One provision in the American Taxpayer Relief Act of 2012, perhaps better known as the “fiscal cliff” bill, received little attention in the press but will have a major impact on healthcare organizations. It extends the time limit on contractors recovering overpayments, and presumably the time limit for making refunds as well. 

Since its inception, the Medicare law has waived recovery of overpayments when the recipient of an overpayment is deemed to be “without fault.” The law includes a provision indicating that a recipient is considered “without fault” after the passage of the time limit, which previously was listed as “three years after the year in which payment was made” Yet the new bill increases this time limit to five years after the year in which payment was made.

The law always has been somewhat challenging to decipher because the aforementioned provision is based on the calendar year in which payment was made, not when a service was performed or billed. The law operates very oddly, using calendar years after the year in which the payment was made. For example, imagine that a service was performed on Dec. 1, 2009, and payment was received on Jan. 7, 2010. Under the old law, the presumption that a healthcare organization was “without fault” (that is, that any overpayment must be waived) would have become effective on Jan. 1, 2014: in other words, three years after the year 2010. Since payment was made in 2010, the law indicated that contractors could recover funds in any of the three years immediately following 2010, or anytime in 2011, 2012 or 2013. Now, however, the same presumption does not apply until Jan. 1, 2016, five full calendar years after the year in which payment was made. If the payment had been received just a few days earlier, on Dec. 31, 2009, for example, the recovery period would be shortened by a whole year. 

Redefining Five Years

Many people will refer to the new time limit as “five years.” It is important to emphasize, however, that it is not five years, but five years after the year in which payment was made. For claims paid on Jan. 1 of any given year, this means that recovery is possible for six years, that claims paid on July 1 can be recovered for 5.5 years, and that claims paid on Dec. 31 actually have a true five-year limit. This may sound crazy, but it is how the statute is worded. 

Medicare manuals have instructions that Medicare Administrative Contractors (MACs) only may reopen claims for 48 months after the date of an initial determination unless there is evidence of “fraud or similar fault” (See the Financial Management Manual, CMS Pub. 100-06, Chapter 3, Overpayments, §§170.2). Because the 48-month test is much easier to administer, and because it generally yields a result similar to “three years after the year in which payment was made” test, many lawyers have advised clients to use 48 months as a lookback period for refunds (that 48-month period actually is more favorable to the government than the law allowed, but was much easier to implement).

The new bill suggests that this advice now may be outdated. First, there is some question as to whether the manual language remains valid. I believe that unless the manual is changed, MACs still will be prevented from reopening claims after 48 months. However, that does not definitively answer the question of under what circumstances an overpayment exists. For example, RACs only may recover an overpayment for services dating back three fiscal years; MACs, on the other hand, have had the authority to recover overpayments dating back further back in time. It is possible that the 48-month window still prevents a MAC from reopening a claim, but it may not eliminate the duty to refund overpayments over a longer period. 

Voluntary Refunds: Challenges Await

That brings us to one of the most difficult issues: determining how to apply this change to voluntary refunds. There is a statutory obligation for providers to refund all Medicare and Medicaid overpayments within 60 days of the identification of an overpayment. If the new time frame for that calculation is really “five years after the year in which payment was made,” then medical organizations have a major challenge ahead. Many organizations might struggle to develop data on six-year-old claims. Even when there is data dating back that far, determining the date on which a claim was paid (not provided or billed, but paid) can be particularly challenging. Many providers will not have the relevant payment data readily attached to the claim in an easily searchable form in their computer system.

Given the manual language, there is still an argument to be made that the 48-month window is proper for overpayment refunds. But the strength of that argument is very much in question. In the coming weeks there will be much discussion about the proper lookback period for voluntary refunds.  The key point is that the legal framework is far less clear than it was just a few days ago, and the government clearly is seeking the authority to recover payments tied to even older claims than before.

Recent Refunds Reconsidered?

One glaring question raised by the new bill’s provision is how it applies to refunds made during the last few years. The bill’s effective date is immediate. This raises a question as to whether refunds made last week, last year, or even in 2011 need to be reconsidered with this new time frame in mind. A general principle is that laws are not applied retroactively unless a new law explicitly states otherwise. This provides a strong argument that there is no need to reconsider past refunds. However, the government can argue that the new law doesn’t have any impact on past refunds, but does impact what can be considered an overpayment right now. Under this argument, as of today any improper payment issued in the last five calendar years constitutes an overpayment and must be refunded within 60 days of identification. If you have made any refunds in the last two years for which you relied on a time limit to cut off the refund, this is an issue to consider carefully with competent counsel.

Finally, you may recall that CMS last year issued proposed rules outlining the recovery of overpayments. While those rules only were proposed and have no legal effect, CMS did also propose a 10-year recovery period. If this proposed rule is ever finalized, it is unclear how this new statutory provision might affect it. The new bill, however, suggests that CMS has settled on five years after the year in which a payment was made as the proper time frame for recovering overpayments.

About the Author

David M. Glaser, Esq., is a shareholder in Fredrikson & Byron Health Law Group and helped establish its Health Care Fraud & Compliance Group. David helps healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal, and civil fraud investigations, and reimbursement disputes.

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