Coders Beware: Newly Updated Overpayment Refund Rule

The Centers for Medicare & Medicaid Services (CMS) have issued the display copy of the Final Rule interpreting the 60-day Refund Rule for Medicare Parts A/B (Traditional Medicare) and C/D (Medicare Advantage, or MA, and the Prescription Drug Plans) established by the Patient Protection and Affordable Care Act.

The Final Rule became effective as of Jan. 1, 2025. The 60-day Refund Rule is included as part of the 3,000+-page 2025 Physician Fee Schedule Final Rule. 

The federal Overpayment Statute requires any person who receives or retains Medicare or Medicaid funds to which they are entitled to report and return any overpayment to the appropriate government official or contractor within 60 days after “identification” of the overpayment, per Section 1128J(d) of the Social Security Act, 42 U.S.C. § 1320a-7k(d).

Failure to report and return an “identified” overpayment in a timely manner could create a false claim situation subject to the False Claims Act (FCA). The False Claims Act, among other things, addresses individuals who knowingly conceal or avoid an obligation to pay or refund money to the federal government.

Published in the Final Rule for the Medicare Physician Fee Schedule for the 2025 calendar year (CY), CMS has aligned the term “identified” with the FCA’s “knowledge/knowingly” terminology.

The CMS definition now is: “A person has identified an overpayment when the person knowingly receives or retains an overpayment.” The statute itself does not define what it means to “identify” an overpayment, but rather cross-references the concept with other legislation, which may make this regulation an opportunity for a Loper Bright v. Raimondo (the dismissed “Chevron Deference”) litigation challenge.

Previously, CMS allowed providers time to quantify the overpayment before recognizing it as “identified.” That’s gone.

CMS states that once the overpayment is identified, the provider has 60 days to report and return it “even if…the precise amount of the overpayment” hasn’t be calculated.

CMS has also incorporated a 180-day period to allow providers to investigate and identify any other overpayments that may have occurred for the same reason as the first identified overpayment.

The “initially identified overpayment and related overpayments” do not have to be reported until the earlier of:

1. The date that the investigation of related overpayments has concluded, and the aggregate amount of the initially identified overpayments and related overpayments is calculated; or

2. The date that is 180 days after the date on which the initial identified overpayment was identified.

So, essentially, if no “good-faith” investigation occurs, the overpayment is due within 60 days. The provider also becomes liable for failing to investigate if any additional related overpayments had occurred.

If a “good-faith” investigation occurs, then the 60-day clock is stopped, but by day 180, it turns back on, and the provider must complete the investigation and submit the overpayments within the 180 days plus the difference between the days from 1-60 that lapsed before the investigation started. It’s best if the provider starts the investigation ASAP, and be certain to record your actions. There are examples of the investigation and refund timetables in the Final Rule.

According to Foley, regulations detailing the Parts A/B Overpayment Refund Rules can be found in 42 C.F.R. Part 401, Subpart D. Regulations addressing Parts C/D are at 42 C.F.R. §§ 422.326(c) and 423.360(c) respectively, effective Jan. 1, 2025.

Holland & Knight’s healthcare attorneys hypothesize that if the investigation takes more than the 180 days or even 240 days (180+60) until overpayments were identified after the original deadline could be identified, it could be construed as a knowingly concealed overpayment, because in CMS’s opinion, it should have been identified during the 180-day investigation. Holland & Knight suggests that providers in this situation notify the governmental contractor that the investigation is ongoing and note that overpayments will continue to be reported and returned upon identification.

Other tips:

• Update overpayment policies to align with the new rule;

• Maintain thorough and dated documentation as the investigation progresses;

• Demonstrate allocating sufficient resources to the investigation, including adequate, knowledgeable staff with the ability to investigate the area, and use proper analytical tools;
• Ensure the presence of plans and demonstration of internal communications and coordination among departments;
• Put together a small, trusted team with the necessary expertise to handle the investigation. Ensure that team members are cross trained to handle multiple aspects of the investigation.

A single member of the team, preferably legal counsel, should provide project management to consistently move the investigation forward and document results;

• Implement corrective action and document what was done and when;

• Consider making partial or staged refunds while the investigation is ongoing;

• Ensure the corrective action resolved the situation; and

• Encourage staff to speak up if they see anything that looks like an overpayment.

Patient Financial Services needs to proactively lead the identification process and collaborate with the Compliance Officer or Legal Counsel in a timely fashion to ensure that refunds are made in accordance with the new rule.