Fiscal Cliff Legislation Expands Potential Overpayment Liability

In a largely unnoticed provision attached to the so-called fiscal cliff bill, Section 638 of the American Taxpayer Relief Act of 2012 (“the Act”) adds two years to the period during which providers remain potentially liable for overpayment recovery, even in the absence of fraud. This provision’s impact on providers and others in the health care industry may not have been fully apparent because these significant changes were enacted through a brief amendment to Section 1870 of the Social Security Act. However, this amendment could have a very significant impact on providers given that the Congressional Budget Office has estimated the change will save the federal government $500 million over ten years by permitting the collection of overpayments previously not subject to recovery.

Background

Section 1870(b) of the Social Security Act, 42 U.S.C. §1395gg, (“Sec. 1870”) generally limits overpayment liability for providers who are determined to be “without fault.” Prior to its amendment, the statute deemed providers to be “without fault” and therefore not liable for an overpayment if the determination of the overpayment was made more than three years following the year in which notice of payment was sent. Section 638 of the Act (“the without fault amendment”) significantly expands the period during which providers remain liable for overpayment recovery from three years to five years.

It appears that the amendment was prompted by a May 2012 Department of Health and Human Services Office of Inspector General (“the OIG”) Report examining the Medicare Program’s success rate in collecting overpayments identified by the OIG.¹ The Report found that of more than $400 million in overpayments identified by the OIG over a 30 month period, the Medicare Program did not collect approximately $332 million. The OIG identified the statutory “without fault” provision as one of the barriers to collecting these overpayments. Specifically, the report noted that the Medicare reopening rule at 42 C.F.R. §405.980 permits contractors to reopen claims for good cause for up to four years after the initial payment determination (“the reopening period”), but Sec. 1870 generally limited recovery to three years after the year in which payment was made (“the recovery period”). As a result, the OIG recommended that the Centers for Medicare and Medicaid Services (“CMS”) should pursue legislation to ensure that the recovery period would exceed the reopening period. Congress has now adopted the OIG’s recommendation and amended Sec. 1870 accordingly.

Potential Implications

Nevertheless, it is important to recognize that Congress did not alter the Medicare reopening rules. Although the overpayment recovery period has now been extended to five years, absent fraud or similar fault, contractors still generally have just four years to reopen and adjust paid claims. Moreover, other statutory provisions, including section 1879 of the Social Security Act, remain unchanged and also may limit liability for providers and suppliers who are “without fault” in certain circumstances.

The new amendment to Sec. 1870 may have other significant implications as well. The Affordable Care Act enacted a requirement that providers and others must report and return an overpayment within sixty days after its identification.² However, the law did not specify the appropriate “look-back” period for overpayment return. CMS proposed regulations in February 2012 that would have imposed a ten year look-back period, but these regulations were heavily criticized and have not been finalized. As a result, providers have relied on other regulations, such as the claims reopening and without fault rules, to determine the appropriate look-back period for overpayment returns. It remains to be seen whether and how this new amendment to the without fault statute will impact overpayment returns.

Conclusion

As a result of the complex (and frequently confusing) interactions among the various statutes and regulations governing reopening, recovery and reporting periods, providers and suppliers should consult with experienced legal counsel before disclosing or agreeing to any repayment obligation.

For more information on the impact of this provision or any other provision contained in the Act, please contact the authors or any member of the Arent Fox Health Care Group or Government Relations Group.

¹ Department of Health and Human Services Office of Inspector General, “Obstacles to Collection of Millions in Medicare Overpayments,” A-04-10-03059 (May 2012) (“the Report”).

² Patient Protection and Affordable Care Act §6402(d), Pub. L. No. 111-148, 124 Stat. 119 (2010); 42 U.S.C. 1320a-7k(d).