  401.305(a)(2). These commenters do not appear to 
take into account statistical sampling and extrapolation calculations, 
which is something other commenters suggested that we recognize. As 
discussed previously, we also interpret section 1128J(d) of the Act to 
include both an actual knowledge and a constructive knowledge standard.
    Comment: Commenters questioned how we proposed determining the 
actual date for triggering the 60-day reporting and returning deadline 
and for when a person acts in reckless disregard or deliberate 
ignorance of an overpayment. Commenters suggested that we provide clear 
guidance as to what actions a provider or supplier must take to avoid a 
determination that it is in reckless disregard or deliberate ignorance 
of the existence of an overpayment.
    Response: We believe the final rule provides additional clarity on 
how we revised the constructive knowledge standard for when a person 
has identified an overpayment. The 60-day time period begins either 
when the reasonable diligence is completed and the overpayment is 
identified or on the day the person received credible information of a 
potential overpayment if the person fails to conduct reasonable 
diligence and the person in fact received an overpayment. This 
standard, as well as the requirement to conduct a timely, good faith 
investigation in response to obtaining credible information of a 
potential overpayment, provide ``bright line'' standards that should 
assist providers and suppliers in structuring their compliance programs 
to comply with the rule.
    Comment: Several commenters questioned whether, after finding a 
single overpaid claim, it is appropriate to inquire further to 
determine whether there are more overpayments on the same issue before 
reporting and returning the single overpaid claim. Expanding the 
inquiry may take additional time and, according to commenters, it is 
unclear whether the 60-day time period has begun to run for the single 
overpaid claim. Similarly, several commenters also questioned whether 
compliance with the rule required periodic repayments while the person 
is conducting the review. For example, commenters noted that a provider 
or supplier may conduct a probe sample of claims and discover a 
possible overpayment with respect to some of the claims. Commenters 
questioned whether in this situation the provider or supplier has 
identified an overpayment that would require reporting and returning 
the overpayment for the probe sample claims, even though the probe 
sample review is typically one step in the usual audit process. 
According to commenters, validation of the probe sample findings would 
then lead to expanding the audit beyond the probe sample and conducting 
a root cause analysis to determine the cause of the overpayment and 
whether more overpayments exist. Commenters stated that it is a common 
practice to include the probe sample in the expanded audit to 
extrapolate an error rate to the entire population. Commenters stated 
that permitting this practice would result in a more robust analysis of 
the overpayment and a more accurate repayment to the government. The 
premature return of any overpayment identified during the probe sample 
audit could taint the results of the complete review, according to 
commenters.
    Response: We understand the commenters' concerns and believe that 
the final rule's clarifications should address these concerns. We 
expect providers and suppliers to exercise reasonable diligence and to 
quantify, report, and return the entire overpayment in good faith. Part 
of conducting reasonable diligence is conducting an appropriate audit 
to determine if an overpayment exists and to quantify it. Providers and 
suppliers are obligated to conduct audits that accurately quantify the 
overpayment. After finding a single overpaid claim, we believe it is 
appropriate to inquire further to determine whether there are more 
overpayments on the same issue before reporting and returning the 
single overpaid claim. To the extent this concern is based on a 
question about when the 60-day clock begins to run, the final rule 
clarifies that identification

[[Page 7664]]

occurs once the person has or should have through the exercise of 
reasonable diligence, determined that the person received an 
overpayment and quantified the amount of the overpayment.
    We understand that a common way to conduct an audit is to use a 
probe sample and then incorporate that probe sample into a larger full 
sample as the basis for determining an extrapolated overpayment amount. 
In the probe sample, it is not appropriate for a provider or supplier 
to only return a subset of claims identified as overpayments and not 
extrapolate the full amount of the overpayment. We believe that in most 
cases, the extrapolation can be done in a timely manner consistent with 
the identification requirements of this rule and that the provider or 
supplier should not report and return overpayments on specific claims 
from the probe sample until the full overpayment is identified.
    Comment: Some commenters requested clarification that a provider or 
supplier with an active and robust compliance program that contains the 
elements suggested by OIG's compliance program guidance and the Federal 
Sentencing Guidelines cannot be found to have acted with ``reckless 
disregard or deliberate ignorance'' with respect to overpayments. Some 
commenters suggested that a provider that has a ``certified'' or 
``approved'' compliance program should be entitled to a presumption 
that any overpayments are simple mistakes rather than fraud or abuse.
    Response: We disagree with the commenters. Based on our experience, 
it is possible for providers or suppliers who have active compliance 
programs to commit fraud. Moreover, even if an overpayment is the 
result of a mistake, rather than fraud or abuse, the provider or 
supplier has an obligation to report and return it under section 
1128J(d) of the Act.
    Comment: Commenters expressed concerns that the proposed rule's 
constructive knowledge standard for ``identified'' introduces a 
subjective standard that would lead to the 60-day clock beginning to 
run on a date that a person ``should have known'' about an overpayment, 
although it actually had no knowledge at all. For example, if a health 
care entity accidentally programs its computers incorrectly, and as a 
result, erroneously bills and is paid for a service, commenters 
questioned whether the addition of the ``reckless disregard'' standard 
suggests that one could argue that the company should have been aware 
of the error, and therefore is liable for a false claim, even if the 
company has a robust compliance program that fails to uncover the 
error. Commenters believe that the proposed definition of 
``identified'' raises the possibility that CMS, other regulators, or 
qui tam relators may second-guess the provider and question whether the 
provider exercised ``reasonable diligence'' and made a ``reasonable 
inquiry'' ``with all deliberate speed'' in assessing when an 
overpayment should have been identified.
    Response: We understand commenters' concerns and believe the 
changes made to the proposed rule in this final rule should provide 
additional clarity for providers and suppliers on the actions they need 
to take to comply with the rule. With regard to the commenters concern 
that as a result of this final rule CMS, other regulators, or qui tam 
relators may second-guess the provider and question whether the 
provider exercised ``reasonable diligence'' and made a ``reasonable 
inquiry'' ``with all deliberate speed,'' we note that it has long been 
true that many activities in the provision of health care, including 
billing the Medicare program, are subject to review by various 
stakeholders. This rule does not change that situation or significantly 
expand the areas that have long been subject to such review.
    Comment: Several commenters expressed concerns with our statement 
in the preamble that we defined ``identification'' as 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 activities to determine whether an overpayment 
exists, such as self-audits, compliance checks, and other additional 
research. Commenters believed this statement appeared to disregard the 
compliance activities of many in the health care industry and indicated 
that CMS did not believe providers and suppliers would engage in 
compliance activities without increased liability. The commenters 
recognized the legitimate need for this rule to not permit avoiding the 
report and return obligation when there is some indication of a 
potential overpayment simply by avoiding additional investigatory work 
to obtain actual knowledge. Commenters stated that voluntary compliance 
programs already follow this basic duty to investigate and recommended 
a parallel, narrowly drawn duty to investigate when there is credible 
evidence of the existence of an overpayment. According to commenters, 
this standard could apply to a variety of fact patterns, including, 
compliance hotline communications, internal statistical analyses 
identifying potential payment discrepancies, and issues raised by 
staff. Commenters believed this approach would satisfy our stated 
concern, while imposing a more reasonable administrative burden.
    Response: We appreciate the commenters' concerns but decline to 
limit the constructive knowledge standard in the final rule to receipt 
of information as discussed previously. We note that certain types of 
information noted by commenters, such as internal statistical analyses, 
require some proactive action on the part of the provider or supplier 
to obtain that information. We are concerned that limiting the standard 
for identified to instances in which the provider or supplier is simply 
receiving information may create a disincentive for providers and 
suppliers to undertake those important proactive compliance activities 
to ensure they have properly received Medicare payments. We understand 
that many providers and suppliers have active compliance programs that 
do both proactive and reactive reviews of Medicare billing. Our 
intention is to capture both of those activities in this final rule.
    Comment: Several commenters requested that CMS clarify that there 
is no duty to proactively search for overpayments without a reason to 
believe that a specific overpayment exists. These commenters stated 
that the preamble language suggests that providers and suppliers have a 
perpetual duty to research whether any overpayment may exist, which 
would be overly burdensome and not consistent with the requirements of 
section 1128J(d) of the Act. A commenter stated that the compliance 
program regulations implementing section 6401 of the Affordable Care 
Act may be a more appropriate mechanism for CMS to propose these 
requirements.
    Response: These comments underscore our concern expressed in the 
proposed rule that some providers and suppliers might avoid performing 
activities to determine whether an overpayment exists. As discussed 
earlier, section 1128J(d) of the Act requires a person to report and 
return overpayments they have received. Thus, providers and suppliers 
have a clear duty to undertake proactive activities to determine if 
they have received an overpayment or risk potential liability for 
retaining such overpayment.
    Comment: Some commenters objected to the example of an identified 
overpayment concerning a provider learning of services provided by an 
unlicensed or excluded individual. The commenter believed that such a

[[Page 7665]]

scenario does not automatically imply that an overpayment has occurred, 
but that an investigation must be conducted to determine if there is a 
regulatory or legal nexus between the individual's licensure or 
exclusion and the reimbursement.
    Response: We understand the commenters' belief that the example 
given doesn't automatically imply than an overpayment has occurred. 
Billing for items or services furnished by an unlicensed or excluded 
person can result in receiving an overpayment. Part of determining 
whether an overpayment has been received in this situation is 
investigating the relevant facts about the activities of the unlicensed 
or excluded individual and reviewing the relevant laws, regulations, 
and billing rules.
    Comment: A commenter suggested adding to the list of examples where 
no reasonable inquiry occurred after learning that the profits from a 
practice or physician were unusually high in relation to hours worked 
or the relative value units associated with the work.
    Response: We agree that this situation could constitute credible 
information that would require a provider or supplier to conduct 
reasonable diligence. As we stated earlier, the list of examples is 
illustrative only and not a comprehensive list. We are unable to 
address all possible factual permutations in this rulemaking.
    Comment: Several commenters questioned how a hotline complaint 
could create a duty to conduct a reasonable inquiry. A hotline 
complaint is made by employees or other sources and is typically used 
to raise allegations of improper conduct or something that may need to 
be investigated.
    Response: Hotline complaints received by a provider or supplier may 
qualify as credible information of a potential overpayment under this 
rule, which would require the provider or supplier to exercise 
reasonable diligence to determine if an overpayment has occurred. 
Whether a hotline complaint qualifies as credible information is a 
factual determination. For example, receiving repeated hotline 
complaints about the same or similar issues may lead a reasonable 
person to conclude that they have received credible information that 
obligates conducting reasonable diligence. However, one hotline 
complaint may be detailed enough to lead a reasonable person to the 
same conclusion.
    Comment: Several commenters questioned to whom within an 
organization CMS would attribute knowledge of the overpayment. 
Commenters suggested that CMS clarify that it must be a senior official 
who has confirmed the overpayment before ``knowledge'' can be 
attributed to the organization.
    Response: We disagree with the commenters. As a general matter, 
organizations are responsible for the activities of their employees and 
agents at all levels.
    Comment: Some commenters requested confirmation that a valid report 
of an overpayment bars any substantive liability under the FCA qui tam 
provisions. Commenters suggested that the reporting of the overpayment 
should result in a ``public disclosure.'' Other commenters requested 
clarification on the proposed rule's interaction with reverse FCA 
liability. Commenters suggested that a failure to report and return an 
identified overpayment should not lead to reverse FCA liability, unless 
the provider ``knowingly concealed'' or ``knowingly and improperly 
avoided'' the obligation. Other commenters stated that the proposed 
rule inappropriately applies the FCA, specifically the ``reverse false 
claims'' cause of action, to honest mistakes or inadvertent 
overpayments.
    Response: We are interpreting section 1128J(d) of the Act in this 
rulemaking, not the FCA. In this rule, our discussion of the FCA is 
limited to its explicit inclusion in the enforcement provision under 
section 1128J(d) of the Act, which states that any overpayment retained 
by a person after the deadline for reporting and returning the 
overpayment under this rule is an obligation for purposes of the FCA.
    Comment: Several commenters requested clarification about the level 
of resources a small provider or supplier is expected to devote to 
investigating potential overpayments in order to avoid being liable 
based on a theory of ``reckless disregard'' or ``deliberate 
ignorance.'' Some commenters expressed concern that resources might be 
diverted from patient care in order to ensure compliance with this 
rule. Commenters requested that CMS provide compliance guidance on how 
to develop compliance plans and conduct self-audits for small providers 
and suppliers and recommended that this guidance be coordinated with 
the rulemaking related to sections 6102 and 6401 of the Affordable Care 
Act.
    Response: We understand the concern of smaller providers and 
suppliers. However, we are unable to provide specific guidance on 
resource levels or other measures to ensure compliance with this rule. 
Providers and suppliers, large and small, have a duty to ensure their 
claims to Medicare are accurate and appropriate and to report and 
return overpayments they have received. We have produced a number of 
educational materials, including the Medicare Learning Network[supreg], 
which are available on our Web site, http://www.cms.gov.\2\ OIG has 
also produced a number of compliance educational materials that are 
available on its Web site, http://www.oig.hhs.gov.\3\
---------------------------------------------------------------------------

    \2\ A current, more direct link: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNGenInfo/index.html?redirect=/mlngeninfo.
    \3\ A current, more direct link: http://oig.hhs.gov/compliance/.
---------------------------------------------------------------------------

    Comment: A commenter acknowledged that while a significant increase 
in Medicare revenue could be an example of an identified overpayment 
for some types of providers, it might be inapplicable to other types of 
providers. Specifically, the commenter explained that laboratories are 
not in a position to determine the medical necessity of the services 
they provide because they do not order the tests. The commenter 
suggested that the final rule clarify that laboratories and other 
providers that do not directly order tests or services be exempt from 
any requirement to proactively conduct an inquiry into whether an 
overpayment exists based on the volume of Medicare work it conducts.
    Response: We disagree with the commenter. All providers and 
suppliers have a duty to ensure that the claims they submit to Medicare 
are accurate and appropriate. There may be situations where a 
significant increase in Medicare revenue should lead a laboratory to 
conduct reasonable diligence.
    Comment: A commenter expressed concern regarding the proposed 
rule's effect on hospitalists. The commenter explained that 
hospitalists have very little contact with the payment process because 
they are employed by a hospital or physician group and typically assign 
their Medicare payments to their employer.
    Response: For purposes of this rule, an entity to which a provider 
or supplier has reassigned Medicare payments has a duty to determine 
whether it has received overpayments associated with that provider or 
supplier. Additionally, although the entity to which payments were 
reassigned has a duty to determine if it has received any overpayments, 
this does not mean that the individual who has reassigned his or her 
payments might not, in certain circumstances, also be responsible for 
the overpayment. This will be a fact-specific determination regarding 
the individual's

[[Page 7666]]

knowledge of the circumstances leading to the overpayment.
    Comment: Several commenters stated that the proposed rule is 
inconsistent with the limitation on liability provision in section 1879 
of the Act (42 U.S.C. 1395pp), in situations where the provider did not 
know and could not reasonably have been expected to know that the 
payment would not be made.
    Response: We disagree with the commenters. Determinations by the 
Secretary with respect to liability for non-covered items or services 
under section 1879 of the Act are independent from the obligations of 
providers and suppliers under section 1128J(d) of the Act to report and 
return overpayments received by a provider or supplier. Section 1879 
determinations are decisions by CMS about whether to make payment not 
withstanding certain other provisions in Title XVIII and assignment of 
financial responsibility for denied items or services when payment may 
not be made. When CMS has made such a determination that payment must 
be made for certain denied items or services, the resulting payment 
would not be an overpayment under section 1128J(d) of the Act. 
Moreover, determinations in accordance with section 1879 of the Act are 
CMS determinations; section 1879 of the Act is not applicable to the 
provider's or supplier's own assessment of whether funds are an 
overpayment. We believe it is inappropriate for providers or suppliers 
to make determinations regarding their own knowledge of non-coverage or 
whether they were the cause of an overpayment in lieu of reporting and 
returning an identified overpayment as required by this rule.
    Comment: A number of commenters suggested including the reasonable 
inquiry issues in the regulatory text for clarity. Commenters noted 
that these issues were only discussed in the preamble and not noted in 
the regulatory text.
    Response: We have included the reasonable diligence language in the 
regulatory text at Sec.  401.305(a)(2).
    Comment: Several commenters requested clarification as to how the 
regulations will apply to providers or suppliers who receive a possible 
overpayment as the result of a scheme that violates the Anti-Kickback 
Statute and the provider or supplier was not a party to the scheme. 
Commenters stated that providers or suppliers receiving a payment with 
no knowledge of a kickback arrangement should not be held responsible 
for identifying and returning the resulting overpayment. Commenters 
also stated that there should be no affirmative duty on innocent 
providers and suppliers to report a suspicion of a kickback 
arrangement. A commenter proposed that ``sufficient knowledge'' of a 
kickback should mean ``actual knowledge of the existence of the 
kickback or acts in reckless disregard or deliberate ignorance of the 
kickback.'' Additionally, some commenters suggested that the government 
has no right to recover ``tainted'' claims made to an innocent party 
that were the result of a kickback arrangement and that no overpayment 
exists if the provider is without fault. Comments also requested 
further explanation of the extraordinary situations in which the 
government would seek recovery from an innocent provider.
    Response: As stated in the proposed rule and elsewhere in this 
final rule, providers and suppliers who are not a party to a kickback 
arrangement are unlikely in most instances to have ``identified'' an 
overpayment that has resulted from the kickback arrangement and would 
therefore have no duty to report or return it. To the extent that a 
provider or supplier who has received an overpayment resulting from a 
kickback arrangement and is not a party to a kickback arrangement but 
has sufficient knowledge of the arrangement to have identified the 
resulting overpayment, the provider or supplier must report the 
overpayment to CMS. However, we decline to adopt the suggested 
definition of ``sufficient knowledge.'' It is possible that a provider 
or supplier may obtain information that indicates that an arrangement 
may violate the Anti-Kickback Statute.
    We would refer the reported overpayment and potential kickback 
arrangement to OIG for appropriate action and would suspend the 
repayment obligation until the government has resolved the kickback 
matter (either by determining that no enforcement action is warranted 
or by obtaining a judgment, verdict, conviction, guilty plea, or 
settlement). Our expectation is that only the parties to the kickback 
scheme would be required to repay the overpayment that was received by 
the innocent provider or supplier, except in extraordinary 
circumstances. As these issues are fact-specific, we are unable to 
speculate as to what facts would need to be present to qualify as 
extraordinary circumstances.
    Comment: A commenter suggested creating additional exceptions for 
reporting and returning overpayments for other ``innocent provider'' 
situations for errors made by a third party billing company or 
overpayments resulting from the provider or supplier being a victim of 
identity theft.
    Response: Providers and suppliers are responsible for the actions 
of their agents, including third-party billing companies. We understand 
that providers and suppliers are concerned that they may become victims 
of identity theft. Providers and suppliers should report any identity 
theft to law enforcement and CMS and should wait for instructions from 
CMS concerning returning the overpayment.
    Comment: Several commenters requested clarification on the 
overpayment example concerning receiving a significant increase in 
Medicare revenue for no apparent reason and failing to make reasonable 
inquiry. Commenters requested guidance on what is significant. Some 
commenters requested that a ``significant increase'' in Medicare 
revenue be defined as a 25 percent increase in Medicare revenue or 
alternatively, allow a neutral third-party to decide when there is a 
``significant increase.''
    Response: We decline to adopt the commenters' suggestions and will 
not define the term ``significant increase.'' As stated earlier, we are 
unable to make blanket statements or address every factual permutation 
in this rulemaking. Providers and suppliers should analyze the facts 
and circumstances present in their situation to determine whether they 
have credible information that a potential overpayment exists. As 
discussed earlier in this section, providers and suppliers are required 
to exercise reasonable diligence to determine whether they have 
received an overpayment when there is credible information of a 
potential overpayment.
    Comment: Commenters raised concerns about the potential for a 
provider or supplier to refund overpayments and that those refunded 
claims may become the subject of an audit by a Medicare contractor, 
such as a Medicare Recovery Contractor, or the OIG in the future. A 
commenter requested that CMS clarify that Medicare contractors should 
take appropriate steps to remove any claims that are the subject of an 
overpayment refund from the claims data warehouse so that the claims 
are not later subject to contractor or OIG review and recoupment for 
similar issues.
    Response: We understand the commenters' concerns and believe that 
our adjustments to the process for reporting and returning overpayments 
discussed in section II.C.4. of this final rule address those concerns. 
If providers and suppliers report and return overpayments for specific 
claims, then

[[Page 7667]]

the MAC can adjust those claims. If providers and suppliers report and 
return using statistical sampling and extrapolation, then it is only 
possible to adjust the specific erroneous claims found in the sample. 
In this situation, providers and suppliers should retain their audit 
and refund documentation in the event that a Medicare contractor or the 
OIG audits claims that the provider or supplier believes have been 
previously refunded. While we will not recover an overpayment twice, we 
do not intend to exempt from subsequent audit by CMS, a CMS contractor 
or the OIG any claims that form the basis for a returned overpayment.
    Comment: Some commenters stated that CMS should clarify that the 
obligation to report and return overpayments begins at the conclusion 
of a contractor or government audit, after the provider is presented 
with results.
    Response: This rule addresses the relevant person's responsibility 
to report and return overpayments it has received and identified based 
on its own proactive analysis or any other means of identification. 
There are many ways, other than a government audit, that a person can 
identify an overpayment. Receiving the results of a contractor or 
government audit is an example of credible information of a potential 
overpayment that requires the provider or supplier to conduct 
reasonable diligence to confirm or contest the audit's findings.
    Comment: Some commenters requested clarification that the fact that 
a contractor or the government determines that a claim constitutes an 
overpayment does not automatically mean that the provider or supplier 
should have reported and returned the overpayment at an earlier time.
    Response: As previously discussed, the threshold obligation in 
section 1128J(d) of the Act is that providers and suppliers shall 
report and return overpayments. For a claims-based overpayment, that 
obligation must be fulfilled within 60 days of identifying the 
overpayment. Section 401.305(a)(2) states that a person has identified 
an overpayment when the person has or should have determined, through 
the exercise of reasonable diligence, that the person has received an 
overpayment and has quantified the amount of the overpayment. Whether a 
particular provider or supplier has satisfied this standard in a 
particular circumstance is a fact-based inquiry.
    Comment: Other commenters requested clarification that a provider's 
obligation to inquire about potential overpayments extends only to the 
results of the contractor or government audit and not to other similar 
potential overpayments.
    Response: We agree that when receiving the results of a contractor 
or government audit, the scope of the duty to conduct reasonable 
diligence is defined by the issues that the contractor or government 
audited. However, providers and suppliers will need to review the 
specific facts and circumstances, including the billing and coverage 
rules, to determine the required scope of their reasonable diligence. 
Also, the contractor or government audit may be for a limited time 
period. If the provider or supplier confirms the audit's findings, then 
the provider and supplier may have credible information of receiving a 
potential overpayment beyond the scope of the audit if the practice 
that resulted in the overpayment also occurred outside of the audited 
timeframe. In such situations, providers and suppliers will need to 
conduct reasonable diligence within the lookback period of this rule to 
comply with section 1128J(d) of the Act.
    Comment: Several commenters also stated that the duty to search for 
overpayments should not be triggered by a general government notice, 
such as the OIG annual work plan. Commenters requested that the final 
rule indicate that the duty to make a reasonable inquiry is only 
triggered by a notice of a contractor or government audit specific to a 
provider.
    Response: If a contractor or government audit discovers a potential 
overpayment, the audit notice from the contractor or government 
triggers the provider's or supplier's obligations under section 
1128J(d) of the Act. We encourage providers and suppliers to take 
advantage of additional sources of publicly available information, such 
as the OIG's annual work plan and CMS notices, to inform their planning 
of proactive compliance monitoring activities and retroactive reviews.
    Comment: Many commenters requested clarification of the rule's 
application in the administrative appeal process. Some commenters 
recommended that providers and suppliers have the opportunity to review 
Medicare contractor audit results and determine whether they agree or 
whether they will file an appeal. Some commenters believed that the 
obligation to report and return overpayments identified by Medicare 
contractors should wait until the appeals process is completed. In 
support, commenters rely on Section 935 of the Medicare Modernization 
Act (MMA), which places limits on the ability of CMS and its 
contractors to recoup a potential overpayment during the first 2 levels 
of administrative appeal. Commenters requested that CMS clarify that, 
for the purposes of complying with proposed 42 CFR 401.305, a potential 
overpayment brought to the provider's or supplier's attention by a 
Medicare contractor shall not be considered ``identified'' until the 
later of: (1) The exhaustion of the provider's or supplier's appeal 
rights; or (2) the expiration of the time limit for the provider or 
supplier to pursue the next level of administrative or judicial appeal.
    Response: The provisions of this final rule establish that a person 
has the responsibility to conduct an investigation in good faith and a 
timely manner in response to obtaining credible information of a 
potential overpayment and to return identified overpayments by the 
deadline set forth in Sec.  401.305(b). This responsibility exists 
independent of the appeals process for contractors' overpayment 
determinations. We believe that contractor overpayment determinations 
are always a credible source of information for other potential 
overpayments. Moreover, we recognize that in certain cases, the conduct 
that serves as the basis for the contractor identified overpayment may 
be nearly identical to conduct in some additional time period not 
covered by the contractor audit. If the provider appeals the contractor 
identified overpayment, the provider may reasonably assess that it is 
premature to initiate a reasonably diligent investigation into the 
nearly identical conduct in an additional time period until such time 
as the contractor identified overpayment has worked its way through the 
administrative appeals process.
    Comment: A number of commenters questioned whether providers and 
suppliers have appeal rights to self-identified overpayments. 
Commenters stated that the potential penalties for not reporting and 
returning an overpayment, coupled with the short 60-day time period for 
doing so, likely will result in providers and suppliers erring on the 
side of caution and returning an overpayment prematurely. Commenters 
suggested expanding the list of actions in 42 CFR 405.924 that 
constitute an initial determination to provide for an appeal right 
related to a ``contractor's acceptance of a refund of an overpayment 
made in accordance with Sec.  401.305.'' Other commenters stated that 
the acceptance of the overpayment and the related adjustment should be 
considered a reopening and revised determination of the initial

[[Page 7668]]

determination of payment under the current regulations and CMS manual 
instructions. Other commenters stated that the concept of 
reconciliation should incorporate the existing appeals process.
    Response: Section 1128J(d) of the Act clearly requires providers 
and suppliers to report and return identified overpayments they have 
received. To the extent that the return of any self-identified 
overpayment results in a revised initial determination of any specific 
claim or claims, a person would be afforded any appeal rights that 
currently exist, as some commenters stated. Revised initial 
determinations, which trigger appeal rights under the existing rules, 
are issued when specific claims are adjusted. We note the process for 
identifying an overpayment requires a person to exercise reasonable 
diligence in determining whether an overpayment was received and to 
quantify the overpayment amount with a reasonable degree of certainty. 
We expect persons to exercise responsibility in identifying an 
overpayment that is reported and returned in accordance with section 
1128J(d) of the Act. It would be inconsistent with the intent of the 
statute and our regulations for persons to return self-identified 
overpayments or a subset of the larger overpayment, and then appeal 
those overpayments as a means to circumvent the duty for timely 
investigation of potential overpayments or the deadline for reporting 
and returning of identified overpayments. As such, we decline the 
commenters' suggestion to create an explicit appeal right by 
classifying ``contractor's acceptance of a refund of an overpayment 
made in accordance with Sec.  401.305'' as an initial determination in 
Sec.  405.924. If a provider or supplier were to report and return 
certain overpayments through individual claims determinations but chose 
not to extrapolate and, thus, not return the entire overpayment amount 
because the provider or supplier is appealing the individual claim 
determinations, then the provider or supplier could be viewed as 
failing to exercise reasonable diligence to identify amounts that the 
person should have determined are overpayments. As discussed in section 
II.C.1. of this final rule, any overpayment retained by a person after 
the deadline for reporting and returning the overpayment is an 
obligation that has the potential to trigger FCA liability.
    Comment: Several commenters requested that CMS confirm that refunds 
based on statistical sampling will maintain appeal rights. Because 
individual claim adjustments may not be made when sampling is utilized 
to estimate an overpayment amount, CMS should confirm that providers 
and suppliers may still appeal such findings if necessary.
    Response: To the extent that the return of any self-identified 
overpayment results in a revised initial determination of any specific 
claim or claims, a person would be afforded the appeal rights that 
currently exist. As is currently the case under the existing voluntary 
refund process, there are no appeal rights associated with the self-
identified overpayments that do not involve identification of 
individual overpaid claims and individual claim adjustments.
    Comment: Several commenters noted that the proposed rule provided 
no avenue for providers and suppliers to cancel the overpayment refund 
if the provider or supplier subsequently determines that the 
overpayment refund was made in error. Commenters suggested requiring 
contractors to return payments to providers and suppliers when the 
provider or supplier notifies the contractor that the funds were 
returned in error and requests a reversal.
    Response: Providers and suppliers should exercise reasonable 
diligence as set forth in this final rule before reporting and 
returning the overpayment. Additionally, the existing reopening 
regulations afford a means for a provider or supplier to request 
correction of a mistake in reporting an overpayment, although we do not 
expect this to be a frequent occurrence.
2. Meaning of Applicable Reconciliation
    Our proposed rule acknowledged that in some instances, we make 
interim payments to a provider through the cost year and that the 
provider reconciles these payments with covered and reimbursable costs 
at the time the cost report is due. In proposed Sec.  401.305(c), we 
stated that ``applicable reconciliation'' would occur when the cost 
report is filed. This would include an initial cost report submission 
or an amended cost report. We proposed two exceptions to the general 
rule that the applicable reconciliation occurs with the provider's 
submission of a cost report. The first was related to Supplemental 
Security Income (SSI) ratios used in the calculation of 
disproportionate share hospital (DSH) payment adjustment. The second 
exception was related to the outlier reconciliation, which is performed 
at the time the cost report is settled if certain thresholds are 
exceeded.
    Comment: Many commenters questioned our proposed interpretation of 
the term ``applicable reconciliation.'' Generally, commenters did not 
believe the Congress intended applicable reconciliation to be 
interpreted as narrowly as we proposed. Some commenters interpreted 
``applicable reconciliation'' as the preliminary steps taken by the 
provider or supplier to determine whether they have received an 
overpayment. Some commenters suggested that CMS include the claims 
adjustment and credit balance processes in the definition of applicable 
reconciliation. Other commenters requested CMS to include all instances 
of addressing and resolving overpayments in the term ``applicable 
reconciliation,'' including but not limited to Medicare contractor or 
OIG audits and pre- and post-payment reviews by Medicare Administrative 
Contractors.
    Response: We understand some of the commenters' concerns and 
believe our clarification of the constructive knowledge standard for 
identifying an overpayment discussed previously should address many of 
these concerns. However, we disagree with the commenters' 
interpretation of the term ``applicable reconciliation'' in the context 
of this final rule, which applies to Medicare Parts A and B. The term 
``persons'' covered by section 1128J(d) of the Act is broad--it covers 
not only providers and suppliers, but also Medicaid managed care 
organizations, MA organizations, and PDP sponsors. The definition of 
overpayment, where the term ``applicable reconciliation'' is used, is 
similarly broad in that it covers overpayments received or retained by 
any of these persons. As a result, Congress addressed the significant 
differences between how all of these persons receive federal health 
care program dollars in the overpayment definition by including the 
term ``applicable reconciliation.'' Medicare Part A and B claims are 
submitted by providers and suppliers to contractors and those claims 
are expected to be correct when filed. Medicare contractors do not 
audit or ``reconcile'' every claim. To the extent our contractors 
perform claims auditing, that auditing is done in the context of our 
program integrity efforts to find improper claims. Section 1128J(d) of 
the Act does not permit providers and suppliers to retain overpayments 
until a CMS contractor or the OIG identify the overpayment for the 
provider or supplier. Providers and suppliers cannot rely on Medicare's 
contractors or the OIG to point out their overpayments for them--
providers and suppliers are obligated to identify the overpayments they 
have received. Also, we do not believe that the claims adjustment and 
credit balance processes

[[Page 7669]]

are properly considered ``reconciliation.'' Instead, they are 
mechanisms for providers and suppliers to report and return 
overpayments that they identify. We have revised Sec.  401.305(a)(2) to 
address those processes.
    Comment: Some commenters stated that our proposed approach is 
inconsistent with our prior position in previous rulemakings that 
commenters contend allowed for post-payment adjustments before 
considering if an overpayment exists. Commenters cited language from 
the March 25, 1998 proposed rule (63 FR 14506) as an indication that 
CMS allowed reconciliation to occur prior to the remaining overpayment 
amount being considered a debt. The March 25, 1998 proposed rule 
specified that overpayments generally result when payment is made by 
Medicare for non-covered items or services, when payment is made that 
exceeds the amount allowed by Medicare for an item or service, or when 
payment is made for items or services that should have been paid by 
another insurer (Medicare secondary payer obligations). Furthermore, it 
specified that, once a determination and any necessary adjustments in 
the amount of the overpayment have been made, the remaining amount is a 
debt owed to the United States Government.
    Similarly, commenters believed the following statement in our 
January 25, 2002 proposed rule (67 FR 3663) supports a more inclusive 
definition of applicable reconciliation: ``Submission of corrected 
bills in conformance with our policy, within 60 days, fulfills these 
requirements for providers, suppliers, and individuals.''
    Response: The cited language from the March 1998 proposed rule was 
addressing the Secretary's identification of overpayments, not 
overpayment identified by a provider or supplier, which is the subject 
of this rule. As for the January 2002 proposed rule, we note that the 
structure proposed in that rule is similar to the section 1128J(d) 
obligation regarding the reporting and returning of overpayments within 
60 days of identification. We fail to see how the sentence cited by 
commenters from the January 2002 proposed rule indicates anything about 
the concept of applicable reconciliation. Moreover, this statement is 
consistent with the discussion in section II.C.4. of this final rule 
regarding the claims adjustment processes as a way to report and return 
overpayments.
    Comment: Many commenters questioned the proposed definition of 
``applicable reconciliation'' as it pertains to cost reports. The 
proposed rule defined ``applicable reconciliation'' as occurring when a 
cost report is filed, except that any changes to the SSI ratio that 
affect the Medicare hospital disproportionate share payments and any 
reconciliation to outlier payments will not result in a refund 
obligation until such time as the final settlement of the hospital's 
cost report occurs. Specifically, commenters stated that section 
1128J(d) of the Act recognizes the deadline for submission of the 
initial cost report as tolling the 60-day time period and thus 
applicable reconciliation should mean a process that occurs subsequent 
to the submission of the initial cost report.
    Commenters stated that CMS' discussion of the applicable 
reconciliation period seemed to suggest that, other than for SSI ratios 
and outliers, providers will be expected to have identified a cost 
report-related overpayment at the time that the provider submits an 
initial or amended cost report. According to commenters, this 
suggestion is inconsistent with the purpose of the cost report 
settlement process, which is to assist all parties in identifying and 
correcting errors, and it is not until this process is completed (and 
sometimes long after) that providers may become aware of an 
overpayment. In addition, commenters objected to the position that 
initial or amended cost reports can serve as the basis for an 
overpayment, given that the determination of the amount of 
reimbursement due on that cost report is not final until the contractor 
audits the cost report and issues a written determination under 42 CFR 
405.1803(a).
    Commenters recommended ``applicable reconciliation'' in the context 
of cost reporting occur upon the final settlement of a provider's cost 
report by the MAC, so long as, upon discovery of an issue subject to 
cost report audits that could affect a provider's Medicare payment, the 
provider timely discloses the issue to a MAC for purposes of preparing 
a final cost report settlement.
    Response: We appreciate the comments on this issue. However, we are 
finalizing the definition of applicable reconciliation as proposed. The 
applicable reconciliation for purposes of 1128J(d)(4)(B) is the 
reconciliation that enables a person to identify funds to which the 
person is not entitled. Providers are required to file annual cost 
reports in order to determine their total reimbursement and any amount 
due to or from the Medicare program. When a provider files its cost 
report, it is attesting to the accuracy of the provider's 
reconciliation of the interim payments and costs. Accordingly, in the 
context of cost reporting, the ``applicable reconciliation'' is the 
provider's year-end reconciliation of payments and costs to create the 
cost report. The cost report must be filed within 5 months of the end 
of the provider's fiscal year end, which allows the provider time to 
reconcile payments and costs and identify any funds to which the 
provider is not entitled. This overpayment should be returned at the 
time the cost report is filed. We note that this definition establishes 
a policy that is consistent with our regulations at 42 CFR 
405.378(e)(2)(i), which state that if a cost report is filed indicating 
that an amount is due to CMS, interest on the amount due will accrue 
from the due date of the cost report (unless certain exceptions apply).
    Comment: Several cancer centers raised concerns about the rule's 
application to their payments. According to comments, cancer centers 
are reimbursed for inpatient services based on the reasonable cost 
methodology subject to the Tax Equity and Fiscal Responsibility Act 
(TEFRA) cost limits and are eligible for hold harmless payments under 
the outpatient prospective payment system. Because of the unique 
aspects of these payment methodologies, billing or other errors or 
omissions that may cause an overpayment for other types of hospitals 
would often not result in a reduction in overall reimbursement for a 
cancer center if they were corrected. Therefore, commenters requested 
that CMS clarify that billing or other errors that would not impact the 
reimbursement amount that a provider receives would not constitute an 
overpayment for purposes of this final rule.
    Response: We agree with the commenters to the extent that section 
1128J(d) of the Act pertains only to overpayments. If a provider 
identifies an error or omission that does not result in an overpayment, 
then the requirements of section 1128J(d) of the Act or this rule do 
not apply.
    Comment: Commenters questioned whether there is a duty to revise 
past cost reports based on the results of a MAC audit on one cost 
report. For example, a MAC may audit a cost report for one year and 
make certain adjustments based on what it determines to be the improper 
treatment of certain costs. Commenters questioned whether, under this 
rule, a provider would be required to submit amended cost reports for 
all other unaudited cost report years in which the provider treated 
those costs in a similar fashion.

[[Page 7670]]

    Response: If the MAC notifies a provider of an improper cost report 
payment, the provider has received credible information of a potential 
overpayment and must conduct reasonable diligence on other cost reports 
within the lookback period to determine if it has received an 
overpayment.
    Comment: Commenters questioned the rule's effect on the hospice 
annual cap, the home health outlier revenue cap, and requests for 
anticipated payments (RAPs). According to commenters, hospices and home 
health agencies have no way of knowing whether they have received a cap 
overpayment, or the amount, until they are notified by the MAC. 
Commenters requested that CMS clarify that the rule does not apply in 
these situations.
    Response: The hospice and home health cap determinations are made 
at the end of the year and it is possible that the provider may not be 
aware of the cap status until their MAC calculates the final cap 
amount. Therefore, the provider is not responsible to report and refund 
the overpayment until they have received the cap determination from 
their MAC. There can be no applicable reconciliation until the final 
cap amount is determined.
    Comment: Commenters questioned the rule's effect on payment 
adjustments under the long-term care hospitals (LTCHs) prospective 
payment system (PPS), including the so-called ``25-percent threshold 
rule'' payment adjustment policy as implemented by 42 CFR 412.534 and 
412.536.
    Response: In this final rule, we define overpayment as any funds 
that a person has received or retained under title XVIII of the Act to 
which the person, after applicable reconciliation, is not entitled 
under such title. To the extent the LCTH adjustments meet this 
definition they are overpayments.
    Comment: Commenters questioned how providers that receive periodic 
interim payments (PIP) would be expected to return any overpayments. 
Under the statutory and proposed regulatory definitions of 
``overpayment,'' during any cost reporting period, no overpayment 
exists until the provider submits its cost report. Commenters sought 
clarification that any overpayments identified by providers related to 
these interim payments must be reported and returned by the date any 
corresponding cost report is due, not within 60 days of identification. 
Commenters believed that the preamble language in the proposed rule 
indicated that CMS believed any overpayments associated with interim 
payments made to a provider throughout the cost report year would be 
reconciled at the time that the cost report is due, but they sought 
confirmation that this is CMS's policy for PIP providers.
    Response: We agree with commenters. Overpayments as a result of PIP 
payments would be reported and returned at the time the initial cost 
report is due. There is no applicable reconciliation until the PIP 
payments are dealt with in the cost report process. However, if a 
provider is aware that their PIP payment may not be accurate, they 
should continue with normal business practices and inform its MAC of 
the issue.
    Comment: Some commenters questioned under what circumstances a 
provider would anticipate an outlier reconciliation will be performed 
at the time of cost report settlement and requested that CMS clarify 
that outlier payments may be returned via the overpayment reporting 
process for claims. Other commenters requested clarification of how the 
rule would apply in situations where a MAC amends the provider's cost 
to charge ratio resulting in a reduction to its Medicare outlier 
payments for the cost reporting period. Specifically, commenters 
questioned whether it is the provider's responsibility to recompute its 
outlier payments based on this new information and remit any 
overpayment to the Medicare contractor within 60 days of receiving the 
notification or whether the provider should wait for the MAC to audit, 
or if applicable, reopen the cost report and redetermine the settlement 
amount.
    Response: An overpayment as a result of an outlier reconciliation 
would be identified once the provider receives that information from 
its MAC as part of the cost report settlement process. The provider is 
not responsible for attempting to identify the cost report outlier 
reconciliation overpayment in advance of the MAC's reconciliation 
calculation. However, for claims, if the provider identifies an 
inaccurate outlier claim payment, the provider must follow the 
overpayment payment reporting process for claims, as noted in this 
final rule.
    Comment: Given that cost reports can remain under audit review for 
3 to 4 years and are not finalized until the Notice of Program 
Reimbursement (``NPR'') date, commenters requested that CMS provide 
guidance on providers' responsibilities when an overpayment is 
discovered by the provider or the MAC auditor after the cost report is 
due/filed but prior to the NPR date. Commenters questioned whether the 
provider would be required to report and repay the overpayment within 
60 days of identification rather than allowing for completion of the 
audit process, which includes netting out of underpayments and 
overpayments, while the cost report is still open. Commenters stated 
that requiring reporting and returning within 60 days of 
identification, as opposed to allowing completion of the audit process, 
would force providers to send in numerous overpayments for minor errors 
while the cost report is open and disrupt the normal MAC audit process.
    Commenters also questioned a number of other cost report issues 
that they believed to be not entirely known to the provider at the time 
of initially filing the as-filed cost report, but which are reconciled 
through the audit process, and finalized with the issuance of the NPR, 
including--
     Home office cost statements (HOCS), providers usually file 
an estimate of home office costs on the hospital cost report, which is 
subsequently reconciled to the HOCS when the MAC audits the HOCS;
     Any interim payments such as Medicare bad debt or graduate 
medical education (GME), including resident ``overlap'' reports from 
the MAC;
     Sole-community hospital (SCH)/Medicare-dependent hospital 
(MDH) payments;
     End-stage renal disease (ESRD) payments;
     Organ payments;
     Nursing and allied health payments;
     Tentative settlement payments;
     Updated Provider Statistical & Reimbursement Report (PS&R) 
for claims processed after cost report submission;
     Prior-year audit adjustments, CMS rulings, and PRRB 
appeals; and
     HITECH Act EHR incentive payments.
    Response: If the provider self-identifies an overpayment after the 
submission and applicable reconciliation of the Medicare cost report, 
it is their responsibility to follow the procedures in this rule, and 
report and return the overpayment within 60 days of identification. The 
provider must use the applicable reporting process for cost report 
overpayments (submit an amended cost report) along with the overpayment 
refund. The amended cost report must include sufficient documentation 
and data to identify the issue in order for the MAC to adjust the cost 
report.
    If the overpayment is identified by the MAC during the cost report 
audit, the MAC will determine and demand the exact amount of the 
overpayment at

[[Page 7671]]

final settlement of the cost report. The provider remains responsible 
to report and refund similar overpayments in cost reports for other 
years not covered by the MAC audit.
    Comment: Commenters noted that the proposed rule did not mention 
any changes to the cost report reopening period at Sec.  405.1885, 
which is 3 years.
    Response: We did not propose and are not changing the time period 
in 42 CFR 405.1885.
3. Lookback Period
    Proposed Sec.  401.305(g) specified that overpayments must be 
reported and returned only if a person identifies the overpayment 
within 10 years of the date the overpayment was received. We proposed 
10 years because this is the outer limit of the FCA statute of 
limitations. We also proposed amending the reopening rules at Sec.  
405.980(b) to provide that overpayments reported in accordance with 
Sec.  401.305 may be reopened for a period of 10 years to ensure 
consistency between the reopening regulations and Sec.  401.305(g).
    Comment: Many commenters objected to the proposed 10-year lookback 
period in Sec.  401.305(g) for several reasons. First, commenters 
stated that section 1128J(d) of the Act does not provide a basis to 
create a new lookback period that is different from the one in existing 
reopening rules. Second, commenters stated that it was not appropriate 
to use the outer limit of the FCA as the lookback period. Since the FCA 
is a fraud enforcement statute, commenters stated that it was not 
appropriate to apply this time period to all overpayments, which could 
also be caused by errors or mistakes that did not rise to the level of 
fraud. Third, commenters stated that 6 years is the more commonly used 
statute of limitations in the FCA and that the 10-year period only 
applied in certain circumstances. Thus, commenters stated that the 
proposed lookback period was broader than, and not parallel to, that of 
the FCA.
    Commenters also stated that the proposed 10-year period was overly 
burdensome. First, many commenters stated that compliance with the 
proposed time period would require a de facto 10-year record retention 
requirement and would be inconsistent with existing record retention 
requirements. Second, commenters stated that maintaining paper and 
electronic medical and billing records for the proposed 10-year period 
as well as the difficulties with retrieving that information from 
legacy systems would be costly and time-consuming. Third, commenters 
stated that the proposed 10-year period would increase the burden, 
costs, and complexity in investigating a potential overpayment. For 
example, commenters noted that they would likely need to create very 
large sample sizes to cover a 10-year timeframe. In addition, the 
review would need to account for any changes in the coding, including 
Current Procedural Terminology (CPT) codes (or other codes used to 
identify items or procedures billed), Correct Coding Initiative (CCI) 
editing protocols, local contractor determinations, coverage 
guidelines, and other CMS policies. Finally, commenters noted that 
staff turnover at both the provider or supplier and CMS contractor 
levels may create additional challenges in investigating claims filed 
up to 10 years ago.
    Commenters offered a variety of alternative lookback periods:
     Many commenters suggested using the current reopening 
rules at 42 CFR 405.980, which permit contractors to reopen claims 
within 1 year for any reason, within 4 years for good cause, and at any 
time if evidence of fraud or similar fault exists. These commenters 
stated that Sec.  405.980 sets forth a reasonable timeframes and 
providers and suppliers have built their internal processes around 
them.
     Other commenters recommended a 3-year lookback period for 
all overpayments not resulting from fraud or other intentional 
misconduct. These commenters generally justified a 3-year period 
because the Medicare and Medicaid RACs are limited to 3 years in their 
audits. A commenter recommended 3 years because it matched the 
timeframe for coordination of benefits under Part D.
     Other commenters recommended a 5-year period because it 
was consistent with the medical record retention requirement in the 
hospital conditions of participation at 42 CFR 482.24.
     Other commenters recommended a 6-year period. These 
commenters stated that 6 years is consistent with the more commonly 
applicable FCA statute of limitations as well as the statute of 
limitations for section 1128A of the Act, which contains a variety of 
civil monetary penalty (CMP) authorities applicable to Medicare and 
Medicaid, including the CMP applicable to section 1128J(d) of the Act. 
Several commenters also recommended 6 years because it is consistent 
with the medical record retention requirements for Part B providers 
under Chapter 24, 30.2 of the Medicare Claims Processing Manual and the 
HIPAA requirements at 45 CFR 164.316(b)(2) for maintaining 
documentation of compliance policies and procedures as well as various 
state medical record retention requirements.
     Other commenters recommended a 7-year period. These 
commenters stated that most, if not all, providers and suppliers retain 
documentation for claims they submit for a 7-year period as part of 
their standard record retention policies.
    Response: We have carefully considered all of the comments on the 
lookback period and have concluded that 6-year time period is most 
appropriate for this rule. The change is reflected in Sec.  401.305(f) 
of this final rule. The 6-year lookback period will be measured back 
from the date the person identifies the overpayment. As an initial 
matter, we believe that we have the authority to establish a lookback 
period for section 1128J(d) of the Act under our programmatic 
rulemaking authority, including our authority to create the reopening 
rules under section 1869 of the Act. We note that section 1128J(d) has 
no time limit to the obligation to report and return overpayments 
received by a provider or supplier. The enforcement mechanisms, the FCA 
and section 1128A of the Act, have time limits ranging from 6 to 10 
years. We believe that the current reopening rules need to be adjusted 
to properly reflect section 1128J(d) of the Act, specifically the 
statute's enforcement aspects. We are amending the reopening rules to 
provide for a reopening period that accommodates the 6-year lookback 
period for reporting and returning overpayments, and to ensure that the 
reopening rules do not present an obstacle or unintended loophole to 
compliance and enforcement of section 1128J(d) of the Act. We specify 
in Sec.  405.980(c)(4) that providers may request that contractors 
reopen initial determinations for the purpose of reporting and 
returning an overpayment under Sec.  401.305. However, this revision to 
the reopening regulation does not extend the lookback period specified 
in Sec.  401.305(f). Rather, it serves to make administrative 
accommodations so that contractors may reopen the initial determination 
associated with any overpayment reported and returned by a provider or 
supplier during the 6-year lookback period set forth in this final 
rule.
    After review of all the issues identified by the commenters, we 
conclude that a 6-year lookback period would appropriately address many 
of the concerns about burden and cost outlined previously. 
Specifically, we note that, according to commenters, many providers and 
suppliers retain records and claims data for between 6 and 7 years 
based on various existing

[[Page 7672]]

federal and state requirements. Thus, we believe our final rule does 
not create additional burden or cost on providers and suppliers in this 
regard. Also, 6 years is consistent with one component of the FCA 
statute of limitations as well as the statute of limitations under 
section 1128A of the Act.
    Comment: Several commenters recommended a lookback period that is 
no longer than the state medical record retention law in which the 
medical professional or facility is licensed and is not longer than 7 
years from the date of service.
    Response: We decline to adopt this approach for the reasons 
discussed previously. In addition, we do not believe it is appropriate 
or desirable to have the time period vary based solely on the medical 
record retention laws of the state in which the provider or supplier is 
furnishing services. Section 1128J(d) of the Act uniformly applies to 
all providers and suppliers in each state and, as such, all providers 
and suppliers should have the same obligations.
    Comment: A commenter recommended changing the reopening rules to 
eliminate the ability to reopen claims at any time for fraud or similar 
fault and instead modify reopening rules to be a 4-year lookback period 
for errors that are not the result of fraud or similar fault, a 6-year 
lookback period (consistent with one component of the FCA statute of 
limitations) for knowingly false or fraudulent claims, and a 10-year 
lookback period (consistent with the outer limit of the FCA statute) 
for the most extreme cases where knowingly false or fraudulent claims 
have been actively concealed from discovery.
    Response: We also decline to adopt this approach for the reasons 
discussed previously. In addition, we see no reason to change the 
``fraud or similar fault'' aspect of the reopening rule. First, this 
issue is outside the scope of this rulemaking. Second, we do not 
believe changing this aspect of the reopening rule is necessary or 
desirable. We note that fraud investigations and judicial proceedings 
can require an extended period of time beyond the date the claim was 
filed to resolve, which counsels against imposing a limitation on 
reopening determinations procured by fraud or similar fault.
    Comment: Several commenters noted that in 2005 we considered 
extending the reopening periods to 5 years in certain circumstances and 
decided not to. Specifically, we proposed a 5-year reopening period if 
a contractor discovered a pattern of billing errors or identified an 
overpayment extrapolated from a statistical sample. (See the November 
15, 2002 proposed rule (67 FR 69327).) In response to this proposed 
provision, commenters maintained that we did not adequately justify the 
proposed 5-year timeframe and expressed concerns about the difficulty 
and burden of locating documentation on older claims. (See the March 8, 
2005 interim final rule with comment period (70 FR 11452).) In the 
interim final rule, we did not finalize the 5-year proposed period. 
Commenters questioned why we proposed a lookback period twice the 
length of the period proposed, and not finalized, in 2005 and suggested 
that we refrain from extending the look-back period for reported 
overpayments to 10 years for the same reasons.
    Response: In the March 2005 interim final rule, we stated that we 
proposed the 5-year lookback period in an effort to accommodate 
overpayments identified by external auditors and law enforcement 
agencies where the external or law enforcement auditor used a 5-year 
sampling methodology, but the Medicare contractor was limited to a 4-
year recovery period where there was no fraud determination. We decided 
to remove the proposal in recognition of commenters' concerns and 
directed contractors to rely on the similar fault provisions to reopen 
claims where law enforcement findings suggest a need to reopen. Since 
the March 2005 rulemaking, the Congress has changed the law by enacting 
section 1128J(d) of the Act. We believe that this law requires us to 
re-examine our reopening rules to ensure that those rules are 
consistent with the law. Previously in this final rule, we have 
articulated a rationale for the 6-year period in a way that balances 
giving full effect to the law the Congress passed with the cost and 
burden issues identified by commenters.
    Comment: Commenters questioned whether they had a responsibility to 
go back beyond the 3 years covered in a Recovery Audit Contractor (RAC) 
audit that identifies overpayments.
    Response: Yes, as discussed previously, this final rule clarifies 
that when the provider or supplier receives credible information of a 
potential overpayment, they need to conduct reasonable diligence to 
determine whether they have received an overpayment. RAC audit 
findings, as well as other Medicare contractor and OIG audit findings, 
are credible information of at least a potential overpayment. Providers 
and suppliers need to review the audit findings and determine whether 
they have received an overpayment. As part of this review, providers 
and suppliers need to determine whether they have received overpayments 
going back 6 years as stated in this rule.
    Comment: A commenter requested that, regardless of the lookback 
period we adopt, we allow Part B providers to use scanned records to 
justify their Part B claims for auditing purposes. The commenter stated 
that maintaining paper records for 6 or 10 years is burdensome, takes 
up significant physical space and is unnecessarily costly in terms of 
the cost of renting or purchasing space to store 6 or 10 years' worth 
of paper records. The commenter noted that the proposed rule was silent 
as to whether scanned versus paper records are sufficient for 
validating claims under the lookback period and requested clarification 
that scanned records are acceptable for validating claims.
    Response: We agree with the commenter that scanned or electronic 
records are acceptable for validating claims for purposes of 
identifying overpayments within the context of this rule.
    Comment: Several commenters believed that the 10-year lookback 
period was appropriate. Commenters believed that the proposed rule was 
consistent with the 10-year FCA statute of limitations and would help 
ensure wrongfully retained overpayments were returned to the 
government. Commenters noted that the 10-year FCA provision has been in 
place since the 1986 amendments, and thus does not impose new burdens 
or duties on providers and suppliers. Commenters stated that an 
alternative period would lead to unnecessary confusion and 
inconsistencies in light of existing expectations of liability for a 
10-year lookback period.
    Response: We appreciate the commenters' perspective and agree that 
a 10-year lookback period would be a justifiable option for this final 
rule. However, we have decided to adopt a 6-year period for the reasons 
discussed previously.
    Comment: A few commenters sought clarification of the proposed 
reopening rule change insofar as whether it affects the existing 
reopening rules for contractors reopening paid claims beyond 4 years. 
Commenters stated that they believed the proposed revision to the 
reopening rules was intended to eliminate an administrative hurdle that 
would otherwise prevent the contractor from adjusting claims following 
receipt of an overpayment disclosed by a provider. Commenters 
interpreted the revision to the reopening rules to not expand the 
authority of contractors to reopen paid claims that are not the subject 
of a voluntary disclosure by a

[[Page 7673]]

provider and requested that we confirm that interpretation in the final 
rule.
    Response: We agree with the commenters' interpretation. The 
proposed rule amended Sec.  405.980(b), which applies to reopenings 
initiated by the contractor. In the context of this final rule, 
providers or suppliers would be initiating the reopening by reporting 
and returning the overpayment, which falls under Sec.  405.980(c). As 
such, we have included language concerning reopenings under this final 
rule in Sec.  405.980(c)(4) for clarity. Reopenings under this 
subsection are limited to reopenings requested by the provider or 
supplier under Sec.  401.305.
    Comment: A commenter requested clarification of the statement in 
the preamble indicating that overpayments reported in accordance with 
Sec.  401.305 may be reopened for a period of 10 years. The commenter 
suggested this statement could mean that the decision to adjust a paid 
claim following the report of an overpayment would be subject to 
revision for 10 years after the adjustment is made. The commenter 
requested that we clarify that claims reported as overpayments in 
accordance with Sec.  401.305 may be reopened for a period of 10 years 
after the date the claim was paid.
    Response: Consistent with the lookback period specified in Sec.  
401.305, any initial determination that is subsequently reported and 
returned as an overpayment is subject to reopening and revision by a 
contractor whenever the overpayment is returned.
    Comment: A commenter questioned whether the adjustment to a paid 
claim following a provider's report and return of an overpayment 
constitutes a redetermination for purposes of the reopening rules.
    Response: An adjustment to any individual paid claim constitutes a 
revised initial determination for purposes of the reopening rules.
    Comment: Several commenters noted that the Medicare hospital 
conditions of participation at 42 CFR 482.24 requires hospitals to 
retain medical records for 5 years and requested clarification on how 
(if at all) the implementation of the proposed 10-year lookback period 
impacts or alters recordkeeping rules.
    Response: First, we note that Sec.  482.24(b)(1) states that 
hospitals must retain medical records for a period of at least 5 years, 
which sets a minimum record retention period, not a maximum. We also 
note that, as discussed previously, other commenters cited other record 
retention rules and practices for 6 to 7-year periods. Since we are 
establishing a 6-year lookback period, we believe hospitals will have 
little, if any, additional record retention burden as the result of 
this rule.
    Comment: A commenter recommended that any lookback period be 
phased-in over a series of years to balance the need for the return of 
Medicare overpayments with the amount of time medical groups need to 
prepare for such a change. The commenter stated that a phase-in period 
would provide medical groups with a greater transition period to adjust 
their record retention policies and develop additional efficiencies to 
ensure that the identification, quantification, and accuracy of 
Medicare overpayments are not compromised.
    Response: Given our finalized lookback period, we do not believe a 
phase-in period is necessary or appropriate.
    Comment: Several commenters requested clarification on whether this 
rule is retroactive. More specifically, commenters questioned how this 
rule would apply to overpayments received prior to--(1) March 23, 2010, 
the effective date of section 1128J(d) of the Act; and (2) the 
effective date of the final rule. Commenters frequently posed these 
questions in conjunction with objecting to the proposed 10-year 
lookback period. First, commenters stated that they believed 
retroactive application of the rule to overpayments received prior to 
March 23, 2010 would not be legally supportable because the Affordable 
Care Act does not indicate that section 1128J(d) of the Act applies 
retroactively. In addition, commenters believed that the Secretary was 
not given retroactive rulemaking authority here.
    Response: Section 1128J(d) of the Act is not retroactive; thus, 
failure to comply with the specific requirements of this section prior 
to March 23, 2010 is not a violation of this statutory provision. 
However, we note that other statutes governed the disposition of 
overpayments prior to the enactment of the Affordable Care Act. We do 
not address here compliance with such other statutory provisions. 
Beginning on March 23, 2010--the enactment date of the Affordable Care 
Act and section 1128J(d) of the Act--providers and suppliers that had 
not already returned a particular overpayment were required to report 
and return the overpayment in accordance with the provisions of section 
1128J(d) of the Act. This requirement exists even if the provider or 
supplier received the overpayment prior to March 23, 2010.
    Similarly, this final rule is not retroactive. Providers and 
suppliers that reported and/or returned overpayments prior to the 
effective date of this final rule and that made a good faith effort to 
comply with the provisions of section 1128J(d) of the Act are not 
expected to have complied with each provision of the final rule. 
However, all providers and suppliers reporting and returning 
overpayments on or after the effective date of this final rule--even 
overpayments received prior to the rule's effective date--must comply 
with the new regulatory requirements.
    For example, self-referral overpayments reported to us in 
accordance with the CMS Voluntary Self-Referral Disclosure Protocol 
(SRDP) prior to the effective date of this final rule will not be 
governed by the 6-year lookback specified in this final rule. This 
includes both overpayments reported and returned (via compromise and 
settlement) as well as those reported and still in the process of being 
reviewed through the SRDP. Providers and suppliers that made a good 
faith effort to comply with section 1128J(d) of the Act by reporting 
self-referral overpayments to the SRDP, which, until now, has operated 
with a 4-year lookback period, are not expected to return overpayments 
from the fifth and sixth year through other means. Providers and 
suppliers reporting overpayments to the SRDP on or after the effective 
date of this final rule are subject to the 6-year lookback period 
specified in this final rule. However, at this time, we are only 
authorized under the Paperwork Reduction Act to collect financial 
analysis of overpayments that occurred during a 4-year lookback period. 
In connection with this final rule, we are seeking authorization from 
OMB to collect financial information regarding overpayments using the 
6-year lookback period. Until the revised collection is approved by 
OMB, providers and suppliers reporting overpayments to CMS in 
accordance with the SRDP have no duty to provide financial information 
from the fifth and sixth years, that is, the 2 years outside of the 
currently authorized 4-year lookback period. Accordingly, until 
notification of changes to the SRDP lookback period, providers and 
suppliers submitting to the SRDP may voluntarily provide financial 
information from the fifth and sixth years or report and return 
overpayments from the fifth and sixth years through other means.
    There are two time periods of concern to commenters--the time prior 
to the enactment of the Affordable Care Act on March 23, 2010 and the 
time period between March 23, 2010 and the effective date of this final 
rule. For the time prior to March 23, 2010, while providers and 
suppliers had an existing

[[Page 7674]]

obligation to return overpayments, the specific obligations contained 
in section 1128J(d) of the Act are not retroactive prior to March 23, 
2010. Therefore, failing to report and return overpayments within the 
deadline in section 1128J(d) of the Act would not be actionable prior 
to March 23, 2010. The obligations of section 1128J(d) of the Act were 
effective March 23, 2010. Thus, providers and suppliers were obligated 
to comply with section 1128J(d) of the Act as of that date. For the 
time period between March 23, 2010 and the effective date of this final 
rule, providers and suppliers may rely on their good-faith and 
reasonable interpretation of section 1128J(d) of the Act.
    Comment: Some commenters suggested that providers with a 
``certified'' or ``approved'' compliance program should not be subject 
to the lookback period because commenters stated that any overpayment 
would be caused by a simple mistake and not fraud or abuse.
    Response: We see no justification in section 1128J(d) of the Act 
for the commenters' suggestion. As we stated earlier, section 1128J(d) 
of the Act requires the reporting and returning of all overpayments 
received by a provider or supplier.
    Comment: Many commenters expressed concerns that certain 
requirements in the proposed rule, particularly the proposed lookback 
period, would increase the administrative burden on providers and 
suppliers, which would lead to increased operating costs and may lead 
to certain providers and suppliers opting out of Medicare. Commenters 
expressed concerns about the overall tone of the proposed rule as one 
that appeared to assume that all overpayments are caused by fraud and 
abuse. Commenters stated that most providers and suppliers are honest 
and use their best efforts to submit claims to Medicare that are 
appropriate. Some commenters characterized the proposed rule as a 
``one-size-fits-all'' approach that did not take into account the 
differences between large and small providers and suppliers or 
providers and suppliers that CMS has designated as lower fraud risks.
    Response: We appreciate all the comments and have amended the final 
rule to take many of these comments into account, as discussed 
elsewhere in this final rule. We understand the concerns expressed and 
have fashioned the final rule to balance concerns raised by commenters 
with fulfilling the requirements and purpose of section 1128J(d) of the 
Act. The final rule contains flexible yet strong standards that can be 
applied to many different circumstances and providers and suppliers. 
The statute and this rule are not limited to overpayments caused by 
fraud or abuse.
4. How To Report and Return Overpayments
    Section 1128J(d) of the Act provides that if a person has received 
an overpayment, the person shall both report and return the overpayment 
to the Secretary, an intermediary, a carrier, or a contractor, as 
appropriate, at the correct address; and notify the Secretary, 
intermediary, carrier, or contractor to whom the overpayment was 
returned in writing of the reason for the overpayment.
    In Sec.  401.305(e)(1), we proposed to require the use of the 
existing voluntary refund process, which will be renamed the ``self-
reported overpayment refund process,'' set forth by the applicable 
Medicare contractor to report and return overpayments except as 
provided in Sec.  401.305(e)(2). Section 401.305(e)(2) provided that a 
person would satisfy the reporting obligations of this section by 
making a disclosure under the OIG's Self-Disclosure Protocol resulting 
in a settlement agreement using the process described in the OIG Self-
Disclosure Protocol. The existing voluntary refund process is 
referenced in Publication 100-08, Chapter 4, Section 4.16 of the 
Medicare Program Integrity Manual. Under the existing voluntary refund 
process, providers and suppliers report overpayments using a form that 
each Medicare contractor makes available on its Web site.
    In Sec.  401.305(d) of the February 16, 2012 proposed rule (77 FR 
9179), we also proposed a specific list of 13 data elements that were 
required in the report: (1) Person's name; (2) person's tax 
identification number; (3) how the error was discovered; (4) the reason 
for the overpayment; (5) the health insurance claim number, as 
appropriate; (6) date of service; (7) Medicare claim control number, as 
appropriate; (8) National Provider Identification (NPI) number; (9) 
description of the corrective action plan to ensure the error does not 
occur again; (10) whether the person has a corporate integrity 
agreement with the OIG or is under the OIG Self-Disclosure Protocol; 
(11) the timeframe and the total amount of refund for the period during 
which the problem existed that caused the refund; (12) if a statistical 
sample was used to determine the overpayment amount, a description of 
the statistically valid methodology used to determine the overpayment; 
and (13) a refund in the amount of the overpayment. We recognized that 
some of the current reporting forms may differ among the different 
Medicare contractors and stated we planned to develop a uniform 
reporting form that will enable all overpayments to be reported and 
returned in a consistent manner across all Medicare contractors. Until 
such uniform reporting form is made available, we stated in the 
preamble that providers and suppliers should utilize the existing form 
available from the Web site of the applicable Medicare contractor.
    Comment: Many commenters appreciated CMS' use of an existing 
process, the voluntary refund process, as the method for reporting and 
returning overpayments. Generally, commenters agreed that using an 
existing process to implement the 60-day rule will ease the burden for 
reporting and returning overpayments. However, many commenters 
requested clarification about how this rule affected other existing 
processes that enable providers and suppliers to report and return 
claims-based overpayments. Commenters confirmed that providers and 
suppliers sometimes use the voluntary refund process. Commenters also 
noted that this process is not the only way to make overpayment refunds 
and is usually only used when a refund is made by check and the 
overpayment was calculated using a sampling methodology.
    Commenters stated that, in most overpayment cases, other processes 
are used that are effective and efficient both for the Medicare program 
and providers and suppliers. Commenters repeatedly noted the claims 
adjustment and reversal process for Part A and B claims. The claims 
adjustment process for Part A claims is electronically accomplished 
through access to the Fiscal Intermediary Standard System (FISS). The 
claim adjustment is then recorded on the Provider Statistical & 
Reimbursement Report (PS&R). Commenters uniformly stated that it is 
critical that providers and suppliers be permitted to continue to use 
the claims adjustment process to refund overpayments, when appropriate, 
to ensure that the claims data is adjusted in the FISS. Claims 
adjustment for Part B claims is currently a paper-based process, but 
one in which commenters stated providers and suppliers frequently use. 
In both Part A and B, claims adjustments include an adjustment reason 
code on the claim. The claim is reprocessed and the overpayment is 
recouped via the remittance advice.
    In addition, commenters noted that hospitals are required to submit 
the

[[Page 7675]]

Medicare Credit Balance Report (CMS-838; OMB control number 0938-0600) 
within 30 days of the close of each calendar quarter to disclose any 
credits due to the Medicare program as a result of patient billing or 
claims processing errors, for example, being paid by Medicare and 
another payer for the same services, or overpayments resulting from 
incorrect calculation of the beneficiary's deductible or coinsurance. 
Any amounts due to Medicare must be repaid or claims adjusted at the 
time the CMS-838 is filed.
    Commenters suggested that CMS permit the use of the claims 
adjustment and credit balance report process for returning overpayments 
because these existing processes are well-known to providers, 
suppliers, and Medicare contractors and work effectively and 
efficiently for all parties at recouping overpayments. In many 
commenters' experience, Medicare contractors prefer that providers and 
suppliers submit adjusted bills so that each beneficiary's account 
properly reflects how and why the payment was adjusted or how the 
contractors recouped a full or partial overpayment.
    Response: We agree with commenters and amended the final rule 
accordingly in Sec.  401.305(d)(1) by allowing for additional processes 
beyond the voluntary refund process. Providers and suppliers may use 
the claims adjustment, credit balance, self-reported refund process, or 
another appropriate process to report and return overpayments. This 
position preserves our existing processes and preserves our ability to 
modify these processes or create new processes in the future.
    Comment: Commenters requested clarification on how the timing of 
the credit balance reporting process interacts with the timing of the 
report and return obligation in the proposed rule. Under the credit 
balance reporting process, the credit balance report is due 30 days 
after the end of each quarter, which would mean that overpayments 
received during the first 2 months of each quarter may be reported 
after the 60-day time period under the proposed rule has passed. 
Commenters requested guidance on how to comply with the proposed rule 
and follow the credit balance reporting process.
    Response: We have revised the requirement to include the credit 
balance reporting process as a way to report and return overpayments 
under this final rule.
    Comment: Some commenters requested that CMS permit electronically 
correcting or adjusting claims for the self-reported refund process as 
opposed to completing a form, cutting a check, and mailing it to the 
contractor for processing. It would reduce the administrative burden 
and allow for expeditious return of overpayments, while furthering the 
move to electronic processing of records.
    Response: We will continue to review our processes and will 
consider this suggestion in future process improvements. Any changes to 
our administrative processes, including the self-reported refund 
process, will be addressed in the applicable manual.
    Comment: Commenters questioned whether, instead of submitting a 
check with the overpayment reporting form, a provider continue to be 
able to request a voluntary offset.
    Response: Yes, providers and suppliers may request a voluntary 
offset from the contractor.
    Comment: Several commenters questioned how providers and suppliers 
should handle delays by the Medicare contractor in processing the 
refund, whether submitted through the electronic claims adjustment 
system, filing of the CMS-838, or by submitting a check or requesting 
an offset through the self-reported refund process. Commenters reported 
that there is great variability in how the contractors handle voluntary 
refunds. Some commenters reported that contractors at times have 
returned a refund check submitted by a provider or supplier or refused 
to accept it. Other commenters noted that some contractors claimed to 
be unable to process a refund if the claims were for a time period 
before that particular company was engaged as the contractor. 
Commenters requested that the rule should be modified to expressly 
state that a provider or supplier satisfies its repayment obligation 
under the statute and the rule by making good faith efforts to submit a 
valid form of payment to the contractor or government entity that the 
provider or supplier reasonably believes to be the appropriate 
recipient of a particular repayment. Other commenters suggested that 
the contractor inform the provider or supplier when it has 
preliminarily determined that the overpayment report complied with the 
rule. Commenters also suggested a processing deadline for the 
contractors.
    Response: We agree with commenters that the obligations of this 
final rule are satisfied when the provider or supplier follows the 
appropriate process for the overpayment issue in good faith to report 
and return the overpayment, including calculating the amount of the 
overpayment. Publication 100-08, Chapter 4, Section 4.16 of the 
Medicare Program Integrity Manual requires contractors to process all 
voluntary refunds. The Program Integrity Manual specifically prohibits 
contractors from returning voluntary refund checks. We see no basis for 
a contractor to refuse a refund because a different company was the 
contractor during the period covered by the refund. Finally, we may 
consider a processing deadline for contractors in the future.
    Regarding obtaining a preliminary determination, we believe 
contractors may not be able to conclude whether the overpayment refund 
complied with this rule on the face of the report. The provider or 
supplier is ultimately responsible for complying with this rule. 
Contractors are instructed to refer suspected fraud to law enforcement. 
Any overpayment refund does not negate any potential liability the 
provider or supplier may have for the overpayment issue.
    Comment: Several commenters raised the situation where a contractor 
notifies a provider or supplier of an overpayment due to the 
contractor's error. Commenters stated that in this situation, where the 
contractor identifies and takes responsibility for collecting the 
overpayment by adjusting claims, the provider or supplier should not 
also be required to conduct an inquiry and report and return the 
overpayment on its own. Commenters noted that it may take the 
contractor more than 60 days to adjust the claims related to its error.
    Response: We agree that where the contractor identifies a payment 
error by the contractor and notifies the provider or supplier that the 
contractor will adjust the claims to correct the error, the provider or 
supplier does not need to report and return the overpayment separately.
    Comment: Many commenters objected to the proposed list of data 
elements in Sec.  401.305(d) for several reasons, including that the 
data elements exceed the statutory requirements, are not necessary for 
Medicare to reconcile the payments, and create unnecessary burden. 
Commenters believed that the proposed list exceeded the requirements of 
section 1128J(d)(1)(B) of the Act, which states that the person must 
notify the Secretary in writing of the reason for the overpayment. 
Commenters specifically objected to the following items in the list of 
data elements in Sec.  401.305(d) as overly burdensome: (3) How the 
error was discovered; (9) description of the corrective action plan to 
ensure the error does not occur again; and (12) if a statistical sample 
was used to determine the overpayment amount, a description of the 
statistically valid

[[Page 7676]]

methodology used to determine the overpayment. The discovery and 
corrective action plan elements were objected to because commenters 
stated that these elements appeared to assume that the overpayment were 
the fault of the provider or supplier. Overpayments may be caused by 
various reasons for which a corrective action plan is not necessary, 
such as an error or a routine adjustment, according to commenters. In 
addition, commenters noted that requiring claim-specific data, such as 
the date of service, health insurance claim number, and the Medicare 
claim control number for all of the claims associated with the 
overpayment would be impossible when a sampling and extrapolation 
methodology are used. Finally, commenters stated that compliance with 
the proposed reporting requirements would result in additional time and 
expense in reporting.
    Response: We appreciate the comments and have adjusted the final 
rule in several ways. As discussed previously, this final rule permits 
using the most applicable process set forth by the Medicare contractor 
to report and return overpayments. As a result, we eliminated the 
specific list of data elements from the rule as proposed in Sec.  
401.305(d) to accommodate these existing processes. While we believe 
that the facts about how the overpayment was discovered and corrective 
action plans are relevant information relating to the reason for the 
overpayment, and thus within the purview of the statute, we also 
recognize that the additional burden of providing this information may 
not be necessary in all overpayment situations. In addition, we note 
that providers and suppliers submitting self-disclosures to the OIG 
Self-Disclosure Protocol (SDP) and the CMS Voluntary Self-Referral 
Disclosure Protocol (SRDP) must use the reporting process described in 
the respective protocol.
    However, we continue to believe that, where the overpayment amount 
is extrapolated based on a statistical sampling methodology, it is 
necessary for the overpayment report to explain how the overpayment 
amount was calculated. The statute requires the return of an amount of 
money for the overpayment; therefore, it is a reasonable interpretation 
of the statute to require an explanation of how the overpayment amount 
was calculated by the provider or supplier by extrapolation. As 
commenters noted, statistical sampling is already used by providers and 
suppliers in the voluntary refund process. Therefore, we believe that 
requiring an explanation of the statistical sampling methodology 
results in little, if any, additional burden.
    Comment: Many commenters stated that the differences between the 
regulatory requirement in proposed Sec.  401.305(d) and various 
contractors' existing voluntary refund forms created confusion. 
Specifically, commenters requested clarity on how the provider or 
supplier could comply with the regulation by using a contractor form 
that did not contain all of the elements required by the regulation. 
Commenters noted that we stated in the preamble that we intended to 
create a standardized reporting form in the future and, until we issued 
a standardized reporting form, providers and suppliers should utilize 
the existing form available from the Web site of the applicable 
Medicare contractor. Commenters requested guidance on whether they 
would need to supplement the contractor's form to include any missing 
regulatory elements to be in compliance with the regulation. Many 
commenters expressed this concern in connection with using sampling to 
calculate the overpayment. These commenters noted that, when a provider 
or supplier identifies a systemic error, it is frequently most 
efficient and effective to determine the overpayment amount utilizing 
extrapolation. In such cases, commenters noted that it would be 
impossible to identify specific data items, such as specific dates of 
service and Medicare claim control numbers, for claims included in an 
extrapolation estimate other than for the specific claims in the 
sample. Thus, many commenters requested that we create an exception in 
the regulation to identify the data elements that were required only as 
appropriate, such as health insurance claim and Medicare claim control 
numbers, and specific dates of service. In addition, many commenters 
requested that we create the standardized refund form before or at the 
same time as issuing the final rule to avoid confusion and potential 
inconsistency among the contractors in the way that overpayments are 
handled.
    Response: We recognize commenters' concerns and believe the 
revisions presented in this final rule address these concerns. We 
removed the proposed data element list from the regulation to eliminate 
confusion between compliance with the regulation and compliance with 
the applicable refund process, with the exception of the statistical 
sampling methodology explanation. We understand that providers and 
suppliers currently report extrapolated overpayments through the 
current voluntary reporting process. In these circumstances, providers 
and suppliers should make a good faith effort to provide the 
information on their contractor's refund form, which would include 
providing details of the statistical sampling methodology and 
indicating that certain data elements, such as health insurance claim 
and Medicare claim control numbers, are not available for all the 
claims in an extrapolation. Providers and suppliers should continue to 
report extrapolated overpayments through currently available methods. 
Given these changes, we do not believe it is necessary to create a 
standardized refund form for the self-reported refund process prior to 
finalizing this rule. We will work with the contractors to adjust their 
current forms and instructions to address the requirements of Sec.  
401.305(d) and will consider creating a standardized form in the 
future.
    Comment: Several commenters stated that we should add a section on 
the refund form to allow a provider or supplier to indicate that it is 
reporting an overpayment as ``contested'' or ``with reservations'' to 
meet the 60-day deadline while allowing further investigation. This 
would provide the opportunity for providers and suppliers to document 
they do not agree that the reported amount is an overpayment, and yet, 
are reporting and returning the payment to ensure that they are in 
compliance with the rule.
    Response: We decline to accept the commenters' suggestion. 
Providers and suppliers are reporting and returning overpayments that 
they have identified. Thus, we see no purpose in designating a refund 
as contested or with reservations.
    Comment: Some commenters requested that we direct contractors to 
accept one single refund form with an attachment that contains the 
required elements on a spreadsheet. Commenters stated that the current 
refund process requires providers and suppliers to complete a single 
refund form for each account identified as an overpayment, resulting in 
an extensive resource burden with no value.
    Response: We agree with the commenter that the practice they 
describe (submitting one form and attaching a spreadsheet containing 
the appropriate data) is acceptable for complying with this final rule.
    Comment: Some commenters recommended that we create a process for 
providers and suppliers to report potential overpayments without a 
requirement to return the overpayment pending further review by the 
contractor or the government. Commenters acknowledged that the 
requirement that providers and suppliers report and

[[Page 7677]]

refund an overpayment is consistent with the statutory language. 
However, commenters recommended that CMS consider situations where it 
is not easy to determine whether the identified issue is an 
overpayment. The commenters recommended that we create a process 
permitting the submission of a written report to the Medicare 
contractor, which would satisfy the rule's reporting obligation. The 
Medicare contractor would then review the report to determine whether 
an overpayment existed, at which time the returning obligation 
requirement would be triggered.
    Response: We decline to adopt the commenters' suggestion. As the 
commenters acknowledge, section 1128J(d) of the Act requires providers 
and suppliers to report and return overpayments they have received. It 
does not cover overpayments determined and demanded by a Medicare 
contractor or government agency.
    Comment: A commenter recommended that we remove the reference to 
statistical samples because it may be interpreted to suggest a 
statistically valid sample is always required. The commenter stated 
that there are many situations where the size of the potential 
overpayment is small and does not warrant the expense of creating a 
statistical sample to calculate a refund amount. In these situations, 
the commenter believes providers and suppliers should do the best job 
they can to estimate the overpayment and give all benefit of the doubt 
to the government. The commenter believes requiring statistical 
validity for all estimated refunds will create the largest burden on 
small providers and suppliers. The commenter suggested that the final 
regulation instead require the explanation of the methodology used in 
any sample to protect the government's interest.
    Response: We decline to adopt the commenter's suggestion. We 
structured the final rule to have certain flexibilities for providers 
and suppliers to account for the various circumstances that may involve 
an overpayment. However, providers and suppliers need to calculate an 
overpayment amount that is reliable and accurate, which in some cases 
can be accomplished using statistically valid sampling methodologies. 
This final rule expressly anticipates that providers and suppliers may, 
but are not required to, use statistical sampling and extrapolation for 
calculating the overpayment amount. We note that reasonable diligence 
requires that any statistical sampling be conducted in a manner that 
conforms to sound and accepted principles. These principles include 
randomly selecting claims from the population and extrapolating only 
within the time period covered by the population from which the sample 
was drawn.
    Comment: Many commenters questioned whether the existing self-
reported refund process would need to be used to report and return 
overpayments associated with cost reports. Commenters noted that the 
proposed rule does not specifically identify a separate process for 
cost report-related overpayments. If we intended to propose using the 
self-reported refund process for cost report overpayments, commenters 
suggested that we reconsider. Commenters stated that the voluntary 
refund process is not designed for providers, such as federally 
qualified health centers, returning overpayments identified through the 
cost reimbursement process, where the overpayment amount is based on 
the reimbursement of allowable costs, particularly where an overpayment 
resulted from the inclusion of costs in error or that are otherwise 
non-reimbursable (in which case no specific claims for payment can be 
identified for repayment). Requiring the use of the self-reported 
refund process for these overpayments would be ineffective and 
inefficient according to commenters. Commenters recommended we clarify 
that overpayments associated with cost reports be reported and returned 
through the existing cost reporting process.
    Response: We agree with commenters and note that Sec.  
401.305(d)(1) allows for overpayments associated with cost reports to 
be reported through the existing cost report reconciliation process, 
and does not require the use of the self-reported refund process for 
overpayments based on cost reports. If an overpayment is identified 
through the initial submission of a cost report, the cost report should 
state that the overpayment resulted from reimbursements made at an 
estimated rate exceeding actual reimbursable costs and the overpayment 
is submitted along with the transmittal of the cost report to the 
contractor. Where an overpayment is identified in connection with cost-
based reimbursement paid to a provider during a previous cost reporting 
cycle, the overpayment should be reported by amending or reopening the 
cost report and the overpayment should be returned by submitting 
payment along with the amended or reopened cost report.
    Comment: A number of commenters requested creation of a materiality 
or de minimis exception for small-dollar overpayments from the rule. 
Commenters expressed concern that in many situations the cost and 
resources associated with reporting and refunding the overpayment would 
exceed the amount of the overpayment. Commenters stated that the 
administrative burden to process an overpayment could have a 
significant negative financial impact on the provider's ability to 
offer future services. In support of their position, commenters noted 
that a materiality standard is included in other areas of Medicare 
payment policy and related fraud and abuse enforcement policies. For 
example, the Medicare Financial Management Manual (MFMM) instructs 
Medicare contractors not to attempt recovery of overpayments under $10. 
(See MFMM Ch. 3, section 170.2 (Rev. 29, January 2, 2004). Similarly, 
under the physician self-referral law regulations, certain incidental 
medical staff benefits with limited value (less than $31 for 2012) are 
exempted. (See 42 CFR 411.357(m)). Moreover, commenters stated that CMS 
currently follows a materiality threshold of $300 for Medicare 
Secondary Payer liability recoveries. Under the CMPL, OIG stated that 
they may enforce the prohibition against improper remuneration to 
patients when the remuneration exceeds $10 for each item or $50 in the 
aggregate. (See the August 30, 2002 HHS OIG Special Advisory Bulletin 
on Offering Gifts and Other Inducements to Beneficiaries (67 FR 55855). 
Finally, in its Corporate Integrity Agreements (``CIAs''), OIG 
recognizes a materiality threshold by permitting the offset of 
underpayments to overpayments for purposes of calculating a net 
financial error rate, which then is used to determinate whether a 
sample review must be expanded to a larger review. As such, commenters 
requested a regulatory de minimis standard for this rule. Suggested 
minimum monetary thresholds ranged from $5 to $5,000. Alternatively, 
commenters requested CMS acknowledge that providers and suppliers can 
and should perform responsible cost and benefit analyses before 
committing resources to investigate low-dollar overpayments. Some 
commenters requested a minimum threshold for the voluntary refund 
program that permitted aggregating small-dollar overpayments identified 
over a period of time into one submission.
    Response: We decline to adopt a minimum monetary threshold in this 
final rule. We believe adopting a regulatory de minimis standard would 
be susceptible to abuse, especially in the

[[Page 7678]]

context of claims-based overpayments. We also note that some of the 
examples provided by commenters require clarification. For example, the 
referenced Medicare Secondary Payer threshold relates to the size of 
certain liability insurance settlements, not the amount of the debt. In 
addition, the physician self-referral law's exception for medical staff 
incidental benefits of low value is not only unrelated to overpayments 
made to providers, but is also subject to additional program safeguards 
in order for the exemption to be available. With the exception of the 
physician self-referral law, we note that the remaining examples are 
detailed in subregulatory guidance, program instructions, or a 
negotiated contract with OIG that is applicable only to a specific 
party. We also disagree with commenter's request to acknowledge cost 
and benefit analyses before committing resources to investigating a 
potential overpayment. Providers and suppliers need to take reasonable 
steps to determine whether they have received overpayments and are 
required to return any funds received or retained under title XVIII of 
the Act to which they, after applicable reconciliation, are not 
entitled under such title.
    Given the differences in cost report-related payments and the 
resources needed on both the provider and the contractor's part in the 
cost report process, we are considering establishing a minimum monetary 
threshold for cost report-related overpayments. This threshold would be 
published in program guidance or future rulemaking.
    Comment: Some commenters requested that we exempt small-dollar 
overpayments from the voluntary refund process. Under the proposed 
rule, any overpayment would have to be reported and returned through 
the voluntary refund process, which requires submitting a significant 
amount of information. Therefore, commenters recommended establishing a 
minimum threshold overpayment amount under which providers can use 
existing claims adjustment processes to return the overpayment. 
Commenters offered the New York State Office of the Medicaid Inspector 
General (NY OMIG) as an example of a reporting process that has 
established a $5,000 threshold. According to the comments, if the 
amount of the overpayment falls below this threshold, providers are 
permitted to return the overpayment through existing claims adjustment 
processes.
    Response: We decline to establish a regulatory minimum threshold 
amount for the voluntary refund process. However, we believe that we 
addressed commenters' concerns by clarifying in the final rule that 
providers and suppliers may use the most applicable process established 
by the contractor to report and return, including the claims adjustment 
process. We note that even under the NY OMIG process offered as an 
example, overpayments of any size need to be reported and returned.
    Comment: Many commenters agreed with the treatment of the CMS 
Voluntary Self-Referral Disclosure Protocol (SRDP) and the OIG Self-
Disclosure Protocol (SDP) as tolling the deadline for returning the 
overpayment. Commenters requested that CMS clarify that self-disclosure 
by providers and suppliers to other government entities, such as DOJ 
and MFCU, would similarly suspend the 60-day deadline.
    Response: We finalized the treatment of the SRDP and SDP as tolling 
the obligation to return the overpayment as proposed. With regard to 
the SRDP, the requirement to return the overpayment within 60 days of 
identification is tolled for the full duration of the time that the 
provider or supplier is negotiating a potential settlement with CMS in 
accordance with the requirements of the SRDP. While engaged in the 
SRDP, a provider or supplier is subject to all the requirements of the 
SRDP, and any subsequent changes or updates to the SRDP instructions 
issued by CMS, independent of any similar requirements imposed by this 
rule. At such time that a provider or supplier is no longer actively 
negotiating a settlement or is not considered to be engaged in the SRDP 
process, the tolling will no longer be in effect and the provider or 
supplier is expected to comply with the 60-day returning requirements 
of this rule. This treatment applies to all providers and suppliers 
already engaged in the SRDP at the time this final rule is effective as 
well as those who submit a reported overpayment to the SRDP after the 
effective date of this rule.
    We decline to extend this treatment to self-disclosure to entities 
outside of the SRDP and SDP in this final rule. The SRDP and SDP are 
both formal processes managed by agencies within the Department, CMS 
and OIG respectively. As such, we believe it is appropriate to include 
those processes in this rule. However, DOJ is a separate department and 
we are not aware of any formal self-disclosure process by DOJ that is 
analogous to the SRDP or SDP. Also, we are not aware of a similar MFCU 
process and, more importantly, Medicaid is not covered in this 
rulemaking.
    Comment: Many commenters questioned treating the SRDP and SDP 
differently for purposes of satisfying the reporting obligation. In the 
proposed rule, the SDP submission satisfied the reporting obligation 
but the SRDP did not, which required the provider to file reports with 
both the overpayment refund process and the SRDP. Commenters questioned 
the utility of this duplicative reporting and requested that CMS 
eliminate it in the final rule.
    Response: We agree with commenters and have revised Sec.  
401.305(d)(2) to permit the SRDP report to satisfy the reporting 
obligation in addition to the SDP.
    Comment: A commenter requested confirmation that a provider or 
supplier may provide a single notification to the Department or its 
contractors to satisfy the report and return requirement and does not 
also need to use the SDP or SRDP.
    Response: Providers and suppliers need to decide who is the most 
appropriate recipient of the overpayment report and refund as provided 
in Sec.  401.305(d)--the applicable Medicare contractor, the SDP, or 
the SRDP. Providers and suppliers should review the SDP and SRDP to 
determine whether either of those avenues is available. The commenter 
also appears to believe that overpayments can be reported and returned 
to the Department, which is incorrect. Sending an overpayment report 
and refund to anyone other than the appropriate Medicare contractor 
according to the applicable administrative process (or otherwise 
following Sec.  401.305(d)) does not conform to any applicable process 
as discussed in this final rule.
    Comment: Some commenters requested guidance on when a contractor 
would refer an overpayment report to OIG.
    Response: Medicare contractors have long been instructed to refer 
potential fraudulent conduct to law enforcement.
    Comment: Many commenters questioned using CMS or OIG's 
acknowledgement of receipt of the disclosure as the action that 
suspends the returning deadline. Commenters expressed concern that they 
do not always receive this acknowledgement in a timely way. Commenters 
requested CMS use the date the submission was sent to CMS or OIG as the 
suspension date and require the provider or supplier to retain the 
appropriate documentation.
    Response: We decline to adopt this suggestion. While we understand 
the concern about receiving a timely acknowledgement response, we 
believe that this concern does not outweigh the benefit of using the 
government's acknowledgement to avoid any potential

[[Page 7679]]

question as to whether the government actually received the submission. 
Self-disclosures to the SRDP must be submitted by email to 
[email protected]. Parties that send their submission to 
[email protected] receive a response email acknowledging receipt of 
the submission. This response email serves as CMS' acknowledgement of 
receipt. We understand that parties that send their submission through 
OIG's SDP online submission portal, http://oig.hhs.gov/compliance/self-disclosure-info/index.asp, also receive a response email. We also 
understand that SDP hard-copy submitters receive an acknowledgement 
letter from OIG confirming receipt. Either of these communications from 
OIG serves as the acknowledgement of receipt for purposes of this final 
rule.
    Comment: A commenter questioned what would happen if the provider 
or supplier and OIG are unable to reach a settlement in the SDP. The 
proposed rule provided that the deadline for returning overpayments 
will be suspended when the OIG acknowledges receipt of a submission to 
the OIG Self-Disclosure Protocol until such time as a settlement 
agreement is entered, the person withdraws from the OIG Self-Disclosure 
Protocol, or the person is removed from the Self-Disclosure Protocol. 
The commenter requested CMS clarify that, if a settlement could not be 
reached through the SDP, then the provider would have a reasonable 
amount of time to make a report to the relevant Medicare contractor to 
meet its obligations under this rule.
    Response: This final rule contains the same language as the 
proposed rule concerning the returning obligation. In the event that a 
SDP settlement is not reached, the provider or supplier has the balance 
of the 60-day time period remaining from identification to the 
suspension of that 60-day period when OIG acknowledged receiving the 
SDP submission to report and return any overpayment to the contractor. 
If the overpayment has been identified, we believe that the balance of 
the 60-day period is a reasonable amount of time to report and return 
the overpayment to the contractor if the SDP does not result in a 
settlement. We revised this final rule to clarify that the same rule 
would apply to a failure to reach a SRDP settlement.
    Comment: A commenter requested additional exceptions from the rule 
or lengthier timeframes for reporting and returning overpayments based 
upon the size of the provider. The commenter stated that small 
providers and suppliers may lack the infrastructure to audit claims at 
the frequency required to be in compliance with the proposed rule.
    Response: We decline to adopt the commenter's suggestion. The 
timeframe is established by the statute does not create different 
obligations based on provider type or size. We recognize that there is 
great diversity in the health care industry in provider type and size. 
All members of that industry who participate in the Medicare program 
are obligated to ensure they bill Medicare properly and to return 
overpayments they have received.
    Comment: Several commenters objected to the 60-day deadline for 
reporting and returning an overpayment. Some commenters expressed 
concern that certain providers and suppliers might not have the 
resources to complete an investigation within 60 days and that CMS 
should establish a process for requesting an extension to the 60-day 
deadline. A commenter suggested that CMS adopt a process that allows 
the provider to report, but not to return, the overpayment within 60 
days. Similarly, another commenter requested that the final rule 
clarify whether the obligation to report an overpayment is distinct 
from the obligation to return an overpayment.
    Response: The 60-day deadline to report and return is contained in 
section 1128J(d) of the Act. We believe we addressed the concerns that 
underlie these comments by clarifying the provider or supplier's 
ability to conduct reasonable diligence and that this reasonable 
diligence time period of 6 months is in addition to the 60-day report 
and return time period, as discussed previously. We considered but 
declined to establish a new process for reporting, but not returning, 
overpayments. We believe we have addressed those comments by both the 
reasonable diligence clarifications and the expansion to using other 
processes to report and return besides the self-reported refund 
process.
    Comment: Some commenters recommended that that 60-day timeframe for 
reporting and returning overpayments be reduced to 30 days. These 
commenters did not believe providers and suppliers should have such a 
long grace period to keep taxpayer money to which they are not 
entitled.
    Response: We understand the commenters' concerns, but the 60-day 
deadline to report and return is contained in section 1128J(d) of the 
Act.
    Comment: Several commenters questioned the proposed rule's use of 
the Extended Repayment Schedule (ERS) and requested that the definition 
of ``hardship'' and the documentation requirements be changed so that 
providers and suppliers could more easily utilize ERS. These commenters 
stated that the hardship standard was too difficult to meet. Commenters 
also requested more guidance on the documentation requirements for 
using the ERS. Commenters suggested changing the definition of 
``hardship'' to focus on the provider's financial stability and not 
simply the amount of their Medicare payments and overpayments in 
comparison to their total Medicare billing. Some commenters suggested 
that the process be streamlined so that small providers and suppliers 
may more easily take advantage of ERS. Finally, commenters recommended 
that the ERS include a provision allowing for a waiver of an obligation 
to repay an overpayment ``if circumstances exist to merit such 
waiver.''
    Response: We appreciate the comments. In the February 16, 2012 
proposed rule (77 FR 9183), we stated that providers or suppliers who 
needed additional time to return the overpayment due to financial 
limitations should use the existing ERS process as outlined in 
Publication 100-06, Chapter 4 of the Financial Management Manual. We 
also proposed modifying the definition of ``hardship'' in Sec.  401.607 
to ensure that providers and suppliers could seek to use ERS by 
amending the definition to include overpayments reported in accordance 
with Sec.  401.301 through Sec.  401.305. We noted in the proposed rule 
(77 FR 9183) that requests for ERS are not automatically granted and 
that providers and suppliers seeking to use ERS must submit significant 
documentation to verify true financial hardship. We have added Sec.  
401.305(b)(2)(iii) in this final rule to allow for the suspending of 
the deadline for returning overpayments when a person requests an ERS 
as defined in Sec.  401.603. Explanation of the ERS and its 
documentation requirements are contained in Publication 100-06, Chapter 
4 of the Financial Management Manual.
    Comment: A commenter stated that providers and suppliers do not 
have access to the same data formats and elements as the contractor. 
This commenter recommended that CMS create a portal with a unique 
provider identifier that would allow unlimited access to the National 
Data Repository.
    Response: We appreciate the comment. Questions about data format 
and elements should be directed to the provider or supplier's 
applicable contractor. We will consider ways to

[[Page 7680]]

further educate providers and suppliers on these issues in the future.
    Comment: Some commenters expressed concern about increasing billing 
errors, and consequent overpayments, when ICD-10 is implemented. These 
commenters recommended a grace period to accommodate these changes.
    Response: We understand the commenters' concerns, but decline to 
adopt a grace period as suggested. It is unclear from the comments 
whether they are advocating for a grace period from the requirement to 
report and return overpayments relating to ICD-10 miscoding or an 
extension of the 60-day timing requirement. Regardless, we see no basis 
in section 1128J(d) of the Act to permit either suggestion.

III. Provisions of the Final Regulations

    For the most part, this final rule incorporates the provisions of 
the proposed rule, with the following exceptions:
     In Sec.  401.305 we modified our proposals as follows:
    ++ In paragraph(a)(1), we revised the requirements for reporting 
and returning of overpayments to more clearly distinguish between the 
concepts of receiving and identifying an overpayment. A person that has 
received an overpayment must report and return in the form and manner 
required.
    ++ In paragraph (a)(2), we revised the requirements for reporting 
and returning of overpayments slightly to remove the terms ``actual 
knowledge'', ``reckless disregard'', and ``deliberate ignorance'' and 
to state 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 if the person fails to exercise 
reasonable diligence and the person in fact received an overpayment.
    ++ Added a new paragraph (b)(2)(iii) to specify that the deadline 
for returning overpayments will be suspended when a person requests an 
extended repayment schedule as defined in Sec.  401.603.
    ++ Removed proposed paragraph (d), which specified 13 specific data 
elements that were to be included in the report that providers and 
suppliers use to report and return overpayments. We subsequently 
renumbered paragraphs (e) through (g) as (d) through (f).
    ++ In paragraph (d)(1) (which was proposed paragraph (e)(1)), we 
revised the allowable reporting process to include an applicable claims 
adjustment, credit balance, self-reported refund, or other reporting 
process set forth by the applicable Medicare Contractor. We specified 
that if the person calculates the overpayment amount using a 
statistical sampling methodology, the person must describe the 
statistically valid sampling and extrapolation methodology in the 
report.
    ++ In paragraph (d)(2) (which was proposed paragraph (e)(2)), we 
added disclosure to the CMS Voluntary Self-Referral Disclosure Protocol 
(SRDP) as a method of satisfying the reporting obligations for self-
identified overpayments.
    ++ In paragraph (f) (which was proposed paragraph(g)), we revised 
the lookback period from 10 years to 6 years to specify that 
overpayments must be reported and returned only if a person identifies 
the overpayment within 6 years of the date the overpayment was 
received. We carefully considered all of the comments on the lookback 
period and concluded that a 6-year time period is the most appropriate 
time period.
     In Sec.  405.980, we--
    ++ Removed proposed paragraph (b)(6). This paragraph would only 
apply to reopenings initiated by the contractor.
    ++ Added paragraph (c)(4) to clarify that a reopening may be 
requested under Sec.  405.980(c).

IV. Collection of Information Requirements

A. Background

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
OMB for review and approval. In order to fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 requires that we solicit comment 
on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    The following is a discussion of the provisions, as stated in 
section II. of this final rule, that contain information collection 
requirements.

B. ICR Estimates in the Proposed Rule

    Proposed Sec.  401.305 stated that a provider or supplier must (1) 
report and return an overpayment to the Secretary, the state, an 
intermediary, a carrier or a contractor to the correct address by the 
later of 60 days after the overpayment was identified or the date the 
corresponding cost report is due, and (2) notify the Secretary, the 
state, an intermediary, a carrier, or a contractor in writing of the 
reason for the overpayment. The burden associated with this requirement 
was the time and effort necessary to report and return the overpayment 
in the manner described at Sec.  401.305.
    For purposes of Sec.  401.305 only, we estimated that approximately 
125,000 providers and suppliers (or roughly 8.5 percent of the total 
number of Medicare providers and suppliers) would report and return 
overpayments in a typical year under our provisions. We estimated this 
based on the improper payment rate for the Medicare Fee-for-Service 
program, which was approximately 12 percent in FY 2014 and FY 2015,\4\ 
and we expect that some number of improper payments will be identified 
by sources other than providers and suppliers themselves. We projected 
that each of these providers and suppliers would, on average, 
separately report and return approximately 3 to 5 overpayments. In 
addition, we estimated that it would take a provider or supplier 
approximately 2.5 hours to complete the applicable reporting form and 
return an overpayment.
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    We are developing an information collection request for OMB review 
and approval that will authorize the collection of the applicable 
reporting form. The public will have an opportunity to review the 
information collection and submit comments. We plan to announce the 
information collection request under the required 60-day and 30-day 
Federal Register notice and comment periods. These notices will 
incorporate the process described below and the burden calculated in 
Table 1, among other processes.
    We determined that the two main categories of individuals who would 
most likely complete and submit the applicable reporting form included: 
(1) Accountants and auditors (external and in-house); and (2) 
miscellaneous in-house administrative personnel. Each provider's and 
supplier's individual operations are different and, as a result,

[[Page 7681]]

it was not possible to break down the percentage of total affected 
providers or suppliers that would fall within the 2 previously stated 
categories (for example, percentage of providers that would use an 
accountant). Consequently, in order to determine the burden cost, we 
utilized the average hourly wage of these 2 occupational categories 
based on the most recent wage data provided by the Bureau of Labor 
Statistics (BLS) data for May 2010. The mean hourly wage for the 
category of ``accountants and auditors'' was $33.15 (see http://www.bls.gov/oes/current/oes132011.htm) and the mean hourly wage for the 
category of ``bookkeeping, accounting, and auditing clerks'' was $16.99 
(http://www.bls.gov/oes/current/oes433031.htm). The average of these 2 
figures, including fringe benefits and overhead, was $37.10. This lead 
to an aggregate annual ICR cost burden--attributable to the impacted 
125,000 providers and suppliers, and using the range of 3 to 5 
overpayments, of $34.78 million and $57.97 million, respectively.

C. Comments Received

    We received a number of comments regarding our proposed ICR 
estimates:
    Comment: Several commenters suggested that the burden analysis 
offered by CMS in the proposed rule was inadequate because it only 
considered two types of individuals involved in the reporting and 
returning of overpayments, accountants/auditors and in-house 
administrative personnel. Commenters suggested that additional and more 
costly individuals, such as legal counsel and compliance consultants, 
would be necessary to comply with this rule.
    Response: We disagree. We believe only the rarest of circumstances 
(such as potential fraud or certain investigations of potential 
violations of the physician self-referral law) would necessitate more 
costly personnel, such as legal counsel, to comply with this final 
rule. In the overwhelming majority of cases, we expect overpayment 
identification and return to be sufficiently handled by accountants, 
auditors, and in-house administrative personnel.
    Comment: Several commenters stated that CMS--(1) underestimated the 
administrative burden imposed by this rule; and (2) failed to 
adequately support the assumptions underlying the regulatory impact 
analysis.
    Response: We understand the commenters' concerns regarding the 
underestimation of the administrative burden and the failure to 
adequately support assumptions underlying the regulatory impact 
analysis. Therefore, we have increased the projected ``per report'' 
burden--which includes researching, reporting, and returning the 
overpayment--from 2.5 hours to 6 hours to address these concerns. Our 
assumptions also include our belief that the majority of these 6 hours 
will be spent researching and identifying the overpayment, and that the 
time burden for reporting and returning the overpayment after it is 
identified is minimal.

D. Final Estimated ICR Burden

    There are two major changes from our projected burden in the 
proposed rule. First, as noted previously, we are increasing the ``per 
report'' hour burden from 2.5 hours to 6 hours. Second, we must use 
more recent BLS data in calculating the hourly wage.
    According to BLS information for May 2014, the national estimated 
mean hourly wage for the category of ''accountants and auditors'' was 
$35.42 (see http://www.bls.gov/oes/current/oes132011.htm) and the 
national estimated mean hourly wage for the category of ''bookkeeping, 
accounting, and auditing clerks'' was $18.30 (http://www.bls.gov/oes/current/oes433031.htm). The average of these 2 figures, is $26.86. This 
does not include fringe benefits and overhead which are generally 
calculated as being 100% of salary. This means the cost of an hour of 
work is $53.72.
    The following table shows the projected annual ICR hour and cost 
burdens associated with Sec.  401.305:

                                                     Table 1--Estimated ICR Burden of Sec.   401.305
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Number of reported and returned                                                           Burden per                     Hourly labor     Total labor
    overpayments per  affected         OMB Control No.      Respondents      Responses       response      Total annual       cost of         cost of
             provider                                                                         (hours)     burden (hours)   reporting ($)   reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3.................................  0938--New...........         125,000         375,000               6       2,250,000          $53.72    $120,870,000
4.................................  0938--New...........         125,000         500,000               6       3,000,000           53.72     161,160,000
5.................................  0938--New...........         125,000         625,000               6       3,750,000           53.72     201,450,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Therefore, we project an annual ICR cost burden of between $120.87 
million and $201.45 million. The former represents our low-end 
estimate, while the latter is our high-end estimate. The $161.16 
million estimate represents our primary, or mid-range, projection. 
While we have used a range of values to illustrate the possible burden 
estimates that providers may incur, we cannot submit a range of values 
for OMB approval. For purposes of OMB review and approval, we will use 
the mid-range estimate related to 4 reported and returned overpayments.

V. Regulatory Impact Statement

A. Background

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any one year).
    As discussed earlier in the preamble, even without a final rule, 
all stakeholders are subject to the statutory requirements found in 
section 1128J(d) of the Act and could face potential FCA

[[Page 7682]]

liability, CMPL liability, and exclusion from federal health care 
programs for failure to report and return an overpayment. This final 
rule imposes a new deadline on the return of any overpayment that has 
been identified. We believe that this change will spur providers and 
suppliers to be more diligent in reporting and returning overpayments. 
That will likely increase the overpayments that we collect, but we do 
not have a basis for estimating the magnitude of that change, and note 
the substantial uncertainty surrounding the magnitude of new 
collections. The annual burden costs for reporting and returning of 
overpayments, as discussed in section IV. of this final rule, are 
estimated between $120.87 million and $201.45 million. Since there may 
be years where the burden costs exceed $100 million, we believe this 
rule is a major rule and economically significant.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
less than $7.5 million to $38.5 million in any 1 year. With a maximum 
cost of $201,450,000, we do not believe that the reporting and 
returning of overpayments identified by providers and suppliers of 
services will have a significant impact on a substantial number of 
small entities. We are not preparing an analysis for the RFA because we 
have determined, and the Secretary certifies, that this final rule will 
not have a significant economic impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital located outside of the Metropolitan Statistical 
Area for Medicare payment regulations and that has fewer than 100 beds. 
We are not preparing an analysis for section 1102(b) of the Act because 
we have determined and the Secretary certifies that this final rule 
will not have a significant impact on the operations of a substantial 
number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits before issuing any 
rule whose mandates require spending in any 1 year of $100 million in 
1995 dollars, updated annually for inflation. In 2015, that threshold 
is approximately $144 million. This rule will have no consequential 
effect on state, local, or tribal governments or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it announces a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has Federalism 
implications. Since this final rule does not impose any costs on states 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    Comment: A commenter expressed concern that the proposed rule 
creates an unfunded requirement that forces medical practices to 
implement self-audits and internal compliance plans, and that CMS did 
not address this burden in the RIA.
    Response: We disagree that this rule creates a requirement for any 
formal compliance plan or audit strategy; rather, it requires that 
providers and suppliers maintain responsible business practices and 
conduct a reasonably diligent inquiry when information indicates that 
an overpayment may exist.

B. Accounting Statement and Table

    As required by OMB Circular A-4 (available at link http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), we have prepared an accounting 
statement. The entries in Table 2 reflect the application of a 7 
percent and 3 percent annualized rate to the high-end, primary, and 
low-end estimates referred to in section V. of this final rule. The 7 
and 3 percent figures were applied over a 10-year period beginning in 
2015, with the figures in the accounting statement reflecting the 
average annualized costs over this period.
    The accounting statement does not address the potential financial 
benefits of this final rule from the standpoint of its effectiveness in 
recouping overpayments. We do not have sufficient data on which to base 
a monetary estimate of recovered funds. We note that the only costs 
associated with this final rule for providers and suppliers involve the 
actual researching, reporting, and returning of overpayments. For 
purposes of our RIA estimates, we do not deem the actual refunded 
overpayment as a cost since it constitutes money to which the provider 
or supplier was not entitled.

                          Table 2--Accounting Statement: Estimated Costs Resulting From Reporting and Returning of Overpayments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Primary     Low  estimates       High
                        Category                           estimates (in       (in $       estimates (in   Year dollars    Discount rate      Period
                                                            $ millions)      millions)      $ millions)                         (%)           covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
    Resulting from reporting and returning of                    $161.16         $120.87         $201.45            2015               7  2015[dash]2024
     overpayments.......................................
                                                                  161.16          120.87          201.45            2015               3  2015[dash]2024
                                                         -----------------------------------------------------------------------------------------------
Who Is Affected.........................................  Providers and Suppliers.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Alternatives Considered

    In light of the statutory mandate in section 6402(a) of the 
Affordable Care Act, we did not consider any alternatives to the 
implementation of the proposed provisions. However, we contemplated 
several operational mechanisms to alleviate the burden on the provider 
and supplier communities.
    First, we proposed a new, unified form as part of the reporting and 
returning process in our proposed rule. However, the comments received 
indicated that this could cause needless additional burden. Instead, we 
elected to utilize existing processes for reporting and returning, 
including the voluntary refund process. This would allow providers and 
suppliers to use a reporting mechanism with which they are already 
familiar. After reviewing the

[[Page 7683]]

comments, we raised the burden to 6 hours for identifying and reporting 
and returning, but that is lower than if we had finalized our plan to 
develop a new singular form for reporting and returning.
    Second, we contemplated the appropriate length of time in which 
overpayments must be reported and returned. A time period of 10 years 
was proposed, as this is the outer limit of the FCA statute of 
limitations. We solicited comment on this issue, and as discussed at 
length in section II.C.3. of this final rule, we agreed with commenters 
that a period of 6 years was more appropriate and will reduce the 
burden imposed on providers and suppliers by this final rule compared 
to the longer proposed lookback period of 10 years.

D. Beneficiary Access

    We do not anticipate any impact on beneficiary access to care as a 
result of this rule. As noted previously, the only burden associated 
with our proposed provisions involves the ICR aspects of reporting and 
returning overpayments. We do not believe that this burden--which, in 
any event, would only affect a small percentage of providers and 
suppliers--would cause a particular provider or supplier to reduce the 
services it furnishes to beneficiaries.
    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by OMB.

List of Subjects

42 CFR Part 401

    Claims, Freedom of information, Health facilities, Medicare, 
Privacy.

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medical devices, Medicare, Reporting and 
recordkeeping requirements, Rural areas, X-rays.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 401--GENERAL ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 401 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1874(e) of the Social Security 
Act (42 U.S.C. 1302, 1395hh, and 1395w-5).


0
2. Part 401 is amended by adding subpart D to read as follows:
Subpart D--Reporting and Returning of Overpayments
Sec.
401.301 Basis and scope.
401.303 Definitions.
401.305 Requirements for reporting and returning of overpayments.

Subpart D--Reporting and Returning of Overpayments


Sec.  401.301  Basis and scope.

    This subpart sets forth the policies and procedures for reporting 
and returning overpayments to the Medicare program for providers and 
suppliers of services under Parts A and B of title XVIII of the Act as 
required by section 1128J(d) of the Act.


Sec.  401.303  Definitions.

    For purposes of this subpart--
    Medicare contractor means a Part A/Part B Medicare Administrative 
Contractor (A/B MAC) or a Durable Medical Equipment Medicare 
Administrative Contractor (DME MAC).
    Overpayment means any funds that a person has received or retained 
under title XVIII of the Act to which the person, after applicable 
reconciliation, is not entitled under such title.
    Person means a provider (as defined in Sec.  400.202 of this 
chapter) or a supplier (as defined in Sec.  400.202 of this chapter).


Sec.  401.305  Requirements for reporting and returning of 
overpayments.

    (a) General. (1) A person that has received an overpayment must 
report and return the overpayment in the form and manner set forth in 
this section.
    (2) 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.
    (b) Deadline for reporting and returning overpayments. (1) A person 
who has received an overpayment must report and return the overpayment 
by the later of either of the following:
    (i) The date which is 60 days after the date on which the 
overpayment was identified.
    (ii) The date any corresponding cost report is due, if applicable.
    (2) The deadline for returning overpayments will be suspended when 
the following occurs:
    (i) OIG acknowledges receipt of a submission to the OIG Self-
Disclosure Protocol and will remain suspended until such time as a 
settlement agreement is entered, the person withdraws from the OIG 
Self-Disclosure Protocol, or the person is removed from the OIG Self-
Disclosure Protocol.
    (ii) CMS acknowledges receipt of a submission to the CMS Voluntary 
Self-Referral Disclosure Protocol and will remain suspended until such 
time as a settlement agreement is entered, the person withdraws from 
the CMS Voluntary Self-Referral Disclosure Protocol, or the person is 
removed from the CMS Voluntary Self-Referral Disclosure Protocol.
    (iii) A person requests an extended repayment schedule as defined 
in Sec.  401.603 and will remain suspended until such time as CMS or 
one of its contractors rejects the extended repayment schedule request 
or the provider or supplier fails to comply with the terms of the 
extended repayment schedule.
    (c) Applicable reconciliation. (1) The applicable reconciliation 
occurs when a cost report is filed; and
    (2) In instances when the provider--
    (i) Receives more recent CMS information on the SSI ratio, the 
provider is not required to return any overpayment resulting from the 
updated information until the final reconciliation of the provider's 
cost report occurs; or
    (ii) Knows that an outlier reconciliation will be performed, the 
provider is not required to estimate the change in reimbursement and 
return the estimated overpayment until the final reconciliation of that 
cost report.
    (d) Reporting. (1) A person must use an applicable claims 
adjustment, credit balance, self-reported refund, or other reporting 
process set forth by the applicable Medicare contractor to report an 
overpayment, except as provided in paragraph (d)(2) of this section. If 
the person calculates the overpayment amount using a statistical 
sampling methodology, the person must describe the statistically valid 
sampling and extrapolation methodology in the report.
    (2) A person satisfies the reporting obligations of this section by 
making a disclosure under the OIG's Self-Disclosure Protocol or the CMS 
Voluntary Self-Referral Disclosure Protocol resulting in a settlement 
agreement using the process described in the respective protocol.
    (e) Enforcement. Any overpayment retained by a person after the 
deadline for reporting and returning the overpayment specified in 
paragraph (b) of this section is an obligation for purposes of 31 
U.S.C. 3729.
    (f) Lookback period. An overpayment must be reported and returned 
in accordance with this section if a person identifies the overpayment, 
as defined

[[Page 7684]]

in paragraph (a)(2) of this section, within 6 years of the date the 
overpayment was received.


Sec.  401.607  [Amended]

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3. In Sec.  401.607(c)(2)(i), the definition of ``Hardship'' is amended 
by removing the phrase ``outstanding overpayments (principal and 
interest)'' and adding in its place the phrase ``outstanding 
overpayments (principal and interest and including overpayments 
reported in accordance with Sec. Sec.  401.301 through 401.305)''.

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

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4. The authority citation for part 405 continues to read as follows:

    Authority: Secs. 205(a), 1102, 1861, 1862(a), 1869, 1871, 1874, 
1881, and 1886(k) of the Social Security Act (42 U.S.C. 405(a), 
1302, 1395x, 1395y(a), 1395ff, 1395hh, 1395kk, 1395rr and 
1395ww(k)), and sec. 353 of the Public Health Service Act (42 U.S.C. 
263a).


0
5. Section 405.980 is amended by adding paragraph (c)(4) to read as 
follows:


Sec.  405.980  Reopenings of initial determinations, redeterminations, 
reconsiderations, hearings, and reviews.

* * * * *
    (c) * * *
    (4) A party may request that a contractor reopen an initial 
determination for the purpose of reporting and returning an overpayment 
under Sec.  401.305 of this chapter.
* * * * *

    Dated: August 27, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Dated: February 5, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-02789 Filed 2-11-16; 8:45 am]
 BILLING CODE 4120-01-P