Refunding Overpayments: Two Options for Medical Practices

It is recommended that every physician practice perform regular self-audits to determine if it has received wrongful overpayments. Under Section 6402 of the Affordable Care Act, Medicare and Medicaid providers and suppliers are liable under the False Claims Act for failure to disclose and refund to Medicare or Medicaid any overpayments within 60 days after the date the overpayment is identified, or the date the next applicable cost report is due. The term “overpayments” is a bit of a misnomer, as it generally includes any amounts a provider has received to which it arguably is not entitled.

Proposed regulations regarding how providers should handle overpayments under Section 6402 were released in 2012 (the “CMS Policy”). However, many providers may not be aware there is an overlap between the CMS Policy and existing avenues for resolving overpayment liability under the Office of Inspector General (OIG) Self‐Disclosure Protocol (the “SDP”). Given the two potential approaches that exist to refund an overpayment, providers should be aware of the major differences before selecting a course of action.

The CMS Policy
The CMS Policy requires a provider to return any overpayment within 60 days of identifying the overpayment. It is generally understood that a provider is allowed to investigate and confirm that an overpayment has been made before the 60-day period begins to run, although there is still lack of clarity on this point. To follow the CMS Policy, the provider completes a form, states why the overpayment occurred, and sends a check for the full amount of the overpayment. Once received, the Medicare contractor accepts the refund and forwards it to CMS, which can then elect to refer the matter to the OIG to investigate potential legal violations.

The SDP approach
The SDP process is similar to the CMS Policy with two main differences. First, under the SDP, the provider must disclose the legal violation that occurred as a result of the overpayment. This means acknowledging, for example, that improper billing was a violation of the law (i.e. the False Claims Act).  Second, unlike the CMS Policy, the SDP does not require you to return overpayment at the time you disclose the legal violation. Instead, CMS will review the disclosure, investigate the matter, and then propose an amount to settle the overpayment, as well as any False Claims Act or other legal violations.

There are clear advantages and disadvantages of each approach to consider. Under the CMS Policy, the advantages are that you don’t have to admit that a legal violation occurred and you can return the funds up-front (which ideally could lead CMS to accept the overpayment refund and not further investigate). The refund process under this option is more streamlined and fairly quick. On the other hand, returning a full overpayment all at once may challenge some providers if the amount is significant and, of course, refunding the money does not prevent the OIG from finding a False Claims Act or other legal violation at a later time.

For many providers the SDP approach is more daunting. While no funds are returned to the government upfront, and there is a possibility of being able to settle all legal violations without the need to worry about further investigation related to the overpayment, many providers do not like the concept of admitting a legal violation has occurred, since “overpayments” can include situations and misunderstandings for which providers often believe they should not be penalized. Additionally, under this approach, fines and penalties are also likely to be included as part of the settlement, which can increase the costs involved.

It’s important for every practice to know its options when refunding an overpayment. For some providers, one method will clearly be preferable to another. Regardless of which tactic is taken, talking with legal counsel can help your medical practice better understand the risks involved and to select the refund approach that best suits the circumstances.