Medicare Overpayments: Report and Don’t Repay Is One (Risky) Option

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By Eric Topor

Is it ever OK to report a potential overpayment to the Medicare program but not repay the money? Two attorneys from Morgan, Lewis & Bockius LLP say it is, under certain circumstances, but several other health-care attorneys underscore the risks a provider runs in pursuing this unconventional legal strategy.

Repayment of Medicare reimbursements under the 60-day repayment rule (RIN 0938-AQ58, CMS-6037-F) can be a bitter pill to swallow for providers who believe they furnished legitimate medical services to Medicare beneficiaries, but failed to comply with minor regulations imposed by the Centers for Medicare & Medicaid Services. The final rule was released in February 2016 with an effective date of March 23, 2016, but it has a look-back provision that requires providers to return overpayments occurring up to six years before their discovery.

Andrew Ruskin and Zane D. Memeger, both partners with Morgan Lewis, say in an article that repayment of a potential overpayment isn’t always necessary under the 60-day rule, however.

The 60-day rule’s statutory authority was part of the Affordable Care Act, and generally requires a health-care provider to return an identified overpayment within 60 days. Recent court precedent has attached False Claims Act liability to providers who failed to do so. An overpayment identified by a Medicare provider becomes an “obligation” as defined by the False Claims Act, and failure to repay the money within 60 days can result in FCA liability if the provider “knowingly conceals or knowingly and improperly avoids” repayment of that obligation. FCA liability brings with it the possibility of monetary damages up to triple the amount of the claim, and additional per-claim penalties.

So when would a provider risk the significant financial hit of FCA liability, including litigation that frequently lasts years before a resolution? A provider’s “technical noncompliance” with a regulation that doesn’t impact the quality of service provided to the patient or the government shouldn’t always result in the “penalty” of repayment, the authors said in their article.

Providers have to ask themselves if they honestly delivered “the value that the patient and the government were expecting,” regardless of a failure to meet a particular regulatory requirement, Ruskin told Bloomberg BNA. In instances where repayment of a potential overpayment is a “Draconian measure for the noncompliance at issue, then retention of the repayment would not be ‘improper,’” the Ruskin-Memeger article said.

Managing FCA Liability

In such instances, Ruskin and Memeger say that a provider may consider reporting the potential overpayment to the CMS, but not repaying the claim. Providers, and their counsel, can consider walking down this path when: the patient received valuable services despite the regulatory noncompliance; the provider is confronted with numerous or redundant requirements; or when the provider knows that the requirement is regularly ignored by others in the industry.

Ruskin and Memeger give two examples of when technical noncompliance with a regulation doesn’t impact patient care, and shouldn’t result in repayment of the claim: failure of a provider-based clinic to issue a notice of co-insurance liability and a missing physician signature on certain medical record notes for rehabilitation units. Memeger and Ruskin said these situations are arguably overpayments requiring the provider to repay the claim under the 60-day rule, but not repaying them doesn’t have to result in FCA liability.

While not repaying a reported overpayment does result in the provider incurring an “obligation,” liability under FCA requires more than simply an obligation to repay a claim, Ruskin said. The regulatory noncompliance at issue must be material to the government’s decision to pay the claim (under the U.S. Supreme Court’s 2016 decision in Universal Health Servs., Inc. v. United States ex rel. Escobar), and the provider must have demonstrated intent to defraud the government (the knowing and improper retention of the overpayment).

If a particular regulation isn’t material to the government, then why even bother reporting the claim as a potential overpayment at all? Which regulatory requirements the government considers material “is not always clear cut,” said Ruskin, so choosing not to report regulatory noncompliance that a provider believes isn’t material “is basically a way to pick a fight with the government.”

A provider that reports technical noncompliance while choosing not to repay the claim within the 60-day rule timeline is protected from FCA liability because by reporting the potential overpayment it has eliminated any knowing concealment from the government, and therefore doesn’t satisfy the FCA’s knowledge element, Ruskin said. Once the provider has disclosed the potential overpayment, the government can then seek recoupment of the overpayment if it believes that repayment is necessary, Ruskin added.

Aggressive Interpretations, Significant Risk

Attorney Joseph D. Glazer, principal in the Law Office of Joseph D. Glazer PC in Princeton, N.J., told Bloomberg BNA that the report-don’t-repay approach “may come with significant risk to providers and their counsel.” Glazer, whose practice focuses on hospital law issues, said the “more aggressive interpretation” advocated by Memeger and Ruskin isn’t necessarily wrong, but “it seems prudent to approach the overpayment reporting and repayment requirements conservatively.”

David O’Brien, a partner with Crowell & Moring LLP in Washington, told Bloomberg BNA that reporting a potential overpayment but not repaying it within 60 days is a very risky approach. O’Brien, who focuses his practice on complex civil litigation, said a less risky course of action might be to decide that there hasn’t been any overpayment irrespective of a regulatory violation, and not report it to the CMS.

“I don’t have a quarrel with taking the position that not every regulatory violation results in an overpayment,” O’Brien said. O’Brien also raised the possibility that a provider might report a failure to comply with a particular regulation, rather that reporting an overpayment, which may not trigger the 60-day rule at all.

But he added that once a provider characterizes something as an overpayment and reports it to the CMS, “I just don’t see how you get around not having to return it.”

Improper Avoidance From Retention

O’Brien departed from Ruskin’s interpretation of the “improper avoidance” provision of the FCA. O’Brien didn’t think the government would come to the same conclusion as Ruskin that improper avoidance of an obligation to repay the government does not arise where adequate value was provided to the patient and the government and returning the money would be unfair to the provider.

“The government would likely take the position that retention of the overpayment under those circumstances is improper,” O’Brien said. Glazer said he would be “hesitant” to advise a provider to state unfairness as a reason for retaining a disclosed overpayment, as the provider “runs the very real risk that the government disagrees” and exposes the provider to FCA liability.

However, Ruskin said he has counseled provider clients to pursue this precise strategy when justifiable, and hasn’t received any blowback from the HHS or the DOJ in terms of FCA liability, or had clients subjected to recoupment actions.

Possible CMP Liability?

Robert Roth, managing partner with Hooper Lundy & Bookman PC in Washington, said a provider could still be exposed to civil monetary penalties (CMPs) for reporting and not repaying Medicare overpayments even if FCA liability can be effectively managed. Roth, a Bloomberg BNA advisory board member, concentrates his practice on Medicare payment issues, and said the CMP statute requires “both reporting and returning” of identified overpayments.

Ruskin said the lack of intent to defraud the government should protect the withholding provider under the CMP statute as well, as “there is always a scienter requirement,” or the requisite mental state needed to commit fraud, for each prong of the statute. However, Ruskin granted that a provider would have to consider its specific factual situation with respect to CMP liability.

Both O’Brien and Glazer agreed that a provider who doesn’t repay a reported overpayment must grapple with potential CMP liability. O’Brien said some CMP provisions “track the language” of the FCA, and liability under one statute would result in liability under the other.

Glazer and O’Brien raised additional concerns about the report-and-don’t-repay strategy. Glazer said the approach could result in greater scrutiny of the provider, even if the Medicare claim is never recouped. O’Brien said a provider risks the “ticking time bomb” of a whistle-blower lawsuit as well, if an employee thinks the provider is violating the FCA.

Alternate Provider Strategies

A provider has options aside from full repayment of Medicare claims that may be deemed overpayments, for which a provider may find full repayment unjust due to the valuable services provided.

Roth said a provider might return less than the full claim amount to Medicare with an explanation of why limiting the claim’s time period is warranted, might decline to perform extrapolation, or might argue that the overpayment only relates to one part of the claim. "[T]he basis for the lack of further refund is the provider’s disclosed interpretation of what constitutes an overpayment,” Roth said, not that the repayment would be “unfair” to the provider.

A provider could follow Ruskin and Memeger’s strategy temporarily, said Glazer, by disclosing an overpayment quickly and “attempt[ing] to resolve the matter with the [Medicare Administrative Contractor] or [the Centers for Medicare & Medicaid Services]” prior to repayment. However, Glazer acknowledged that receiving quick responses from the CMS or the MAC “might be difficult,” before the 60-day period transpires.

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Peyton Sturges at psturges@bna.com

For More Information

The Morgan, Lewis & Bockius article is at http://src.bna.com/pgO.

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