CMS Finalizes Changes to the Medicare Parts A and B Overpayment Rule

In the Calendar Year 2025 Medicare Physician Fee Schedule, the Centers for Medicare & Medicaid Services (CMS) finalized changes to the Medicare Parts A and B Overpayment Rule that were proposed in two prior rulemakings. This alert provides a summary of the key changes that will impact how healthcare providers and suppliers assess potential overpayment scenarios, conduct internal investigations, and plan for appropriate refunds.

Alignment with the False Claims Act

The definition of "knowing" and "knowingly" in the regulation has been aligned with the Federal False Claims Act standard. This means that an overpayment is identified if a provider or supplier has actual knowledge, acts in deliberate ignorance, or acts in reckless disregard of the overpayment. Previously the regulation stated that a provider or supplier identified an overpayment when the provider or supplier determined, or should have determined through the exercise of reasonable diligence, that the provider or supplier received an overpayment and quantified the amount of the overpayment.

Some commenters expressed concern that adopting the False Claims Act scienter standard would expose providers and suppliers to additional risks under that law. CMS responded by emphasizing that aligning the Overpayment Rule with the False Claims Act scienter standard is consistent with the enabling statute and case law in the context of the Medicare Parts C and D Overpayment Rule. Additionally, CMS stated that the False Claims Act legal framework is well established and supported by existing case law. However, False Claims Act case law is complex and evolving, and we recommend that providers and suppliers review each potential overpayment scenario closely to determine whether they have an obligation to report and refund overpayments based on the statute and updated regulations.

Deadline for Reporting and Returning Overpayments

The enabling statute requires providers and suppliers to report and return overpayments within 60 days of identification. In this final rule, CMS updated the implementing regulation to provide that if related overpayments are suspected, the deadline for reporting and returning the initial identified overpayment can be suspended for up to 180 days to allow for a good-faith investigation and a combined refund. The six-month suspension of the refund deadline addresses concerns raised by commenters that eliminating the "reasonable diligence" and quantification standard that has been part of the regulation since the initial final rule went into effect in 2016 would potentially require providers and suppliers to submit multiple refunds based on related compliance issues and would eliminate flexibility established in previous rulemaking commentary indicating that overpayments are not identified until they are quantified.

The updated regulation will for the first time recognize that the deadline for reporting and returning is suspended during good-faith investigations. However, unlike the 2016 rulemaking, the accompanying preamble language is silent about whether complex factual and legal analyses may result in longer investigation periods without exposing the provider or supplier to False Claims Act liability. It is reasonable to expect, however, that in complex situations like investigations of potential violations of the Physician Self-Referral Law, overpayments will not be "identified" and, therefore, the initial obligation to report and return overpayments will not be triggered until the investigation has been underway for several weeks or even months. CMS recognized this reality by stating "[i]n cases where a provider or supplier is actively investigating a potential overpayment, the 60-day period for reporting and returning the overpayment begins when the provider or supplier has actual knowledge of the overpayment." Providers and suppliers should consider keeping contemporaneous notes of the investigation process to track when exactly noncompliance has been identified such that the six-month investigation period for related overpayments is triggered.

Obligation To Investigate Potential or Related Overpayments

Additionally, the final rule commentary softly backtracks on concerning statements in the 2016 rulemaking indicating that the "reasonable diligence" standard required providers and suppliers to investigate credible information of a potential overpayment. In the final rule, CMS recognized that the regulation itself does not require proactive compliance activities or investigations of potential overpayments. Instead, providers and suppliers should consider whether the scienter standard in the False Claims Act, which includes acting in deliberate ignorance or reckless disregard of the truth or falsity of information, suggests that additional overpayments may exist warranting an investigation and refund (if appropriate) to avoid False Claims Act liability. CMS emphasized that the obligation to investigate is fact-specific. Providers are not strictly required to complete investigations of potential related overpayments within the six-month period that the report and refund deadline is suspended so long as the initial overpayment is timely reported and refunded.

Takeaways

We expect that these changes will make the investigation and refunding of potential overpayments more straightforward in practice. It remains crucial to have systems in place to quickly identify and address overpayments to avoid potential liability under the False Claims Act. Our team advises health systems and other providers and suppliers on overpayment investigations regularly and is available to assist you in understanding these changes and implementing effective strategies to ensure compliance. Please contact Darby Allen if you have any questions.