Observation Deck

A Tight Spot

How to approach the CGS/Noridian letter and the '60-Day Rule.'

Section 6402 of the Affordable Care Act states that any provider or supplier that receives an overpayment must (i) report to CMS and (ii) provide written notice of the reason for the overpayment. The overpayment must be reported and returned no later than 60 days after it is identified.

Failure to do so may result in civil monetary penalties under the Federal False Claims Act. In its previously published Final Rule, CMS provided guidance on the obligations of providers and suppliers to report and repay overpayments:

  • The Final Rule addressed the “lookback period.” This is the time period for which a DME supplier must examine its patient files for overpayment obligations. CMS originally proposed a 10 year lookback period. However, the Final Rule shortened the lookback period to six years.
  • The Final Rule stated that, as a general rule, a supplier will have six months to investigate possible overpayments before the 60 day clock starts running. Compare this to the initial Proposed Rule which said that the investigation should be conducted with “all deliberate speed.”
  • The Final Rule addressed what it means to “identify an overpayment.” According to the Final Rule, identification occurs when a supplier “has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.” The word “quantified” is significant. In including “quantified,” CMS responded to commentators who argued that an overpayment must be quantified before it can be reported and repaid. In the Final Rule, CMS stated: “We agree and have revised the language…..to clarify that part of identification is quantifying the amount, which requires a reasonably diligent investigation.” The “reasonable diligence” requirement differs from the initial Proposed Rule which stated that identification occurs when a supplier “has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”

Let’s focus on the third bullet: Under the Final Rule, a DME supplier will have identified an overpayment (i) if the supplier conclusively knows about it or (ii) if the supplier would have known about it by acting with “reasonable diligence.” Although “reasonable diligence” gives flexibility to CMS, CMS is unlikely to punish a good faith compliance effort. As stated in a recent court ruling involving the 60 day rule: “[E]nforcement actions aimed at well-intentioned health care providers working with reasonable haste to address erroneous overpayments … would be unlikely to succeed.” It is important to note that the 60 day rule requires “proactive compliance activities … to monitor for the receipt of overpayments.” Said another way, the provider must be proactive, not reactive. Lastly, the Final Rule stated that it is “certainly advisable” for suppliers to create a paper trail that serves as evidence of reasonable diligence.

The risk of violating the “60-Day Rule” and, hence, the risk of violating the False Claims Act, has just been ratcheted up. In June OIG released a report, “Most Medicare Claims for Replacement Positive Airway Pressure Device Supplies Did Not Comply With Medicare Requirements.” The report drew on previous OIG work that found that Medicare allowed replacement of positive airway pressure (PAP) device supplies more frequently than what is reasonable and necessary and that DME suppliers often do not have the documentation required to support the need for replacement supplies.

In preparing the report, OIG selected a statistical sample of 110 claims for replacement PAP device supplies that Medicare paid in 2014 and 2015. It reviewed the supporting documentation from the supplier to determine whether it complied with Medicare requirements. Of the 110 claims in the sample, 24 complied with Medicare requirements while 86 claims with payments totaling $13,414 did not. On the basis of the sample results, the OIG estimated that Medicare made payments of $631,272,181 for replacement PAP device supply claims that did not meet Medicare requirements.

According to the OIG, errors in these claims included:

  • Physicians’ orders were not in accordance with LCDs.
  • Replacement supplies were not reasonable or necessary. The supplier did not have a proper request for replacement supplies; it did not document continued need for PAP device therapy and supplies; or it dispensed more supplies than allowed.
  • Supplier had no proof of delivery.
  • Supplier did not respond to requests for documentation.

In the Report the OIG recommended that, among other steps, the Medicare contractors should notify 82 suppliers, associated with the 86 claims containing potential overpayments, and instruct the suppliers to exercise reasonable diligence to investigate and return any identified overpayments. The OIG further recommended that the contractors inform the suppliers that in accordance with the “60 Day Rule,” the suppliers should identify and return identified overpayments.

As a result of the Report, suppliers are now receiving notices from Noridian and CGS advising them to “review claims submitted related to replacement PAP device supplies to determine if overpayments exist within the six year lookback period.”

Noridian and CGS are encouraging suppliers to use statistical analysis to determine a valid sample that can be extrapolated into the universe to determine the claims to be reviewed versus a review of all claims billed in the last six years. Suppliers will have 180 days (six months) to conduct the review and identify any overpayments, and by statute, will have 60 days (two months) to report and return overpayments. In total, suppliers have 240 days from the date of the notification letter to complete the investigation, identify overpayments, and make the necessary arrangements with the MACs to refund.

What makes the Noridian and CGS letter ominous is that under the “60-Day Rule,” the letter sets up the supplier for potential liability under the False Claims Act. Assume that the supplier ignores the letter, the supplier does not respond, and the contractor audits the claims described in the letter; or (ii) the supplier does not audit its files but simply reports to the contractor that the claims are proper, and the contractor audits the claims described in the letter; or (iii) the supplier audits its files, the supplier reports to the contractor that the claims are proper, and the contractor audits the claims described in the letter. Assume that in any of these scenarios, the contractor concludes that all or some of the claims are improper. There is a risk that the contractor will turn its findings over to the OIG. If this occurs, then there is a risk that the OIG and the Department of Justice will instigate an investigation of the supplier under the False Claims Act.

The bottom line is that the supplier should take the CGS/Noridian letter seriously. The wisest course of action is for the supplier’s healthcare attorney to hire a consultant to conduct the audit. An experienced consultant will have the statisticians available to conduct a statistical analysis and determine a valid claims sample. The consultant will report to the attorney, and in turn, the attorney will report the findings back to the supplier. This way, the audit results will be protected by the attorney-client privilege. By following these steps, the supplier can control how and when to disclose the audit results.

The supplier should report its findings to the contractor. If the audit reveals that some claims should not have been paid, then the supplier should voluntarily repay those claims. Although the letter states that the supplier has six months to conduct its investigation and then has 60 days thereafter to voluntarily repay any overpayments, the wisest course of action is for the supplier to complete its investigation much sooner.

This column originally appeared in the Medtrade Monday newsletter from Medtrade.com. Jeff Baird, Esq. is the chairman of the Health Care Group for HME industry law firm Brown & Fortunato, P.C. Wayne van Halem is president and founder of audit consulting firm The van Halem Group LLC, a division of the VGM Group Inc. Both regularly write and speak for the industry, and both sit on the HME Business Editorial Advisory Board.

This article originally appeared in the November/December 2018 issue of HME Business.

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