7654 Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Rules and Regulations 

1https://www.cms.gov/Outreach-and-Education/

Medicare-Learning-Network-MLN/MLNProducts/

MLN-Publications-Items/CMS1243389.html. 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 401 and 405 

[CMS–6037–F] 

RIN 0938–AQ58 

Medicare Program; Reporting and 

Returning of Overpayments 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule requires 

providers and suppliers receiving funds 

under the Medicare program to report 

and return overpayments by the later of 

the date that is 60 days after the date on 

which the overpayment was identified; 

or the date any corresponding cost 

report is due, if applicable. The 

requirements in this rule are meant to 

ensure compliance with applicable 

statutes, promote the furnishing of high 

quality care, and to protect the Medicare 

Trust Funds against fraud and improper 

payments. This rule provides needed 

clarity and consistency in the reporting 

and returning of self-identified 

overpayments. 

DATES: These regulations are effective 

on March 14, 2016. 

FOR FURTHER INFORMATION CONTACT: Joe 

Strazzire, (410) 786–2775. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

On March 23, 2010, the Affordable 

Care Act was enacted. Section 6402(a) of 

the Affordable Care Act established a 

new section 1128J(d) of the Social 

Security Act (the Act). Section 

1128J(d)(1) of the Act requires a person 

who has received an overpayment to 

report and return the overpayment to 

the Secretary, the state, an intermediary, 

a carrier, or a contractor, as appropriate, 

at the correct address, and to notify the 

Secretary, state, intermediary, carrier or 

contractor to whom the overpayment 

was returned in writing of the reason for 

the overpayment. Section 1128J(d)(2) of 

the Act requires that an overpayment be 

reported and returned by the later of— 

(A) the date which is 60 days after the 

date on which the overpayment was 

identified; or (B) the date any 

corresponding cost report is due, if 

applicable. Section 1128J(d)(3) of the 

Act specifies that any overpayment 

retained by a person after the deadline 

for reporting and returning an 

overpayment is an obligation (as defined 

in 31 U.S.C. 3729(b)(3)) for purposes of 

31 U.S.C. 3729. 

The requirements in this rule are 

meant to ensure compliance with 

applicable statutes, promote the 

furnishing of high quality care, and to 

protect the Medicare Trust Funds 

against fraud and improper payments. 

This rule provides needed clarity and 

consistency in the reporting and 

returning of self-identified 

overpayments. However, even without 

this final rule, providers and suppliers 

are subject to the statutory requirements 

found in section 1128J(d) of the Act and 

could face potential False Claims Act 

(FCA) liability, Civil Monetary Penalties 

Law (CMPL) liability, and exclusion 

from federal health care programs for 

failure to report and return an 

overpayment. Additionally, providers 

and suppliers continue to be required to 

comply with our current procedures 1

when we, or our contractors, determine 

an overpayment and issue a demand 

letter. 

2. Summary of the Major Provisions 

a. Meaning of Identification 

Section 1128J(d) of the Act provides 

that an overpayment must be reported 

and returned by the later of—(i) the date 

which is 60 days after the date on which 

the overpayment was identified; or (ii) 

the date any corresponding cost report 

is due, if applicable. This final rule 

states that a person has identified an 

overpayment when the person 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. Creating this standard for 

identification provides needed clarity 

and consistency for providers and 

suppliers on the actions they need to 

take to comply with requirements for 

reporting and returning of self-identified 

overpayments. 

b. Lookback Period 

This final rule states that 

overpayments must be reported and 

returned only if a person identifies the 

overpayment within 6 years of the date 

the overpayment was received. Creating 

this limitation for how far back a 

provider or supplier must look when 

identifying an overpayment is necessary 

in order to avoid imposing unreasonable 

additional burden or cost on providers 

and suppliers. 

c. How to Report and Return 

Overpayments 

This final rule states that providers 

and suppliers must use an applicable 

claims adjustment, credit balance, selfreported refund, or another appropriate 

process to satisfy the obligation to report 

and return overpayments. This position 

preserves our existing processes and 

preserves our ability to modify these 

processes or create new processes in the 

future. 

3. Summary of Costs and Benefits 

This final rule states that a provider 

or supplier must (1) report and return an 

overpayment to the Secretary, the state, 

an intermediary, a carrier or a contractor 

to the correct address by the later of 60 

days after the overpayment was 

identified or the date the corresponding 

cost report is due, and (2) notify the 

Secretary, the state, an intermediary, a 

carrier, or a contractor in writing of the 

reason for the overpayment. The costs 

associated with these requirements are 

the time and effort necessary for 

providers and suppliers to identify, 

report, and return overpayments in the 

manner described in this rule. We 

project an annual cost burden of 

between $120.87 million and $201.45 

million. The former represents our lowend estimate, while the latter is our 

high-end estimate. Our primary, or midrange, projection is an estimate of 

$161.16 million. 

The requirements in this final rule are 

meant to ensure compliance with 

applicable statutes, promote the 

furnishing of high quality care, and to 

protect the Medicare Trust Funds 

against fraud and improper payments. 

The potential financial benefits of this 

final rule from the standpoint of its 

effectiveness in recouping 

overpayments are not easily 

quantifiable, as we do not have 

sufficient data on which to base a 

monetary estimate of recovered funds. 

B. Background 

The Medicare program (title XVIII of 

the Act) is the primary payer of health 

care for approximately 50 million 

enrolled beneficiaries. Providers and 

suppliers furnishing Medicare items and 

services must comply with the Medicare 

requirements set forth in the Act and in 

CMS regulations. The requirements are 

meant to ensure compliance with 

applicable statutes, promote the 

furnishing of high quality care, and to 

protect the Medicare Trust Funds 

against fraud and improper payments. 

As part of our efforts to reduce fraud, 

waste, and abuse in the Medicare 

program, we twice proposed, but did 


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not finalize, rules that would have 

amended our regulations to codify the 

longstanding responsibility of persons 

to report and return Medicare 

overpayments. (See the March 25, 1998 

(63 FR 14506) and January 25, 2002 (67 

FR 3662) proposed rules.) 

On March 23, 2010, the Affordable 

Care Act was enacted. Section 6402(a) of 

the Affordable Care Act established a 

new section 1128J(d) of the Act. Section 

1128J(d)(1) of the Act requires a person 

who has received an overpayment to 

report and return the overpayment to 

the Secretary, the state, an intermediary, 

a carrier, or a contractor, as appropriate, 

at the correct address, and to notify the 

Secretary, state, intermediary, carrier or 

contractor to whom the overpayment 

was returned in writing of the reason for 

the overpayment. Section 1128J(d)(2) of 

the Act requires that an overpayment be 

reported and returned by the later of— 

(A) the date which is 60 days after the 

date on which the overpayment was 

identified; or (B) the date any 

corresponding cost report is due, if 

applicable. Section 1128J(d)(3) of the 

Act specifies that any overpayment 

retained by a person after the deadline 

for reporting and returning an 

overpayment is an obligation (as defined 

in 31 U.S.C. 3729(b)(3)) for purposes of 

31 U.S.C. 3729. 

Section 1128J(d)(4)(A) of the Act 

defines ‘‘knowing’’ and ‘‘knowingly’’ as 

those terms are defined in 31 U.S.C. 

3729(b). In that statute the terms 

‘‘knowing’’ and ‘‘knowingly’’ mean that 

a person with respect to information— 

(i) has actual knowledge of the 

information; (ii) acts in deliberate 

ignorance of the truth or falsity of the 

information; or (iii) acts in reckless 

disregard of the truth or falsity of the 

information. 31 U.S.C. 3729(b) also 

states that knowing and knowingly do 

not require proof of specific intent to 

defraud. Section 1128J(d)(4)(B) of the 

Act defines the term ‘‘overpayment’’ as 

any funds that a person receives or 

retains under title XVIII or XIX to which 

the person, after applicable 

reconciliation, is not entitled under 

such title. Lastly, section 1128J(d)(4)(C) 

of the Act defines the term ‘‘person’’ as 

a provider of services, supplier, 

Medicaid managed care organization 

(MCO) (as defined in section 

1903(m)(1)(A) of the Act), Medicare 

Advantage (MA) organization (as 

defined in section 1859(a)(1) of the Act) 

or prescription drug plan (PDP) sponsor 

(as defined in section 1860D–41(a)(13) 

of the Act). Section 1128J(d)(4)(C) of the 

Act excludes beneficiaries from the 

definition of person. 

In the February 16, 2012 Federal 

Register (77 FR 9179), we published a 

proposed rule that would implement the 

provisions of section 1128J(d) of the 

Act. 

II. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

To implement section 1128J(d) of the 

Act, we proposed to establish a new 

subpart D in part 401 of our regulations, 

to revise § 401.607, and to add sections 

to part 405 of our regulations. In 

response to the February 16, 2012 

proposed rule, we received 

approximately 200 timely pieces of 

correspondence. In this section of this 

final rule, we summarize our proposals, 

respond to the public comments 

received, and detail the changes made to 

our proposals. 

Many commenters stated their 

support for many provisions and goals 

of the proposed rule. Commenters 

generally agreed that providers and 

suppliers should promptly refund 

overpayments and maintain efforts to 

prevent and detect improper payments. 

While these commenters also suggested 

changes to certain provisions of the 

proposed rule, commenters stated that 

many of the proposed rule’s 

requirements were reasonable. Some 

commenters stated they were pleased 

that CMS issued the proposed rule and 

believed it would motivate providers 

and suppliers to educate billing staff 

and practitioners on Medicare billing 

rules. These commenters stated they 

were hopeful that the rule would reduce 

improper payments and would help 

ensure the viability of the Medicare 

Trust Funds. Overall, we appreciate the 

comments expressing support for as 

well as the comments suggesting 

changes to the proposed rule. 

A. Scope of Subpart (Proposed 

§ 401.301) 

In proposed § 401.301, we stated that 

subpart D sets forth the policies and 

procedures for reporting and returning 

overpayments to the Medicare program 

for providers and suppliers of services 

under Parts A and B of title XVIII. We 

proposed to implement the 

requirements set forth in section 

1128J(d) of the Act only as they relate 

to Medicare Part A and Part B providers 

and suppliers. Other stakeholders, 

including, without limitation, MA 

organizations, PDPs, and Medicaid 

MCOs would be addressed in future 

rulemaking. Since then, in the May 23, 

2014 Federal Register (79 FR 29844), we 

published a final rule that addresses 

Medicare Parts C and D. No final rule 

has been published that addresses 

Medicaid requirements 

Comment: A number of commenters 

expressed concern over the limitation of 

the proposed rule to Medicare Parts A 

and B. Commenters stated that CMS did 

not articulate any statutory authority or 

rationale for creating this distinction 

and narrowing the scope of the 

proposed rule to Medicare Part A and 

Part B providers and suppliers. 

According to commenters, the Medicare 

payment rules do not create any 

analytically distinct issues for Medicare 

Part A and Part B providers and 

suppliers over other categories of 

‘‘persons’’ as defined under the 

proposed rule, thus commenters 

believed that the rule should similarly 

apply equally to all categories of 

persons as they relate to Medicare. 

Commenters noted that many providers 

or suppliers who submit claims to 

Medicare Part A or B also submit claims 

to managed care plans under Part C, 

plan sponsors under Part D, and 

Medicaid. Commenters requested that 

CMS include all of Medicare and 

Medicaid in the final rule or quickly 

issue other proposed rules so all 

providers and suppliers have guidance 

on their obligations and are treated 

equally. 

Response: Given the differences that 

exist between Medicare Parts A and B 

and Medicare Parts C and D and 

Medicaid, we believe that separate 

rulemaking processes are appropriate to 

address those differences. Those 

differences include, but are not limited 

to, how the programs are administered 

and the involvement of Medicare 

contractors in Part A and B, private 

health insurance plans in Part C, PDP 

sponsors in Part D, and state Medicaid 

agencies and contractors in Medicaid. 

The Secretary has the programmatic 

rulemaking authority to issue 

regulations on section 1128J(d) of the 

Act. We note that section 1128J(d) of the 

Act does not require the Secretary to 

issue regulations for the statute to be 

effective, and the statute’s requirements 

are in effect in the absence of regulation. 

Providers and suppliers that identify 

overpayments received from Medicare 

or Medicaid should report and return 

those overpayments to the appropriate 

payor as required by section 1128J(d) of 

the Act. We appreciate commenters’ 

concerns, but will finalize this rule as 

proposed to apply to Medicare Parts A 

and B only. Additionally, our rules for 

reporting and returning of overpayments 

in Medicare Parts C and D were recently 

published in separate rulemaking (see 

the May 23, 2014 final rule (79 FR 

29843)). 

We remind all stakeholders that even 

without a final regulation they are 

subject to the statutory requirements 


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found in section 1128J(d) of the Act and 

could face potential FCA liability, 

CMPL liability, and exclusion from 

federal health care programs for failure 

to report and return an overpayment. 

Additionally, providers and suppliers 

continue to be required to comply with 

our current procedures when we, or our 

contractors, determine an overpayment 

and issue a demand letter. 

B. Definitions (Proposed § 401.303) 

We proposed three definitions in 

§ 401.303. We proposed to define 

‘‘Medicare contractor’’ as a fiscal 

intermediary, carrier, durable medical 

equipment Medicare administrative 

contractor (DME MAC), or Part A/Part B 

Medicare administrative contractor. We 

stated that our proposed definition 

captures the different contractors that 

would be involved in receiving reports 

of overpayments as well as handling the 

return of overpayments, consistent with 

the statutory requirement. Since the 

publication of the proposed rule, we 

have ceased using fiscal intermediary 

and carrier contracts, and accordingly 

we have removed these terms from the 

definition of ‘‘Medicare contractor’’ in 

the final rule. 

‘‘Overpayment’’ was proposed to be 

defined as any funds that a person has 

received or retained under title XVIII of 

the Act to which the person, after 

applicable reconciliation, is not entitled 

under such title. This is the same 

definition that appears in the statute. In 

section II.B. of the February 2012 

proposed rule (77 FR 9181), we also 

included certain examples of 

overpayments under this proposed 

definition as including all of the 

following: 

• Medicare payments for noncovered 

services. 

• Medicare payments in excess of the 

allowable amount for an identified 

covered service. 

• Errors and nonreimbursable 

expenditures in cost reports. 

• Duplicate payments. 

• Receipt of Medicare payment when 

another payor had the primary 

responsibility for payment. 

We also stated in the proposed rule 

that, in certain circumstances, Medicare 

makes estimated payments for services 

with the knowledge that a reconciliation 

of those payments to actual costs will be 

done when the actual costs or related 

information becomes available, usually 

at a later date. Interim payments made 

to a provider throughout the cost year 

are reconciled with covered and 

reimbursable costs at the time the cost 

report is due. The statutory and 

proposed regulatory definition of the 

term overpayment acknowledges this 

practice and provides that an 

overpayment does not exist until after 

an applicable reconciliation takes place. 

When a provider files a cost report, the 

provider is reporting the provider’s 

reconciliation described previously and 

attesting to the accuracy of the 

information contained on the cost 

report. Providers must maintain the 

appropriate documentation supporting 

the costs that are claimed on the cost 

report. We stated that we rely upon the 

information that providers submit 

through the cost report. Whether it is an 

initial submission of a cost report or an 

amended one, we believed that 

providers must accurately report any 

cost report-related overpayments at the 

time they submit any cost reports to 

CMS. 

Finally, we proposed to define the 

term ‘‘Person’’ as a provider (as defined 

in § 400.202) or a supplier (as defined in 

§ 400.202). We noted that this proposed 

definition does not include a beneficiary 

and that our proposal was consistent 

with the definition of a ‘‘person’’ in 

section 1128J(d)(4)(C) of the Act. 

We received a number of comments 

regarding the definitions in proposed 

§ 401.303. 

Comment: A number of commenters 

expressed support for the proposed 

definition of ‘‘overpayment.’’ However, 

commenters recommended that CMS 

exclude routine, day-to-day business 

practices from the definition. Examples 

of practices commenters cited included: 

(1) Items representing refunds from the 

return of a product where a credit will 

be issued; (2) routine changes to dates 

of service for rental periods as patients 

start and stop therapy, causing a change 

in rental periods and account 

adjustments; and (3) errors in payment 

by a Medicare contractor that lead to an 

excess payment. Commenters stated that 

these and other types of overpayments 

are currently reported and returned 

through the claims adjustment or 

reversal process and the credit balance 

reporting process. Commenters stated 

that these existing processes worked 

well and should be recognized in the 

rule. Many commenters stated that CMS 

should consider these processes as part 

of the definition of ‘‘applicable 

reconciliation’’ in proposed 

§ 401.305(c), which would mean any 

amounts refunded through the claims 

adjustment or reversal and credit 

balance reporting would not fall within 

the definition of ‘‘overpayment.’’ 

Commenters stated that amounts 

refunded through claims adjustment/

reversal or credit balance reporting do 

not represent fraud, waste, or abuse, 

which, commenters state, CMS is 

seeking to curtail in this rule. Also, 

commenters believed that expanding the 

meaning of ‘‘applicable reconciliation’’ 

in the ‘‘overpayment’’ definition would 

ease the burden of compliance on 

providers and suppliers. 

Response: We understand the 

commenters concerns related to the 

definition of overpayment. As explained 

in the proposed rule, our proposed 

definition of overpayment mirrors 

section 1128J(d)(4)(B) of the Act. We 

understand the commenters’ concerns 

about the breadth of this definition and 

believe we have appropriately 

addressed them by expanding the ways 

in which overpayments may be reported 

and returned to include the claims 

adjustment or reversal and credit 

balance reporting process, as discussed 

in more detail in section II.C.4. of this 

final rule. This change should reduce 

the administrative burden issue that 

various commenters raised. We decline 

to expand ‘‘applicable reconciliation’’ 

beyond cost reporting for reasons 

discussed in greater detail later in this 

section. 

With respect to the statements 

regarding fraud, waste, and abuse, we 

recognize that many commenters posed 

questions and concerns about this rule’s 

relationship to the prevention of fraud, 

waste, and abuse, and the FCA. While 

these issues will be addressed in more 

detail in section II.C.1. of this final rule, 

we recognize that not all Medicare 

overpayments involve fraudulent 

activity (though some do). Again, 

overpayments are any funds that a 

person has received or retained under 

title XVIII of the Act to which the 

person, after applicable reconciliation, 

is not entitled under such title. These 

funds might be received or retained due 

to fraud or due to more inadvertent 

reasons. 

Our general aim of this final rule is to 

strengthen program integrity and to 

ensure that the Medicare Trust Funds 

are protected and made whole and that 

taxpayer dollars are not wasted. An 

overpayment must be reported and 

returned regardless of the reason it 

happened—be it a human or system 

error, fraudulent behavior, or otherwise. 

However, as discussed in section II.C.4., 

the nature of the overpayment will 

affect a provider’s or supplier’s decision 

about the most appropriate mechanism 

and recipient of the overpayment report 

and refund. 

Comment: A number of commenters 

requested that overpayments not caused 

by the provider or supplier or that were 

otherwise outside of the provider or 

supplier’s control should be excluded 

from our proposed definition of 

overpayment. Examples of this situation 

offered by commenters included—(1) a 


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CMS system error classifying a Medicare 

beneficiary as fee-for-service when the 

beneficiary was enrolled in a MA Plan; 

or (2) if the Medicare contractor makes 

a duplicate payment, pays for a noncovered service due to a contractor 

system edit problem, or fails to 

implement a national or local coverage 

decision correctly, resulting in an 

erroneous payment. 

Response: We disagree with the 

commenters that certain types of 

payments, including those made as a 

result of an error by any particular 

party, should be excluded from the 

definition of an overpayment. We do not 

see any basis to exclude an overpayment 

from the requirements of section 

1128J(d) of the Act because it may not 

have been caused by or was otherwise 

outside the control of the provider or 

supplier. The plain language of section 

1128J(d)(1) of the Act states that 

providers and suppliers are obligated to 

report and return any overpayment that 

they have received within the specified 

statutory timeframes. We do not believe 

it is necessary for providers or suppliers 

to make determinations regarding 

whether they were the cause of an 

overpayment in lieu of reporting and 

returning any identified overpayments 

as required by this rule. 

Comment: A commenter requested 

that the overpayment example we used 

in the preamble regarding a patient 

death occurring before the service date 

on a submitted claim not be considered 

an overpayment. The commenter stated 

that there could be a gap between the 

time of the patient’s exam and the 

interpretation of images, during which 

period the patient could expire. While 

the commenter conceded that our 

example of an overpayment situation 

relating to the relationship between the 

date of a beneficiary’s death and the 

date of service would generally be true 

(for example, in the case of a claim for 

an operation or an office visit with a 

date of service subsequent to a 

beneficiary’s date of death), the 

commenter believed there are certain 

circumstances where this relationship 

would not, by itself, be dispositive. 

Response: As we stated in the 

preamble to the proposed rule, the 

examples were not intended to be an 

exhaustive list of overpayment 

situations. Nor were they intended to 

address all potential factual 

permutations and coverage rules that 

determine whether a particular claim is 

associated with an overpayment. 

Providers and suppliers should analyze 

the facts and circumstances relevant to 

a particular situation to determine 

whether an overpayment exists. 

Comment: Regarding our 

overpayment example ‘‘errors and nonreimbursable expenditures in cost 

reports,’’ a commenter requested that we 

rephrase our example to read: 

‘‘Increases in reimbursement resulting 

from errors and non-reimbursable 

expenditures in cost reports.’’ The 

commenter indicated that the ‘‘increase 

in reimbursement’’ language is more 

accurate. 

Response: We agree that ‘‘increases in 

reimbursement resulting from errors and 

non-reimbursable expenditures in cost 

reports’’ is a more accurate example for 

purposes of this rule. Providers and 

suppliers need to supply accurate 

information on their cost report. 

However, this rule concerns reporting 

and returning overpayments received by 

the provider or supplier. Therefore, if 

the error or non-reimbursable cost at 

issue did not result in an increase in 

reimbursement, then no overpayment 

was received and section 1128J(d) of the 

Act is not implicated. 

Comment: Some commenters 

requested that we specifically define 

what it means to ‘‘over-code’’ and how 

a determination would be made as to 

whether the miscoding was deliberate. 

For example, a commenter referenced a 

physician billing for an evaluation and 

management (E&M) code as a level III 

(CPT code 99213), but an auditor 

determines that the documentation for 

the visit only supports a level II service 

(CPT code 99212). The commenter 

states that it is unclear from the 

proposed rule whether, in this instance, 

the physician would be in violation of 

the reporting rules and liable for 

penalties. 

Response: Over-coding, or the more 

commonly used term upcoding, is 

illustrated by the example given by the 

commenter. However, the commenter 

appears to believe that the physician 

only has an obligation to report and 

return the overpayment if the upcoding 

was done deliberately. To clarify, 

providers and suppliers must report and 

return overpayments identified as a 

result of upcoding, whether the 

inappropriate coding was intentional or 

unintentional. We discuss the steps that 

must be taken when a provider or 

supplier has identified an overpayment 

in section II.C. of this final rule. 

Comment: A commenter requested 

CMS retract all of the overpayment 

examples in the proposed rule and 

republish a proposed rule including all 

specific examples of what CMS 

considers overpayments. In the 

alternative, the commenter objected to 

all of the examples except duplicate 

payments because, according to the 

commenter, these examples are 

inconsistent with Medicare’s practice to 

make estimated payments for services 

with the knowledge that a reconciliation 

of those payments to actual costs will be 

completed at a later date when the 

actual costs or other relevant 

information become available. 

According to the commenter, the word 

‘‘overpayment’’ implies some payment 

was appropriate but the actual amount 

of payment was over the appropriate 

amount. Thus, the commenter stated 

that the examples are inconsistent with 

the purpose of the statutory and 

regulatory definition, with industry 

practice, and with the general industry 

understanding of what an overpayment 

is in light of the cost report 

reconciliation process. 

Response: We disagree with both of 

the commenter’s suggestions. As stated 

earlier, the examples were illustrative 

and not intended as an inclusive list of 

all examples of overpayments. We are 

unable to make blanket statements or 

address every factual permutation in 

this rulemaking, and thus it is not 

feasible for us to enumerate all specific 

examples of overpayments. Providers 

and suppliers should analyze the facts 

and circumstances relevant to their 

situation to determine whether an 

overpayment exists. 

In instances where interim payments 

are made based on estimated costs, an 

overpayment is not deemed to exist for 

purposes of this rule until an applicable 

reconciliation has occurred in 

accordance with § 401.305(c). We also 

disagree with the commenter’s 

statement that Medicare’s practice is to 

make estimated payments for services 

with the knowledge that a reconciliation 

of those payments to actual costs will be 

completed at a later date. While some 

payments are cost-based estimated 

payments as acknowledged in the 

proposed rule, many payments are not, 

such as claims-based payments under 

fee-for-service or prospective payment 

systems. For example, the first preamble 

example is a Medicare payment for noncovered services which, in most cases, 

would be a claims-based payment that 

is not an estimated payment subject to 

cost report reconciliation. In addition, 

we disagree that the term 

‘‘overpayment’’ implies that some 

payment was appropriate. Section 

1128J(d) of the Act defines overpayment 

to include any funds that a person 

receives or retains to which the person 

is not entitled after applicable 

reconciliation. In the case of a noncovered service, as well as others, the 

amount to which the person is entitled 

is zero. 

Comment: Several commenters 

requested clarification that an 


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overpayment consists only of the 

amount of payment a provider or 

supplier receives in excess of funds it 

should have received for the services 

rendered. For instance, if a supplier was 

paid $40 for a claim when it should 

have received $30, the commenters 

questioned whether the overpayment 

amount is $10 and not the entire $40 

amount paid. 

Response: In circumstances where a 

paid amount exceeds the appropriate 

payment amount to which a provider or 

supplier is entitled, the overpayment is 

the difference between the amount that 

was paid and the amount that should 

have been paid. In addition, there are 

instances where payment is made for an 

item or service specifically not payable 

under the Act (for example, claims 

resulting from Anti-Kickback Statute or 

physician self-referral law violations or 

claims for items and services furnished 

by an excluded person), or where the 

payment was secured through fraud. In 

these types of situations, the 

overpayment typically consists of the 

entire amount paid. 

Comment: Several commenters 

requested that CMS clarify in the final 

rule that potential overpayments only 

exist if a provider or supplier retains 

funds to which it was not entitled to at 

the time that it received the funds. 

Commenters stated that subsequent 

changes in law, regulation, or guidance 

(such as coding rules, carrier edits, and 

national and local coverage decisions) 

should not render payments that were 

proper at the time they were made 

overpayments at a later date. 

Response: We agree that payments 

that were proper at the time the 

payment was made do not become 

overpayments at a later time due to 

changes in law or regulation, unless 

otherwise required by law. Changes in 

guidance or coverage policy also usually 

will not alter whether a prior payment 

should be considered an overpayment, 

although there can be circumstances in 

which guidance is issued to clarify 

existing law, regulation, or coverage 

rules that would make clear that a past 

payment is an overpayment. Typically, 

overpayments would be determined in 

accordance with the effective date of 

any changes in law, regulation, or 

policy. Providers and suppliers should 

analyze the facts and circumstances 

present in their situation to determine 

whether an overpayment exists. 

Comment: Some commenters stated 

that the concept of ‘‘overpayment’’ is 

not fair in some situations. The 

commenters stated that certain reasons 

for an overpayment, such as 

‘‘insufficient documentation’’ or ‘‘lack 

of medical necessity’’ are extremely 

difficult to define objectively. 

Response: The definition of 

overpayment is fixed in statute. 

Sufficient documentation and medical 

necessity are longstanding and 

fundamental prerequisites to Medicare 

coverage and payment. 

Comment: A commenter requested 

clarification of the meaning of 

‘‘entitled.’’ The commenter stated that, 

once the statute of limitations has run 

on the government’s ability to sue for 

breach of contract or recoupment, the 

provider has a vested right to the 

payment and is ‘‘entitled’’ to the funds. 

The commenter recommended that the 

final rule recognize that statutes of 

limitation, setoff, and other defenses 

may be considered in determining 

whether an overpayment exists. 

Response: We believe that the 

statutory language clearly states that 

‘‘entitled’’ means entitled under title 

XVIII or XIX of the Act. This final rule 

addresses payments under title XVIII 

and thus, Medicare entitlement depends 

upon whether the funds were received 

in conformance to the payment rules set 

forth in the Act and its implementing 

regulations. We do not opine on any 

theories for the government’s pursuit of 

recovering overpayments, whether those 

theories are at law or equitable in 

nature. The purpose of this rule is to 

detail the providers and suppliers’ 

obligations under section 1128J(d) of the 

Act to report and return overpayments 

they have received. 

Comment: A number of commenters 

questioned the treatment of 

underpayments that providers and 

suppliers may identify in the course of 

identifying overpayments. Some 

commenters requested an explanation of 

the process by which providers and 

suppliers may recoup underpayments. 

Other comments proposed that 

providers and suppliers should be 

allowed to offset identified 

underpayments against identified 

overpayments when determining the 

repayment amount. Finally, several 

commenters suggested that the lookback 

period for overpaid claims should be the 

same as the lookback period for 

underpaid claims. Commenters 

suggested that we consider allowing 

providers and suppliers more than the 

currently allowed one year period to 

rebill a claim to correct an identified 

underpayment. Underpayment lookback 

periods of 3 years and 10 years (to 

match the proposed lookback period) 

were recommended by commenters. 

Response: This final rule implements 

section 1128J(d) of the Act, which 

concerns overpayments, not 

underpayments. Thus, underpayment 

issues are outside the scope of this 

rulemaking. Under existing policies, 

providers and suppliers can seek to 

address underpayments by requesting 

reopenings under § 405.980(c). 

Comment: Several commenters 

recommended that we ensure that 

refunded overpayments will be recorded 

and removed from the total amount paid 

by Medicare Part B for purposes of the 

sustainable growth rate formula (SGR). 

Response: The Medicare Access and 

CHIP Reauthorization Act repealed the 

SGR. Overpayment refunds were 

recorded and removed from the total 

Medicare Part B expenditures for 

purposes of calculating the SGR, during 

the period for which the SGR was in 

effect under section 1848 of the Act. 

Comment: Several commenters 

questioned whether providers and 

suppliers need to report and return 

Medicare secondary payer refunds 

under this final rule. 

Response: Yes, overpayments where 

the provider or supplier received 

primary payment from both a primary 

payer other than Medicare and a 

primary payment from Medicare 

(‘‘provider/supplier duplicate primary 

payments’’) must be refunded. 

Overpayments where the provider/

supplier failed to file a proper claim in 

accordance with 42 CFR 411.24(l) must 

also be refunded. 

Comment: A commenter appreciated 

the clarification in the proposed rule 

that the statutory definition of person, 

for purposes of reporting and returning 

overpayments, does not include 

beneficiaries and encouraged CMS to 

finalize the proposed definition. 

Another commenter disagreed with the 

proposed rule’s exclusion of 

beneficiaries from the ‘‘person’’ 

definition and requested an explanation 

for the exclusion. 

Response: We appreciate the 

comment in support of the proposed 

definition and note that the proposed 

definition of ‘‘person’’ is in accordance 

with section 1128J(d)(4)(C)(ii) of the Act 

which excludes beneficiaries from the 

definition of the term ‘‘person.’’ 

C. Requirements for Reporting and 

Returning of Overpayments (Proposed 

§ 401.305) 

Section 1128J(d) of the Act provides 

that an overpayment must be reported 

and returned by the later of —(i) the 

date which is 60 days after the date on 

which the overpayment was identified; 

or (ii) the date any corresponding cost 

report is due, if applicable. Proposed 

§ 401.305(b) contained this requirement. 

If an overpayment is claims related, the 

provider or supplier would be required 


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to report and return the overpayment 

within 60 days of identification. 

1. Meaning of Identified (Proposed 

§ 401.305(a)) 

In proposed § 401.305(a)(2), we stated 

that a person has identified an 

overpayment if the person has actual 

knowledge of the existence of the 

overpayment or acts in reckless 

disregard or deliberate ignorance of the 

overpayment. We stated in the preamble 

that we proposed this definition in part 

because section 1128J(d) of the Act 

provides that the terms ‘‘knowing’’ and 

‘‘knowingly’’ have the meaning given 

those terms in the FCA (31 U.S.C. 

3729(b)(1)). While the statutory text 

does not use these terms other than in 

the definitions, we believed the 

Congress’ use of the term ‘‘knowing’’ in 

the Affordable Care Act was intended to 

apply to determining when a provider 

or supplier has identified an 

overpayment. We also stated that 

defining ‘‘identification’’ in this way 

gives providers and suppliers an 

incentive to exercise reasonable 

diligence to determine whether an 

overpayment exists. Without such a 

definition, some providers and 

suppliers might avoid performing 

activities to determine whether an 

overpayment exists, such as self-audits, 

compliance checks, and other research. 

We also noted in the February 2012 

proposed rule (77 FR 9182) that, in 

some cases, a provider or supplier may 

receive information concerning a 

potential overpayment that creates a 

duty to make a reasonable inquiry to 

determine whether an overpayment 

exists. If the reasonable inquiry reveals 

an overpayment, the provider or 

supplier then has 60 days to report and 

return the overpayment. On the other 

hand, failure to make a reasonable 

inquiry, including failure to conduct 

such inquiry with all deliberate speed 

after obtaining the information, could 

result in the provider or supplier 

knowingly retaining an overpayment 

because it acted in reckless disregard or 

deliberate ignorance of whether it 

received such an overpayment. For 

example, a provider that receives an 

anonymous compliance hotline 

telephone complaint about a potential 

overpayment may have incurred a duty 

to timely investigate that matter, 

depending on whether the hotline 

complaint qualifies as credible 

information of a potential overpayment. 

Whether the complaint qualifies as 

credible information is a factual 

determination. If the provider incurs a 

duty and diligently conducts the 

investigation, and reports and returns 

any resulting overpayments within the 

60-day reporting and repayment period, 

then the provider would have satisfied 

its obligation under the proposed rule. 

However, if the provider fails to make 

any reasonable inquiry into the 

complaint, the provider may be found to 

have acted in reckless disregard or 

deliberate ignorance of any 

overpayment. 

In order to assist providers and 

suppliers with understanding when an 

overpayment has been identified, we 

provided the following examples, which 

were intended to be illustrative and not 

an exhaustive list of circumstances: 

• A provider of services or supplier 

reviews billing or payment records and 

learns that it incorrectly coded certain 

services, resulting in increased 

reimbursement. 

• A provider of services or supplier 

learns that a patient death occurred 

prior to the service date on a claim that 

has been submitted for payment. 

• A provider of services or supplier 

learns that services were provided by an 

unlicensed or excluded individual on 

its behalf. 

• A provider of services or supplier 

performs an internal audit and discovers 

that overpayments exist. 

• A provider of services or supplier is 

informed by a government agency of an 

audit that discovered a potential 

overpayment, and the provider or 

supplier fails to make a reasonable 

inquiry. (When a government agency 

informs a provider or supplier of a 

potential overpayment, the provider or 

supplier has a duty to accept the finding 

or make a reasonable inquiry. If the 

provider’s or supplier’s inquiry verifies 

the audit results, then it has identified 

an overpayment and, assuming there is 

no applicable cost report, has 60 days to 

report and return the overpayment. As 

noted previously, failure to make a 

reasonable inquiry, including failure to 

conduct such inquiry with all deliberate 

speed after obtaining the information, 

could result in the provider or supplier 

knowingly retaining an overpayment 

because it acted in reckless disregard or 

deliberate ignorance of whether it 

received such an overpayment). 

• A provider of services or supplier 

experiences a significant increase in 

Medicare revenue and there is no 

apparent reason—such as a new partner 

added to a group practice or a new focus 

on a particular area of medicine—for the 

increase. However, the provider or 

supplier fails to make a reasonable 

inquiry into whether an overpayment 

exists. (When there is reason to suspect 

an overpayment, but a provider or 

supplier fails to make a reasonable 

inquiry into whether an overpayment 

exists, it may be found to have acted in 

reckless disregard or deliberate 

ignorance of any overpayment.) 

Finally, we also discussed in the 

proposed rule (77 FR 9183) issues 

associated with overpayments that arise 

due to a violation of the Anti-Kickback 

statute (section 1128B(b)(1) and (2) of 

the Act). Compliance with the AntiKickback statute is a condition of 

payment. Claims that include items and 

services resulting from a violation of 

this law are not payable and constitute 

false or fraudulent claims for purposes 

of the FCA. In the proposed rule, we 

recognized that, in many instances, a 

provider or supplier is not a party to, 

and is unaware of the existence of, an 

arrangement between third parties that 

causes the provider or supplier to 

submit claims that are the subject of a 

kickback. For example, a hospital may 

be unaware that a device manufacturer 

has paid a kickback to a physician on 

the hospital’s medical staff to induce the 

physician to implant the manufacturer’s 

device in procedures performed at the 

hospital. Moreover, even if a provider or 

supplier becomes aware of a potential 

third party payment arrangement, it 

would generally not be able to evaluate 

whether the payment was an illegal 

kickback or whether one or both parties 

had the requisite intent to violate the 

Anti-Kickback statute. 

For this reason, we stated that we 

believe that providers and suppliers 

who are not a party to a kickback 

arrangement are unlikely in most 

instances to have ‘‘identified’’ the 

overpayment that has resulted from the 

kickback arrangement; therefore would 

have no duty to report or repay it. To 

the extent that a provider or supplier 

who is not a party to a kickback 

arrangement has sufficient knowledge of 

the arrangement to have identified the 

resulting overpayment, we proposed 

that the provider or supplier report the 

overpayment to CMS in accordance 

with section 1128J(d) of the Act and 

corresponding regulations. Although the 

government may always seek repayment 

of claims paid that do not satisfy a 

condition of payment, where a kickback 

arrangement exists, HHS’s enforcement 

efforts would most likely focus on 

holding accountable the perpetrators of 

that arrangement. Accordingly, we 

would refer the reported overpayment to 

OIG for appropriate action and would 

suspend the repayment obligation until 

the government has resolved the 

kickback matter (either by determining 

that no enforcement action is warranted 

or by obtaining a judgment, verdict, 

conviction, guilty plea, or settlement). 

Thus, if the provider has not identified 

the kickback or if it reported it when it 

did identify the kickback, our 


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expectation is that only the parties to 

the kickback scheme would be required 

to repay the overpayment that was 

received by the innocent provider or 

supplier, except in the most 

extraordinary circumstances. 

Comment: Several commenters noted 

that section 1128J(d) of the Act has two 

separate provisions addressing 

overpayments and questioned whether 

the proposed rule conflated those 

provisions. Section 1128J(d)(1) of the 

Act creates the threshold obligation that 

if a person has received an 

overpayment, the person shall report 

and return the overpayment. Once that 

threshold obligation is triggered— 

receipt of the overpayment—then 

section 1128J(d)(2) of the Act addresses 

the timing of fulfilling the obligation to 

report and return, either the later of the 

date which is 60 days after the date on 

which the overpayment was identified 

or the date any corresponding cost 

report is due, if applicable. Commenters 

noted that the proposed rule may 

conflate these two, separate obligations 

in proposed 42 CFR 401.305(a)(1), 

which stated that if a person has 

identified that it has received an 

overpayment, the person must report 

and return the overpayment in the form 

and manner set forth in 42 CFR 401.305. 

Commenters stated that this proposed 

rule language tied the threshold 

obligation to identifying the 

overpayment and not to receiving the 

overpayment. 

Response: We agree with the 

commenters and have amended 

§ 401.305(a)(1) to separate these two 

concepts. Section 1128J(d)(1) of the Act 

plainly mandates that any overpayment 

received by a person shall be reported 

and returned. We interpret this language 

as showing the Congress intended to 

more clearly codify providers and 

suppliers’ existing duty to return 

overpayments they have received, 

which would necessarily include taking 

appropriate actions to determine 

whether the provider or supplier has in 

fact received an overpayment. The 

‘‘receipt’’ threshold obligation is 

consistent with both the initial standard 

for identification in the proposed rule 

and the standard for identification in 

this final rule. We do not believe the 

Congress intended to create a loophole 

to the threshold ‘‘receipt’’ obligation 

through the timing provision for 

fulfilling this obligation. Limiting the 

standard for identification to actual 

knowledge would create that loophole 

and would conflict with the plain 

statutory mandate to report and return 

any overpayments the person has 

received. In addition, we believe we 

have the responsibility under the 

Secretary’s rulemaking authority to 

interpret the statute in an appropriate 

manner to create safeguards that protect 

the integrity of its plain mandate—to 

report and return overpayments the 

person has received. 

Comment: Several commenters agreed 

with the proposed rule’s definition of 

identification. Commenters stated that 

the proposed rule provides appropriate 

incentives for providers and suppliers to 

pay attention to red flags indicating a 

potential overpayment may have been 

received. These commenters believe 

providers and suppliers should be 

encouraged to proceed with diligence to 

investigate information suggesting an 

overpayment, to report, and take 

corrective actions, and adopt ‘‘best 

practices’’ to prevent overpayments. A 

commenter stated that adoption of this 

actual and constructive knowledge 

standard will promote consistency and 

will allow government and providers 

and suppliers to base their conduct and 

positions on case law interpreting those 

terms. Another commenter 

acknowledged the need for the reckless 

disregard/deliberate ignorance standard 

to deter evasive conduct and fraudulent 

concealment. However, the commenter 

requested that CMS further clarify this 

standard. 

Response: We appreciate the 

comments and agree with the 

commenters’ interpretation of the 

proposed rule. We continue to believe 

that the proposed standard is an 

appropriate interpretation of section 

1128J(d) of the Act within the 

Secretary’s rulemaking authority. As 

explained in this final rule, we have 

adjusted the standard for identification 

after careful consideration of the 

numerous comments submitted. We 

believe that the final rule strikes the 

right balance between creating a flexible 

yet strong standard that applies to many 

different circumstances. 

Comment: Many commenters objected 

to the proposed inclusion of reckless 

disregard and deliberate ignorance in 

the standard for identification. These 

commenters claimed that there is no 

statutory basis to apply a standard 

beyond actual knowledge to the term 

‘‘identified.’’ Specifically, commenters 

disagreed with our statement in the 

preamble that the Congress’ use of the 

term ‘‘knowing and knowingly’’ in 

section 1128J(d)(4)(A) of the Act 

indicates the Congress’ intent to apply 

a constructive knowledge standard to 

‘‘identified.’’ Commenters noted that 

these terms are not used elsewhere in 

section 1128J(d) of the Act except the 

definition section. Commenters 

attributed section 1128J(d)(4)(A) of the 

Act as a drafting error based on the 

House version of the Affordable Care 

Act, H.R. 3962, which used the term 

‘‘knows.’’ According to commenters, the 

replacement of the word ‘‘knows’’ with 

‘‘identified’’ in the final version of the 

Affordable Care Act is indicative of 

Congressional intent not to equate the 

FCA knowledge standard to 

‘‘identified.’’ The commenters argue that 

had the Congress intended to apply the 

statute this expansively, it would have 

drafted the provision to extend liability 

to those who fail to report and return an 

overpayment within 60 days of the date 

on which the overpayment was 

identified or should have been 

identified. 

Response: We disagree with the 

commenters’ arguments. While we 

acknowledge that the terms ‘‘knowing’’ 

and ‘‘knowingly’’ are defined but not 

otherwise used in section 1128J(d) of 

the Act, we believe that the Congress 

intended for section 1128J(d) of the Act 

to apply broadly. If the requirement to 

report and return overpayments only 

applied to situations where providers or 

suppliers had actual knowledge of the 

existence of an overpayment, then these 

entities could easily avoid returning 

improperly received payments and the 

purpose of the section would be 

defeated. 

Comment: Several commenters 

suggested applying the ‘‘knowing’’ 

concept to ‘‘retained’’ instead of our 

proposed approach. Commenters 

believed that applying the constructive 

knowledge standard to trigger the 

enforcement provisions would be more 

appropriate than our proposal. 

Response: We considered applying a 

constructive knowledge standard to the 

term ‘‘retained’’ and determined that 

our approach was both a better reading 

of the law and a better approach to 

protecting the program. As discussed 

previously, we believe there is a strong 

statutory basis for our rule. Also, 

modifying ‘‘retained’’ does not eliminate 

the programmatic concern of the 

‘‘ostrich defense’’—that the plain 

mandate to report and return 

overpayments received would be 

avoided by not taking action to obtain 

actual knowledge of an overpayment. 

The enforcement provision at section 

1128J(d)(3) of the Act depends on the 

person retaining the overpayment after 

the deadline for reporting and returning. 

If the deadline never passes because the 

person avoids obtaining actual 

knowledge of the overpayment, then the 

enforcement provision is rendered 

toothless. 

Comment: Commenters also 

expressed concern that ‘‘reckless 

disregard’’ and ‘‘deliberate ignorance’’, 

as used in proposed § 401.305(a)(2), are 


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ambiguous terms that do not adequately 

inform providers and suppliers of the 

circumstances that would give rise to a 

duty to investigate and fail to provide 

sufficient guidance as to what efforts are 

necessary to avoid overpayment 

liability. Some commenters stated that 

the proposed rule actually provides a 

disincentive to undertake compliance 

audits for fear of creating liability for 

identifying an overpayment. 

Response: We appreciate the 

comments and have revised the 

regulatory provision in the final rule by 

removing the terms ‘‘actual knowledge’’, 

‘‘reckless disregard’’, and ‘‘deliberate 

ignorance’’. The final rule states that a 

person has identified an overpayment 

when the person 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. A person should have 

determined that the person received an 

overpayment if the person fails to 

exercise reasonable diligence and the 

person in fact received an overpayment. 

‘‘Reasonable diligence’’ includes both 

proactive compliance activities 

conducted in good faith by qualified 

individuals to monitor for the receipt of 

overpayments and investigations 

conducted in good faith and in a timely 

manner by qualified individuals in 

response to obtaining credible 

information of a potential overpayment. 

The regulation uses a single term— 

reasonable diligence—to cover both 

proactive compliance activities to 

monitor claims and reactive 

investigative activities undertaken in 

response to receiving credible 

information about a potential 

overpayment. We believe that 

compliance with the statutory obligation 

to report and return received 

overpayments requires both proactive 

and reactive activities. In addition, we 

also clarify that the quantification of the 

amount of the overpayment may be 

determined using statistical sampling, 

extrapolation methodologies, and other 

methodologies as appropriate. 

As to the circumstances that give rise 

to a duty to exercise reasonable 

diligence, we are not able to identify all 

factual scenarios in this rulemaking. 

Providers and suppliers are responsible 

for ensuring their Medicare claims are 

accurate and proper and are encouraged 

to have effective compliance programs 

as a way to avoid receiving or retaining 

overpayments. Indeed, many 

commenters told us that they have 

active compliance programs and that we 

should recognize these compliance 

efforts in the final rule. It was also 

apparent from some commenters that 

they do not currently engage in 

compliance efforts to ensure that the 

claims they submitted to Medicare were 

accurate and proper and that payments 

received are appropriate. We advise 

those providers and suppliers to 

undertake such efforts to ensure they 

fulfill their obligations under section 

1128J(d) of the Act. We believe that 

undertaking no or minimal compliance 

activities to monitor the accuracy and 

appropriateness of a provider or 

supplier’s Medicare claims would 

expose a provider or supplier to liability 

under the identified standard 

articulated in this rule based on the 

failure to exercise reasonable diligence 

if the provider or supplier received an 

overpayment. We also recognize that 

compliance programs are not uniform in 

size and scope and that compliance 

activities in a smaller setting, such as a 

solo practitioner’s office, may look very 

different than those in larger setting, 

such as a multi-specialty group. 

Compliance activities may also 

appropriately vary based on the type of 

provider. 

We note that in discussing the 

standard term ’’reasonable diligence’’ in 

the preamble, we are interpreting the 

obligation to ’’report and return the 

overpayment’’ that is contained in 

section 1128J(d) of the Social Security 

Act. We are not seeking to interpret the 

terms ’’knowing’’ and ’’knowingly’’, 

which are defined in the Civil False 

Claims Act and have been interpreted 

by a body of False Claims Act case law. 

Comment: Several commenters stated 

that they interpreted the preamble to the 

proposed rule as permitting providers 

and suppliers time to conduct a 

reasonable inquiry before the 60-day 

time period begins to run. These 

commenters noted that the preamble 

provides that providers and suppliers 

may receive information concerning a 

potential overpayment that creates a 

duty to conduct a reasonable inquiry to 

determine whether an overpayment 

exists. If the reasonable inquiry reveals 

an overpayment, then the provider has 

60 days to report and return the 

overpayment. On the other hand, failure 

to make a reasonable inquiry, including 

failure to conduct such inquiry with all 

deliberate speed after obtaining the 

information, could result in the provider 

or supplier knowingly retaining an 

overpayment because it acted in 

reckless disregard or deliberate 

ignorance of whether it received such an 

overpayment. Commenters stated that 

this explanation and the examples in 

the preamble together suggested that 

once a provider is placed on notice of 

a potential overpayment, it must 

conduct a reasonably diligent inquiry 

under the circumstances and the 60-day 

period does not start until either the 

inquiry reveals an overpayment or the 

provider or supplier is reckless or 

deliberately ignorant because it failed to 

conduct the reasonable inquiry. 

Commenters requested that we clarify 

whether this interpretation was 

accurate. 

Response: We agree with the 

commenters’ interpretation of the 

proposed rule and have revised 

§ 401.305(a) and (b) in this final rule to 

clarify the duty to investigate through a 

reasonable diligence standard. When a 

person obtains credible information 

concerning a potential overpayment, the 

person needs to undertake reasonable 

diligence to determine whether an 

overpayment has been received and to 

quantify the amount. The 60-day time 

period begins when either the 

reasonable diligence is completed or on 

the day the person received credible 

information of a potential overpayment 

if the person failed to conduct 

reasonable diligence and the person in 

fact received an overpayment. 

Comment: Commenters questioned 

how quantification of the overpayment 

fit into the proposed rule. Specifically, 

commenters stated that the proposed 

rule did not expressly address the 

difference between determining that an 

overpayment has been received and the 

auditing work necessary to calculate the 

overpayment amount. Commenters 

stated that the calculation necessarily 

must happen before the overpayment 

can be reported and returned. 

Response: We agree and have revised 

the language in § 401.305(a)(2) to clarify 

that part of identification is quantifying 

the amount, which requires a reasonably 

diligent investigation. 

Comment: Commenters expressed 

concern over whether the proposed rule 

treats failing to conduct a ‘‘reasonable 

inquiry’’ with ‘‘all deliberate speed’’ as 

a violation of section 1128J(d) of the Act 

by itself. In other words, commenters 

questioned whether the mere possibility 

of an overpayment, without there 

actually being an overpayment, can 

establish liability at any point. 

Response: We understand the 

commenters’ concerns and have 

amended the language accordingly. The 

final rule clarifies that failure to conduct 

reasonable diligence does not by itself 

create liability under section 1128J(d) of 

the Act. The statutory obligation is to 

report and return received 

overpayments; thus a provider or 

supplier must also have received an 

overpayment that it should have 

identified before liability can exist 

under section 1128J(d) of the Act. 


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Comment: Several commenters 

requested clarity on the phrase 

‘‘reasonable inquiry.’’ Some commenters 

suggested defining ‘‘reasonable inquiry’’ 

as a good faith investigation that is 

promptly conducted until its conclusion 

by persons with sufficient knowledge 

and experience to make such 

determination. 

Response: We appreciate the 

commenters’ suggestions and amended 

the final rule as described in this section 

by creating a ‘‘reasonable diligence’’ 

standard in § 401.305(a)(2). We also 

appreciate the commenters’ suggested 

definition and incorporated various 

suggestions into our discussion of what 

constitutes ‘‘reasonable diligence,’’ as 

explained previously in this section. We 

also note that although the preamble to 

the proposed rule used both ‘‘reasonable 

diligence’’ and ‘‘reasonable inquiry,’’ for 

clarity, we used only the term 

‘‘reasonable diligence’’ in this final rule. 

Comment: Commenters suggested that 

we provide more detail on how to judge 

what is ‘‘reasonable’’ about a reasonable 

inquiry, such as taking into account the 

unique characteristics of the provider or 

supplier and the nature of the problem. 

Accordingly, commenters suggested 

defining ‘‘reasonable inquiry’’ as 

‘‘reasonably diligent under the 

circumstances, taking into account the 

size, capacity, workload, technological 

sophistication, and resources of the 

subject provider or supplier and the 

complexity, uniqueness, and 

significance of the suspected 

overpayment at issue.’’ In addition, 

commenters recommended that we 

provide a list of illustrative hallmarks of 

a reasonable inquiry, but also stated that 

some of these hallmarks will be factdependent. 

Response: We appreciate the 

comments and believe we have 

provided additional explanation of the 

meaning of ‘‘reasonable diligence’’ in 

this final rule. However, we decline to 

expressly adopt the commenters’ 

proposed definitions and suggestions. 

We believe that the concept of 

‘‘reasonableness’’ is fact-dependent. 

Comment: A number of commenters 

requested clarification on the meaning 

of ‘‘all deliberate speed’’ a phrase used 

in the preamble to the proposed rule. 

Commenters stated that we effectively 

established a time limit for preliminary 

action before the 60-day clock began to 

toll, yet did not clearly state what this 

time limit is or what a person must do 

to meet it. Commenters stated that the 

proposed rule was not clear about how 

to determine whether an ongoing 

investigation occurred with ‘‘all 

deliberate speed.’’ Commenters noted 

that in many circumstances, multiple 

people will be involved in determining 

whether an overpayment exists and in 

what amount, such as auditors, billing 

personnel, and legal counsel. 

Commenters believed we should issue 

additional guidance in the final rule, 

particularly what documentation we 

expect providers and suppliers to 

maintain to show compliance with the 

rule. Some commenters suggested that 

we adopt an approach that would allow 

for a ‘‘reasonable period of time to 

investigate’’ a potential overpayment. 

Other commenters pointed to the 

Federal Acquisitions Regulations (FAR) 

treatment of the time between first 

learning of an allegation and the 

requirement to disclose credible 

evidence of an overpayment. The 

commenters noted that the FAR drafters 

considered but rejected adding a set 

period of time, such as 30 days, to the 

disclosure requirement. (See the 

November 12, 2008 final rule (73 FR 

67074).) Under FAR, failure to timely 

disclose credible evidence of significant 

overpayment is measured from the date 

of the determination by the contractor 

that the evidence is credible. (See the 

November 12, 2008 final rule (73 FR 

67075).) A few commenters requested 

additional time to conduct the inquiry 

in the event of an emergency, such as a 

natural disaster affecting the provider or 

supplier. 

Response: The preamble to this final 

rule does not include the phrase ‘‘all 

deliberate speed’’ as the benchmark of 

compliance. Instead, we adopt the 

standard of reasonable diligence and 

establish that this is demonstrated 

through the timely, good faith 

investigation of credible information, 

which is at most 6 months from receipt 

of the credible information, except in 

extraordinary circumstances. We 

considered but rejected adopting a 

‘‘reasonable period of time to 

investigate’’ standard because we 

concluded that an open-ended 

timeframe would likely be viewed as no 

more clear than ‘‘all deliberate speed’’ 

and establishing a time frame would 

better respond to commenters’ concerns 

on this issue. We choose 6 months as 

the benchmark for timely investigation 

because we believe that providers and 

suppliers should prioritize these 

investigations and also to recognize that 

completing these investigations may 

require the devotion of resources and 

time. Receiving overpayments from 

Medicare is sufficiently important that 

providers and suppliers should devote 

appropriate attention to resolving these 

matters. A total of 8 months (6 months 

for timely investigation and 2 months 

for reporting and returning) is a 

reasonable amount of time, absent 

extraordinary circumstances affecting 

the provider, supplier, or their 

community. What constitutes 

extraordinary circumstances is a factspecific question. Extraordinary 

circumstances may include unusually 

complex investigations that the provider 

or supplier reasonably anticipates will 

require more than six months to 

investigate, such as physician selfreferral law violations that are referred 

to the CMS Voluntary Self-Referral 

Disclosure Protocol (SRDP). Specific 

examples of other types of extraordinary 

circumstances include natural disasters 

or a state of emergency. 

As for documentation, it is certainly 

advisable for providers and suppliers to 

maintain records that accurately 

document their reasonable diligence 

efforts to be able to demonstrate their 

compliance with the rule. 

Comment: Several commenters 

recommended that CMS define 

identification as actual knowledge of 

credible evidence that an overpayment 

has occurred and of the actual amount 

received in excess of what was due. 

Commenters stated that ‘‘credible 

evidence’’ is a well-understood concept; 

that is, information that, considering its 

source and the circumstances, supports 

a reasonable belief that there has been 

an overpayment. The credible evidence 

standard differs from a credible 

‘‘allegation’’ because, according to 

commenters, it requires some level of 

diligence to determine whether the 

information is credible. 

Response: We appreciate the 

comments but decline to adopt this 

definition of ‘‘identification.’’ It limits 

the obligation to instances in which the 

provider or supplier has actual 

knowledge, which, as discussed 

previously, we do not believe is 

consistent with section 1128J(d) of the 

Act. As discussed previously, we have 

clarified that providers and suppliers 

may conduct a timely investigation of 

credible information before the 60-day 

deadline is triggered. We also decline to 

adopt a ‘‘credible evidence’’ standard 

because we are concerned there may be 

further confusion about the term 

‘‘evidence’’ because of its significance in 

the litigation context. Instead, as noted 

previously, we have adopted a ‘‘credible 

information’’ standard. We believe 

credible information includes 

information that supports a reasonable 

belief that an overpayment may have 

been received. This standard should 

address commenters’ concern of being 

required to investigate every instance or 

complaint concerning a potential 

overpayment. We recognize that 

providers and suppliers may receive 


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information that could be considered 

not credible. Determining whether 

information is sufficiently credible to 

merit an investigation is a fact-specific 

determination. 

Comment: Several commenters 

suggested an alternative definition to 

identification as ‘‘when, after the person 

receives reliable evidence (as defined at 

42 CFR 405.902) that it has received an 

overpayment and, through the exercise 

of reasonable diligence has determined 

that an overpayment exists, the person 

has quantified the amount of the 

overpayment within a reasonable degree 

of certainty.’’ Commenters stated that 

such a standard would provide some 

degree of comfort that providers and 

suppliers would not be under a duty to 

investigate every ‘‘whiff’’ of an 

overpayment and removes the 

constructive knowledge standard. 

Commenters also stated this definition 

would acknowledge that an 

overpayment cannot be reported and 

returned if it is not quantified, as well 

as the circumstances, such as when 

statistical sampling and extrapolation 

are used, when it may not be possible 

to know with 100 percent accuracy the 

exact amount of an overpayment. These 

commenters stated that it also 

acknowledges that in some 

circumstances providers and suppliers 

may need more time to commence an 

inquiry. Other commenters suggested a 

similar alternative ‘‘when the person 

has actual knowledge of an 

overpayment and is able to quantify the 

overpayment with reasonable certainty, 

or when a person does not initiate an 

inquiry within a reasonable amount of 

time after receiving credible information 

suggesting the existence of a potential 

overpayment.’’ 

Response: We appreciate the 

comments and incorporated some of 

these ideas into the final rule. We agree 

that statistical sampling and 

extrapolation are an appropriate 

component of a provider’s reasonable 

diligence in investigating an 

overpayment and can serve as an 

appropriate way to calculate an 

overpayment amount. The final rule 

provides guidance for reporting 

overpayments identified through such 

statistical methods. We also use the 

term ‘‘credible information’’ in the 

preamble as suggested in these 

comments. We considered but declined 

to adopt the term ‘‘reliable evidence’’ as 

defined at 42 CFR 405.902 because it is 

potentially too limited and the term 

‘‘evidence’’ is prone to confusion as 

‘‘credible evidence’’ discussed 

previously. Finally, we also disagree 

with the commenters’ proposals to the 

extent they suggest identification efforts 

are limited to reactive investigations 

(and do not include the proactive 

compliance activities necessary to 

monitor for receipt of overpayments) or 

actual knowledge (and do not include 

the constructive knowledge standard 

discussed previously). 

Comment: Commenters stated that the 

60-day time period should start to run 

on the day that an overpayment inquiry 

has concluded, confirmed that there has 

been an overpayment, and produced 

sufficient information to calculate the 

precise overpayment amount. 

Commenters stated that this standard 

would avoid confusion about when to 

report. 

Response: We recognize that 

additional clarity was necessary and 

revised the final rule to clarify that the 

60-day time period starts to run when 

the overpayment has been identified 

based on the standard for identified in 

§ 401.305(a)(2). These commenters do 

not appear to take into account 

statistical sampling and extrapolation 

calculations, which is something other 

commenters suggested that we 

recognize. As discussed previously, we 

also interpret section 1128J(d) of the Act 

to include both an actual knowledge 

and a constructive knowledge standard. 

Comment: Commenters questioned 

how we proposed determining the 

actual date for triggering the 60-day 

reporting and returning deadline and for 

when a person acts in reckless disregard 

or deliberate ignorance of an 

overpayment. Commenters suggested 

that we provide clear guidance as to 

what actions a provider or supplier 

must take to avoid a determination that 

it is in reckless disregard or deliberate 

ignorance of the existence of an 

overpayment. 

Response: We believe the final rule 

provides additional clarity on how we 

revised the constructive knowledge 

standard for when a person has 

identified an overpayment. The 60-day 

time period begins either when the 

reasonable diligence is completed and 

the overpayment is identified or on the 

day the person received credible 

information of a potential overpayment 

if the person fails to conduct reasonable 

diligence and the person in fact received 

an overpayment. This standard, as well 

as the requirement to conduct a timely, 

good faith investigation in response to 

obtaining credible information of a 

potential overpayment, provide ‘‘bright 

line’’ standards that should assist 

providers and suppliers in structuring 

their compliance programs to comply 

with the rule. 

Comment: Several commenters 

questioned whether, after finding a 

single overpaid claim, it is appropriate 

to inquire further to determine whether 

there are more overpayments on the 

same issue before reporting and 

returning the single overpaid claim. 

Expanding the inquiry may take 

additional time and, according to 

commenters, it is unclear whether the 

60-day time period has begun to run for 

the single overpaid claim. Similarly, 

several commenters also questioned 

whether compliance with the rule 

required periodic repayments while the 

person is conducting the review. For 

example, commenters noted that a 

provider or supplier may conduct a 

probe sample of claims and discover a 

possible overpayment with respect to 

some of the claims. Commenters 

questioned whether in this situation the 

provider or supplier has identified an 

overpayment that would require 

reporting and returning the 

overpayment for the probe sample 

claims, even though the probe sample 

review is typically one step in the usual 

audit process. According to 

commenters, validation of the probe 

sample findings would then lead to 

expanding the audit beyond the probe 

sample and conducting a root cause 

analysis to determine the cause of the 

overpayment and whether more 

overpayments exist. Commenters stated 

that it is a common practice to include 

the probe sample in the expanded audit 

to extrapolate an error rate to the entire 

population. Commenters stated that 

permitting this practice would result in 

a more robust analysis of the 

overpayment and a more accurate 

repayment to the government. The 

premature return of any overpayment 

identified during the probe sample audit 

could taint the results of the complete 

review, according to commenters. 

Response: We understand the 

commenters’ concerns and believe that 

the final rule’s clarifications should 

address these concerns. We expect 

providers and suppliers to exercise 

reasonable diligence and to quantify, 

report, and return the entire 

overpayment in good faith. Part of 

conducting reasonable diligence is 

conducting an appropriate audit to 

determine if an overpayment exists and 

to quantify it. Providers and suppliers 

are obligated to conduct audits that 

accurately quantify the overpayment. 

After finding a single overpaid claim, 

we believe it is appropriate to inquire 

further to determine whether there are 

more overpayments on the same issue 

before reporting and returning the single 

overpaid claim. To the extent this 

concern is based on a question about 

when the 60-day clock begins to run, the 

final rule clarifies that identification 


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occurs once the person has or should 

have through the exercise of reasonable 

diligence, determined that the person 

received an overpayment and quantified 

the amount of the overpayment. 

We understand that a common way to 

conduct an audit is to use a probe 

sample and then incorporate that probe 

sample into a larger full sample as the 

basis for determining an extrapolated 

overpayment amount. In the probe 

sample, it is not appropriate for a 

provider or supplier to only return a 

subset of claims identified as 

overpayments and not extrapolate the 

full amount of the overpayment. We 

believe that in most cases, the 

extrapolation can be done in a timely 

manner consistent with the 

identification requirements of this rule 

and that the provider or supplier should 

not report and return overpayments on 

specific claims from the probe sample 

until the full overpayment is identified. 

Comment: Some commenters 

requested clarification that a provider or 

supplier with an active and robust 

compliance program that contains the 

elements suggested by OIG’s compliance 

program guidance and the Federal 

Sentencing Guidelines cannot be found 

to have acted with ‘‘reckless disregard 

or deliberate ignorance’’ with respect to 

overpayments. Some commenters 

suggested that a provider that has a 

‘‘certified’’ or ‘‘approved’’ compliance 

program should be entitled to a 

presumption that any overpayments are 

simple mistakes rather than fraud or 

abuse. 

Response: We disagree with the 

commenters. Based on our experience, it 

is possible for providers or suppliers 

who have active compliance programs 

to commit fraud. Moreover, even if an 

overpayment is the result of a mistake, 

rather than fraud or abuse, the provider 

or supplier has an obligation to report 

and return it under section 1128J(d) of 

the Act. 

Comment: Commenters expressed 

concerns that the proposed rule’s 

constructive knowledge standard for 

‘‘identified’’ introduces a subjective 

standard that would lead to the 60-day 

clock beginning to run on a date that a 

person ‘‘should have known’’ about an 

overpayment, although it actually had 

no knowledge at all. For example, if a 

health care entity accidentally programs 

its computers incorrectly, and as a 

result, erroneously bills and is paid for 

a service, commenters questioned 

whether the addition of the ‘‘reckless 

disregard’’ standard suggests that one 

could argue that the company should 

have been aware of the error, and 

therefore is liable for a false claim, even 

if the company has a robust compliance 

program that fails to uncover the error. 

Commenters believe that the proposed 

definition of ‘‘identified’’ raises the 

possibility that CMS, other regulators, or 

qui tam relators may second-guess the 

provider and question whether the 

provider exercised ‘‘reasonable 

diligence’’ and made a ‘‘reasonable 

inquiry’’ ‘‘with all deliberate speed’’ in 

assessing when an overpayment should 

have been identified. 

Response: We understand 

commenters’ concerns and believe the 

changes made to the proposed rule in 

this final rule should provide additional 

clarity for providers and suppliers on 

the actions they need to take to comply 

with the rule. With regard to the 

commenters concern that as a result of 

this final rule CMS, other regulators, or 

qui tam relators may second-guess the 

provider and question whether the 

provider exercised ‘‘reasonable 

diligence’’ and made a ‘‘reasonable 

inquiry’’ ‘‘with all deliberate speed,’’ we 

note that it has long been true that many 

activities in the provision of health care, 

including billing the Medicare program, 

are subject to review by various 

stakeholders. This rule does not change 

that situation or significantly expand 

the areas that have long been subject to 

such review. 

Comment: Several commenters 

expressed concerns with our statement 

in the preamble that we defined 

‘‘identification’’ as an incentive to 

exercise reasonable diligence to 

determine whether an overpayment 

exists and that without such a 

definition, some providers and 

suppliers might avoid performing 

activities to determine whether an 

overpayment exists, such as self-audits, 

compliance checks, and other additional 

research. Commenters believed this 

statement appeared to disregard the 

compliance activities of many in the 

health care industry and indicated that 

CMS did not believe providers and 

suppliers would engage in compliance 

activities without increased liability. 

The commenters recognized the 

legitimate need for this rule to not 

permit avoiding the report and return 

obligation when there is some 

indication of a potential overpayment 

simply by avoiding additional 

investigatory work to obtain actual 

knowledge. Commenters stated that 

voluntary compliance programs already 

follow this basic duty to investigate and 

recommended a parallel, narrowly 

drawn duty to investigate when there is 

credible evidence of the existence of an 

overpayment. According to commenters, 

this standard could apply to a variety of 

fact patterns, including, compliance 

hotline communications, internal 

statistical analyses identifying potential 

payment discrepancies, and issues 

raised by staff. Commenters believed 

this approach would satisfy our stated 

concern, while imposing a more 

reasonable administrative burden. 

Response: We appreciate the 

commenters’ concerns but decline to 

limit the constructive knowledge 

standard in the final rule to receipt of 

information as discussed previously. We 

note that certain types of information 

noted by commenters, such as internal 

statistical analyses, require some 

proactive action on the part of the 

provider or supplier to obtain that 

information. We are concerned that 

limiting the standard for identified to 

instances in which the provider or 

supplier is simply receiving information 

may create a disincentive for providers 

and suppliers to undertake those 

important proactive compliance 

activities to ensure they have properly 

received Medicare payments. We 

understand that many providers and 

suppliers have active compliance 

programs that do both proactive and 

reactive reviews of Medicare billing. 

Our intention is to capture both of those 

activities in this final rule. 

Comment: Several commenters 

requested that CMS clarify that there is 

no duty to proactively search for 

overpayments without a reason to 

believe that a specific overpayment 

exists. These commenters stated that the 

preamble language suggests that 

providers and suppliers have a 

perpetual duty to research whether any 

overpayment may exist, which would be 

overly burdensome and not consistent 

with the requirements of section 

1128J(d) of the Act. A commenter stated 

that the compliance program regulations 

implementing section 6401 of the 

Affordable Care Act may be a more 

appropriate mechanism for CMS to 

propose these requirements. 

Response: These comments 

underscore our concern expressed in the 

proposed rule that some providers and 

suppliers might avoid performing 

activities to determine whether an 

overpayment exists. As discussed 

earlier, section 1128J(d) of the Act 

requires a person to report and return 

overpayments they have received. Thus, 

providers and suppliers have a clear 

duty to undertake proactive activities to 

determine if they have received an 

overpayment or risk potential liability 

for retaining such overpayment. 

Comment: Some commenters objected 

to the example of an identified 

overpayment concerning a provider 

learning of services provided by an 

unlicensed or excluded individual. The 

commenter believed that such a 


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2A current, more direct link: https://

www.cms.gov/Outreach-and-Education/MedicareLearning-Network-MLN/MLNGenInfo/

index.html?redirect=/mlngeninfo. 

3A current, more direct link: http://oig.hhs.gov/ 

compliance/. 

scenario does not automatically imply 

that an overpayment has occurred, but 

that an investigation must be conducted 

to determine if there is a regulatory or 

legal nexus between the individual’s 

licensure or exclusion and the 

reimbursement. 

Response: We understand the 

commenters’ belief that the example 

given doesn’t automatically imply than 

an overpayment has occurred. Billing 

for items or services furnished by an 

unlicensed or excluded person can 

result in receiving an overpayment. Part 

of determining whether an overpayment 

has been received in this situation is 

investigating the relevant facts about the 

activities of the unlicensed or excluded 

individual and reviewing the relevant 

laws, regulations, and billing rules. 

Comment: A commenter suggested 

adding to the list of examples where no 

reasonable inquiry occurred after 

learning that the profits from a practice 

or physician were unusually high in 

relation to hours worked or the relative 

value units associated with the work. 

Response: We agree that this situation 

could constitute credible information 

that would require a provider or 

supplier to conduct reasonable 

diligence. As we stated earlier, the list 

of examples is illustrative only and not 

a comprehensive list. We are unable to 

address all possible factual 

permutations in this rulemaking. 

Comment: Several commenters 

questioned how a hotline complaint 

could create a duty to conduct a 

reasonable inquiry. A hotline complaint 

is made by employees or other sources 

and is typically used to raise allegations 

of improper conduct or something that 

may need to be investigated. 

Response: Hotline complaints 

received by a provider or supplier may 

qualify as credible information of a 

potential overpayment under this rule, 

which would require the provider or 

supplier to exercise reasonable diligence 

to determine if an overpayment has 

occurred. Whether a hotline complaint 

qualifies as credible information is a 

factual determination. For example, 

receiving repeated hotline complaints 

about the same or similar issues may 

lead a reasonable person to conclude 

that they have received credible 

information that obligates conducting 

reasonable diligence. However, one 

hotline complaint may be detailed 

enough to lead a reasonable person to 

the same conclusion. 

Comment: Several commenters 

questioned to whom within an 

organization CMS would attribute 

knowledge of the overpayment. 

Commenters suggested that CMS clarify 

that it must be a senior official who has 

confirmed the overpayment before 

‘‘knowledge’’ can be attributed to the 

organization. 

Response: We disagree with the 

commenters. As a general matter, 

organizations are responsible for the 

activities of their employees and agents 

at all levels. 

Comment: Some commenters 

requested confirmation that a valid 

report of an overpayment bars any 

substantive liability under the FCA qui 

tam provisions. Commenters suggested 

that the reporting of the overpayment 

should result in a ‘‘public disclosure.’’ 

Other commenters requested 

clarification on the proposed rule’s 

interaction with reverse FCA liability. 

Commenters suggested that a failure to 

report and return an identified 

overpayment should not lead to reverse 

FCA liability, unless the provider 

‘‘knowingly concealed’’ or ‘‘knowingly 

and improperly avoided’’ the obligation. 

Other commenters stated that the 

proposed rule inappropriately applies 

the FCA, specifically the ‘‘reverse false 

claims’’ cause of action, to honest 

mistakes or inadvertent overpayments. 

Response: We are interpreting section 

1128J(d) of the Act in this rulemaking, 

not the FCA. In this rule, our discussion 

of the FCA is limited to its explicit 

inclusion in the enforcement provision 

under section 1128J(d) of the Act, which 

states that any overpayment retained by 

a person after the deadline for reporting 

and returning the overpayment under 

this rule is an obligation for purposes of 

the FCA. 

Comment: Several commenters 

requested clarification about the level of 

resources a small provider or supplier is 

expected to devote to investigating 

potential overpayments in order to 

avoid being liable based on a theory of 

‘‘reckless disregard’’ or ‘‘deliberate 

ignorance.’’ Some commenters 

expressed concern that resources might 

be diverted from patient care in order to 

ensure compliance with this rule. 

Commenters requested that CMS 

provide compliance guidance on how to 

develop compliance plans and conduct 

self-audits for small providers and 

suppliers and recommended that this 

guidance be coordinated with the 

rulemaking related to sections 6102 and 

6401 of the Affordable Care Act. 

Response: We understand the concern 

of smaller providers and suppliers. 

However, we are unable to provide 

specific guidance on resource levels or 

other measures to ensure compliance 

with this rule. Providers and suppliers, 

large and small, have a duty to ensure 

their claims to Medicare are accurate 

and appropriate and to report and return 

overpayments they have received. We 

have produced a number of educational 

materials, including the Medicare 

Learning Network®, which are available 

on our Web site, http://www.cms.gov.2

OIG has also produced a number of 

compliance educational materials that 

are available on its Web site, http://

www.oig.hhs.gov.3

Comment: A commenter 

acknowledged that while a significant 

increase in Medicare revenue could be 

an example of an identified 

overpayment for some types of 

providers, it might be inapplicable to 

other types of providers. Specifically, 

the commenter explained that 

laboratories are not in a position to 

determine the medical necessity of the 

services they provide because they do 

not order the tests. The commenter 

suggested that the final rule clarify that 

laboratories and other providers that do 

not directly order tests or services be 

exempt from any requirement to 

proactively conduct an inquiry into 

whether an overpayment exists based on 

the volume of Medicare work it 

conducts. 

Response: We disagree with the 

commenter. All providers and suppliers 

have a duty to ensure that the claims 

they submit to Medicare are accurate 

and appropriate. There may be 

situations where a significant increase 

in Medicare revenue should lead a 

laboratory to conduct reasonable 

diligence. 

Comment: A commenter expressed 

concern regarding the proposed rule’s 

effect on hospitalists. The commenter 

explained that hospitalists have very 

little contact with the payment process 

because they are employed by a hospital 

or physician group and typically assign 

their Medicare payments to their 

employer. 

Response: For purposes of this rule, 

an entity to which a provider or 

supplier has reassigned Medicare 

payments has a duty to determine 

whether it has received overpayments 

associated with that provider or 

supplier. Additionally, although the 

entity to which payments were 

reassigned has a duty to determine if it 

has received any overpayments, this 

does not mean that the individual who 

has reassigned his or her payments 

might not, in certain circumstances, also 

be responsible for the overpayment. 

This will be a fact-specific 

determination regarding the individual’s 


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knowledge of the circumstances leading 

to the overpayment. 

Comment: Several commenters stated 

that the proposed rule is inconsistent 

with the limitation on liability provision 

in section 1879 of the Act (42 U.S.C. 

1395pp), in situations where the 

provider did not know and could not 

reasonably have been expected to know 

that the payment would not be made. 

Response: We disagree with the 

commenters. Determinations by the 

Secretary with respect to liability for 

non-covered items or services under 

section 1879 of the Act are independent 

from the obligations of providers and 

suppliers under section 1128J(d) of the 

Act to report and return overpayments 

received by a provider or supplier. 

Section 1879 determinations are 

decisions by CMS about whether to 

make payment not withstanding certain 

other provisions in Title XVIII and 

assignment of financial responsibility 

for denied items or services when 

payment may not be made. When CMS 

has made such a determination that 

payment must be made for certain 

denied items or services, the resulting 

payment would not be an overpayment 

under section 1128J(d) of the Act. 

Moreover, determinations in accordance 

with section 1879 of the Act are CMS 

determinations; section 1879 of the Act 

is not applicable to the provider’s or 

supplier’s own assessment of whether 

funds are an overpayment. We believe it 

is inappropriate for providers or 

suppliers to make determinations 

regarding their own knowledge of noncoverage or whether they were the cause 

of an overpayment in lieu of reporting 

and returning an identified 

overpayment as required by this rule. 

Comment: A number of commenters 

suggested including the reasonable 

inquiry issues in the regulatory text for 

clarity. Commenters noted that these 

issues were only discussed in the 

preamble and not noted in the 

regulatory text. 

Response: We have included the 

reasonable diligence language in the 

regulatory text at § 401.305(a)(2). 

Comment: Several commenters 

requested clarification as to how the 

regulations will apply to providers or 

suppliers who receive a possible 

overpayment as the result of a scheme 

that violates the Anti-Kickback Statute 

and the provider or supplier was not a 

party to the scheme. Commenters stated 

that providers or suppliers receiving a 

payment with no knowledge of a 

kickback arrangement should not be 

held responsible for identifying and 

returning the resulting overpayment. 

Commenters also stated that there 

should be no affirmative duty on 

innocent providers and suppliers to 

report a suspicion of a kickback 

arrangement. A commenter proposed 

that ‘‘sufficient knowledge’’ of a 

kickback should mean ‘‘actual 

knowledge of the existence of the 

kickback or acts in reckless disregard or 

deliberate ignorance of the kickback.’’ 

Additionally, some commenters 

suggested that the government has no 

right to recover ‘‘tainted’’ claims made 

to an innocent party that were the result 

of a kickback arrangement and that no 

overpayment exists if the provider is 

without fault. Comments also requested 

further explanation of the extraordinary 

situations in which the government 

would seek recovery from an innocent 

provider. 

Response: As stated in the proposed 

rule and elsewhere in this final rule, 

providers and suppliers who are not a 

party to a kickback arrangement are 

unlikely in most instances to have 

‘‘identified’’ an overpayment that has 

resulted from the kickback arrangement 

and would therefore have no duty to 

report or return it. To the extent that a 

provider or supplier who has received 

an overpayment resulting from a 

kickback arrangement and is not a party 

to a kickback arrangement but has 

sufficient knowledge of the arrangement 

to have identified the resulting 

overpayment, the provider or supplier 

must report the overpayment to CMS. 

However, we decline to adopt the 

suggested definition of ‘‘sufficient 

knowledge.’’ It is possible that a 

provider or supplier may obtain 

information that indicates that an 

arrangement may violate the AntiKickback Statute. 

We would refer the reported 

overpayment and potential kickback 

arrangement to OIG for appropriate 

action and would suspend the 

repayment obligation until the 

government has resolved the kickback 

matter (either by determining that no 

enforcement action is warranted or by 

obtaining a judgment, verdict, 

conviction, guilty plea, or settlement). 

Our expectation is that only the parties 

to the kickback scheme would be 

required to repay the overpayment that 

was received by the innocent provider 

or supplier, except in extraordinary 

circumstances. As these issues are factspecific, we are unable to speculate as 

to what facts would need to be present 

to qualify as extraordinary 

circumstances. 

Comment: A commenter suggested 

creating additional exceptions for 

reporting and returning overpayments 

for other ‘‘innocent provider’’ situations 

for errors made by a third party billing 

company or overpayments resulting 

from the provider or supplier being a 

victim of identity theft. 

Response: Providers and suppliers are 

responsible for the actions of their 

agents, including third-party billing 

companies. We understand that 

providers and suppliers are concerned 

that they may become victims of 

identity theft. Providers and suppliers 

should report any identity theft to law 

enforcement and CMS and should wait 

for instructions from CMS concerning 

returning the overpayment. 

Comment: Several commenters 

requested clarification on the 

overpayment example concerning 

receiving a significant increase in 

Medicare revenue for no apparent 

reason and failing to make reasonable 

inquiry. Commenters requested 

guidance on what is significant. Some 

commenters requested that a 

‘‘significant increase’’ in Medicare 

revenue be defined as a 25 percent 

increase in Medicare revenue or 

alternatively, allow a neutral third-party 

to decide when there is a ‘‘significant 

increase.’’ 

Response: We decline to adopt the 

commenters’ suggestions and will not 

define the term ‘‘significant increase.’’ 

As stated earlier, we are unable to make 

blanket statements or address every 

factual permutation in this rulemaking. 

Providers and suppliers should analyze 

the facts and circumstances present in 

their situation to determine whether 

they have credible information that a 

potential overpayment exists. As 

discussed earlier in this section, 

providers and suppliers are required to 

exercise reasonable diligence to 

determine whether they have received 

an overpayment when there is credible 

information of a potential overpayment. 

Comment: Commenters raised 

concerns about the potential for a 

provider or supplier to refund 

overpayments and that those refunded 

claims may become the subject of an 

audit by a Medicare contractor, such as 

a Medicare Recovery Contractor, or the 

OIG in the future. A commenter 

requested that CMS clarify that 

Medicare contractors should take 

appropriate steps to remove any claims 

that are the subject of an overpayment 

refund from the claims data warehouse 

so that the claims are not later subject 

to contractor or OIG review and 

recoupment for similar issues. 

Response: We understand the 

commenters’ concerns and believe that 

our adjustments to the process for 

reporting and returning overpayments 

discussed in section II.C.4. of this final 

rule address those concerns. If providers 

and suppliers report and return 

overpayments for specific claims, then 


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the MAC can adjust those claims. If 

providers and suppliers report and 

return using statistical sampling and 

extrapolation, then it is only possible to 

adjust the specific erroneous claims 

found in the sample. In this situation, 

providers and suppliers should retain 

their audit and refund documentation in 

the event that a Medicare contractor or 

the OIG audits claims that the provider 

or supplier believes have been 

previously refunded. While we will not 

recover an overpayment twice, we do 

not intend to exempt from subsequent 

audit by CMS, a CMS contractor or the 

OIG any claims that form the basis for 

a returned overpayment. 

Comment: Some commenters stated 

that CMS should clarify that the 

obligation to report and return 

overpayments begins at the conclusion 

of a contractor or government audit, 

after the provider is presented with 

results. 

Response: This rule addresses the 

relevant person’s responsibility to report 

and return overpayments it has received 

and identified based on its own 

proactive analysis or any other means of 

identification. There are many ways, 

other than a government audit, that a 

person can identify an overpayment. 

Receiving the results of a contractor or 

government audit is an example of 

credible information of a potential 

overpayment that requires the provider 

or supplier to conduct reasonable 

diligence to confirm or contest the 

audit’s findings. 

Comment: Some commenters 

requested clarification that the fact that 

a contractor or the government 

determines that a claim constitutes an 

overpayment does not automatically 

mean that the provider or supplier 

should have reported and returned the 

overpayment at an earlier time. 

Response: As previously discussed, 

the threshold obligation in section 

1128J(d) of the Act is that providers and 

suppliers shall report and return 

overpayments. For a claims-based 

overpayment, that obligation must be 

fulfilled within 60 days of identifying 

the overpayment. Section 401.305(a)(2) 

states that a person has identified an 

overpayment when the person has or 

should have determined, through the 

exercise of reasonable diligence, that the 

person has received an overpayment 

and has quantified the amount of the 

overpayment. Whether a particular 

provider or supplier has satisfied this 

standard in a particular circumstance is 

a fact-based inquiry. 

Comment: Other commenters 

requested clarification that a provider’s 

obligation to inquire about potential 

overpayments extends only to the 

results of the contractor or government 

audit and not to other similar potential 

overpayments. 

Response: We agree that when 

receiving the results of a contractor or 

government audit, the scope of the duty 

to conduct reasonable diligence is 

defined by the issues that the contractor 

or government audited. However, 

providers and suppliers will need to 

review the specific facts and 

circumstances, including the billing and 

coverage rules, to determine the 

required scope of their reasonable 

diligence. Also, the contractor or 

government audit may be for a limited 

time period. If the provider or supplier 

confirms the audit’s findings, then the 

provider and supplier may have 

credible information of receiving a 

potential overpayment beyond the scope 

of the audit if the practice that resulted 

in the overpayment also occurred 

outside of the audited timeframe. In 

such situations, providers and suppliers 

will need to conduct reasonable 

diligence within the lookback period of 

this rule to comply with section 

1128J(d) of the Act. 

Comment: Several commenters also 

stated that the duty to search for 

overpayments should not be triggered 

by a general government notice, such as 

the OIG annual work plan. Commenters 

requested that the final rule indicate 

that the duty to make a reasonable 

inquiry is only triggered by a notice of 

a contractor or government audit 

specific to a provider. 

Response: If a contractor or 

government audit discovers a potential 

overpayment, the audit notice from the 

contractor or government triggers the 

provider’s or supplier’s obligations 

under section 1128J(d) of the Act. We 

encourage providers and suppliers to 

take advantage of additional sources of 

publicly available information, such as 

the OIG’s annual work plan and CMS 

notices, to inform their planning of 

proactive compliance monitoring 

activities and retroactive reviews. 

Comment: Many commenters 

requested clarification of the rule’s 

application in the administrative appeal 

process. Some commenters 

recommended that providers and 

suppliers have the opportunity to 

review Medicare contractor audit results 

and determine whether they agree or 

whether they will file an appeal. Some 

commenters believed that the obligation 

to report and return overpayments 

identified by Medicare contractors 

should wait until the appeals process is 

completed. In support, commenters rely 

on Section 935 of the Medicare 

Modernization Act (MMA), which 

places limits on the ability of CMS and 

its contractors to recoup a potential 

overpayment during the first 2 levels of 

administrative appeal. Commenters 

requested that CMS clarify that, for the 

purposes of complying with proposed 

42 CFR 401.305, a potential 

overpayment brought to the provider’s 

or supplier’s attention by a Medicare 

contractor shall not be considered 

‘‘identified’’ until the later of: (1) The 

exhaustion of the provider’s or 

supplier’s appeal rights; or (2) the 

expiration of the time limit for the 

provider or supplier to pursue the next 

level of administrative or judicial 

appeal. 

Response: The provisions of this final 

rule establish that a person has the 

responsibility to conduct an 

investigation in good faith and a timely 

manner in response to obtaining 

credible information of a potential 

overpayment and to return identified 

overpayments by the deadline set forth 

in § 401.305(b). This responsibility 

exists independent of the appeals 

process for contractors’ overpayment 

determinations. We believe that 

contractor overpayment determinations 

are always a credible source of 

information for other potential 

overpayments. Moreover, we recognize 

that in certain cases, the conduct that 

serves as the basis for the contractor 

identified overpayment may be nearly 

identical to conduct in some additional 

time period not covered by the 

contractor audit. If the provider appeals 

the contractor identified overpayment, 

the provider may reasonably assess that 

it is premature to initiate a reasonably 

diligent investigation into the nearly 

identical conduct in an additional time 

period until such time as the contractor 

identified overpayment has worked its 

way through the administrative appeals 

process. 

Comment: A number of commenters 

questioned whether providers and 

suppliers have appeal rights to selfidentified overpayments. Commenters 

stated that the potential penalties for not 

reporting and returning an 

overpayment, coupled with the short 

60-day time period for doing so, likely 

will result in providers and suppliers 

erring on the side of caution and 

returning an overpayment prematurely. 

Commenters suggested expanding the 

list of actions in 42 CFR 405.924 that 

constitute an initial determination to 

provide for an appeal right related to a 

‘‘contractor’s acceptance of a refund of 

an overpayment made in accordance 

with § 401.305.’’ Other commenters 

stated that the acceptance of the 

overpayment and the related adjustment 

should be considered a reopening and 

revised determination of the initial 


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determination of payment under the 

current regulations and CMS manual 

instructions. Other commenters stated 

that the concept of reconciliation should 

incorporate the existing appeals process. 

Response: Section 1128J(d) of the Act 

clearly requires providers and suppliers 

to report and return identified 

overpayments they have received. To 

the extent that the return of any selfidentified overpayment results in a 

revised initial determination of any 

specific claim or claims, a person would 

be afforded any appeal rights that 

currently exist, as some commenters 

stated. Revised initial determinations, 

which trigger appeal rights under the 

existing rules, are issued when specific 

claims are adjusted. We note the process 

for identifying an overpayment requires 

a person to exercise reasonable 

diligence in determining whether an 

overpayment was received and to 

quantify the overpayment amount with 

a reasonable degree of certainty. We 

expect persons to exercise responsibility 

in identifying an overpayment that is 

reported and returned in accordance 

with section 1128J(d) of the Act. It 

would be inconsistent with the intent of 

the statute and our regulations for 

persons to return self-identified 

overpayments or a subset of the larger 

overpayment, and then appeal those 

overpayments as a means to circumvent 

the duty for timely investigation of 

potential overpayments or the deadline 

for reporting and returning of identified 

overpayments. As such, we decline the 

commenters’ suggestion to create an 

explicit appeal right by classifying 

‘‘contractor’s acceptance of a refund of 

an overpayment made in accordance 

with § 401.305’’ as an initial 

determination in § 405.924. If a provider 

or supplier were to report and return 

certain overpayments through 

individual claims determinations but 

chose not to extrapolate and, thus, not 

return the entire overpayment amount 

because the provider or supplier is 

appealing the individual claim 

determinations, then the provider or 

supplier could be viewed as failing to 

exercise reasonable diligence to identify 

amounts that the person should have 

determined are overpayments. As 

discussed in section II.C.1. of this final 

rule, any overpayment retained by a 

person after the deadline for reporting 

and returning the overpayment is an 

obligation that has the potential to 

trigger FCA liability. 

Comment: Several commenters 

requested that CMS confirm that 

refunds based on statistical sampling 

will maintain appeal rights. Because 

individual claim adjustments may not 

be made when sampling is utilized to 

estimate an overpayment amount, CMS 

should confirm that providers and 

suppliers may still appeal such findings 

if necessary. 

Response: To the extent that the 

return of any self-identified 

overpayment results in a revised initial 

determination of any specific claim or 

claims, a person would be afforded the 

appeal rights that currently exist. As is 

currently the case under the existing 

voluntary refund process, there are no 

appeal rights associated with the selfidentified overpayments that do not 

involve identification of individual 

overpaid claims and individual claim 

adjustments. 

Comment: Several commenters noted 

that the proposed rule provided no 

avenue for providers and suppliers to 

cancel the overpayment refund if the 

provider or supplier subsequently 

determines that the overpayment refund 

was made in error. Commenters 

suggested requiring contractors to return 

payments to providers and suppliers 

when the provider or supplier notifies 

the contractor that the funds were 

returned in error and requests a reversal. 

Response: Providers and suppliers 

should exercise reasonable diligence as 

set forth in this final rule before 

reporting and returning the 

overpayment. Additionally, the existing 

reopening regulations afford a means for 

a provider or supplier to request 

correction of a mistake in reporting an 

overpayment, although we do not 

expect this to be a frequent occurrence. 

2. Meaning of Applicable Reconciliation 

Our proposed rule acknowledged that 

in some instances, we make interim 

payments to a provider through the cost 

year and that the provider reconciles 

these payments with covered and 

reimbursable costs at the time the cost 

report is due. In proposed § 401.305(c), 

we stated that ‘‘applicable 

reconciliation’’ would occur when the 

cost report is filed. This would include 

an initial cost report submission or an 

amended cost report. We proposed two 

exceptions to the general rule that the 

applicable reconciliation occurs with 

the provider’s submission of a cost 

report. The first was related to 

Supplemental Security Income (SSI) 

ratios used in the calculation of 

disproportionate share hospital (DSH) 

payment adjustment. The second 

exception was related to the outlier 

reconciliation, which is performed at 

the time the cost report is settled if 

certain thresholds are exceeded. 

Comment: Many commenters 

questioned our proposed interpretation 

of the term ‘‘applicable reconciliation.’’ 

Generally, commenters did not believe 

the Congress intended applicable 

reconciliation to be interpreted as 

narrowly as we proposed. Some 

commenters interpreted ‘‘applicable 

reconciliation’’ as the preliminary steps 

taken by the provider or supplier to 

determine whether they have received 

an overpayment. Some commenters 

suggested that CMS include the claims 

adjustment and credit balance processes 

in the definition of applicable 

reconciliation. Other commenters 

requested CMS to include all instances 

of addressing and resolving 

overpayments in the term ‘‘applicable 

reconciliation,’’ including but not 

limited to Medicare contractor or OIG 

audits and pre- and post-payment 

reviews by Medicare Administrative 

Contractors. 

Response: We understand some of the 

commenters’ concerns and believe our 

clarification of the constructive 

knowledge standard for identifying an 

overpayment discussed previously 

should address many of these concerns. 

However, we disagree with the 

commenters’ interpretation of the term 

‘‘applicable reconciliation’’ in the 

context of this final rule, which applies 

to Medicare Parts A and B. The term 

‘‘persons’’ covered by section 1128J(d) 

of the Act is broad—it covers not only 

providers and suppliers, but also 

Medicaid managed care organizations, 

MA organizations, and PDP sponsors. 

The definition of overpayment, where 

the term ‘‘applicable reconciliation’’ is 

used, is similarly broad in that it covers 

overpayments received or retained by 

any of these persons. As a result, 

Congress addressed the significant 

differences between how all of these 

persons receive federal health care 

program dollars in the overpayment 

definition by including the term 

‘‘applicable reconciliation.’’ Medicare 

Part A and B claims are submitted by 

providers and suppliers to contractors 

and those claims are expected to be 

correct when filed. Medicare contractors 

do not audit or ‘‘reconcile’’ every claim. 

To the extent our contractors perform 

claims auditing, that auditing is done in 

the context of our program integrity 

efforts to find improper claims. Section 

1128J(d) of the Act does not permit 

providers and suppliers to retain 

overpayments until a CMS contractor or 

the OIG identify the overpayment for 

the provider or supplier. Providers and 

suppliers cannot rely on Medicare’s 

contractors or the OIG to point out their 

overpayments for them—providers and 

suppliers are obligated to identify the 

overpayments they have received. Also, 

we do not believe that the claims 

adjustment and credit balance processes 


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are properly considered 

‘‘reconciliation.’’ Instead, they are 

mechanisms for providers and suppliers 

to report and return overpayments that 

they identify. We have revised 

§ 401.305(a)(2) to address those 

processes. 

Comment: Some commenters stated 

that our proposed approach is 

inconsistent with our prior position in 

previous rulemakings that commenters 

contend allowed for post-payment 

adjustments before considering if an 

overpayment exists. Commenters cited 

language from the March 25, 1998 

proposed rule (63 FR 14506) as an 

indication that CMS allowed 

reconciliation to occur prior to the 

remaining overpayment amount being 

considered a debt. The March 25, 1998 

proposed rule specified that 

overpayments generally result when 

payment is made by Medicare for noncovered items or services, when 

payment is made that exceeds the 

amount allowed by Medicare for an item 

or service, or when payment is made for 

items or services that should have been 

paid by another insurer (Medicare 

secondary payer obligations). 

Furthermore, it specified that, once a 

determination and any necessary 

adjustments in the amount of the 

overpayment have been made, the 

remaining amount is a debt owed to the 

United States Government. 

Similarly, commenters believed the 

following statement in our January 25, 

2002 proposed rule (67 FR 3663) 

supports a more inclusive definition of 

applicable reconciliation: ‘‘Submission 

of corrected bills in conformance with 

our policy, within 60 days, fulfills these 

requirements for providers, suppliers, 

and individuals.’’ 

Response: The cited language from 

the March 1998 proposed rule was 

addressing the Secretary’s identification 

of overpayments, not overpayment 

identified by a provider or supplier, 

which is the subject of this rule. As for 

the January 2002 proposed rule, we note 

that the structure proposed in that rule 

is similar to the section 1128J(d) 

obligation regarding the reporting and 

returning of overpayments within 60 

days of identification. We fail to see 

how the sentence cited by commenters 

from the January 2002 proposed rule 

indicates anything about the concept of 

applicable reconciliation. Moreover, this 

statement is consistent with the 

discussion in section II.C.4. of this final 

rule regarding the claims adjustment 

processes as a way to report and return 

overpayments. 

Comment: Many commenters 

questioned the proposed definition of 

‘‘applicable reconciliation’’ as it 

pertains to cost reports. The proposed 

rule defined ‘‘applicable reconciliation’’ 

as occurring when a cost report is filed, 

except that any changes to the SSI ratio 

that affect the Medicare hospital 

disproportionate share payments and 

any reconciliation to outlier payments 

will not result in a refund obligation 

until such time as the final settlement 

of the hospital’s cost report occurs. 

Specifically, commenters stated that 

section 1128J(d) of the Act recognizes 

the deadline for submission of the 

initial cost report as tolling the 60-day 

time period and thus applicable 

reconciliation should mean a process 

that occurs subsequent to the 

submission of the initial cost report. 

Commenters stated that CMS’ 

discussion of the applicable 

reconciliation period seemed to suggest 

that, other than for SSI ratios and 

outliers, providers will be expected to 

have identified a cost report-related 

overpayment at the time that the 

provider submits an initial or amended 

cost report. According to commenters, 

this suggestion is inconsistent with the 

purpose of the cost report settlement 

process, which is to assist all parties in 

identifying and correcting errors, and it 

is not until this process is completed 

(and sometimes long after) that 

providers may become aware of an 

overpayment. In addition, commenters 

objected to the position that initial or 

amended cost reports can serve as the 

basis for an overpayment, given that the 

determination of the amount of 

reimbursement due on that cost report 

is not final until the contractor audits 

the cost report and issues a written 

determination under 42 CFR 

405.1803(a). 

Commenters recommended 

‘‘applicable reconciliation’’ in the 

context of cost reporting occur upon the 

final settlement of a provider’s cost 

report by the MAC, so long as, upon 

discovery of an issue subject to cost 

report audits that could affect a 

provider’s Medicare payment, the 

provider timely discloses the issue to a 

MAC for purposes of preparing a final 

cost report settlement. 

Response: We appreciate the 

comments on this issue. However, we 

are finalizing the definition of 

applicable reconciliation as proposed. 

The applicable reconciliation for 

purposes of 1128J(d)(4)(B) is the 

reconciliation that enables a person to 

identify funds to which the person is 

not entitled. Providers are required to 

file annual cost reports in order to 

determine their total reimbursement and 

any amount due to or from the Medicare 

program. When a provider files its cost 

report, it is attesting to the accuracy of 

the provider’s reconciliation of the 

interim payments and costs. 

Accordingly, in the context of cost 

reporting, the ‘‘applicable 

reconciliation’’ is the provider’s yearend reconciliation of payments and 

costs to create the cost report. The cost 

report must be filed within 5 months of 

the end of the provider’s fiscal year end, 

which allows the provider time to 

reconcile payments and costs and 

identify any funds to which the 

provider is not entitled. This 

overpayment should be returned at the 

time the cost report is filed. We note 

that this definition establishes a policy 

that is consistent with our regulations at 

42 CFR 405.378(e)(2)(i), which state that 

if a cost report is filed indicating that an 

amount is due to CMS, interest on the 

amount due will accrue from the due 

date of the cost report (unless certain 

exceptions apply). 

Comment: Several cancer centers 

raised concerns about the rule’s 

application to their payments. 

According to comments, cancer centers 

are reimbursed for inpatient services 

based on the reasonable cost 

methodology subject to the Tax Equity 

and Fiscal Responsibility Act (TEFRA) 

cost limits and are eligible for hold 

harmless payments under the outpatient 

prospective payment system. Because of 

the unique aspects of these payment 

methodologies, billing or other errors or 

omissions that may cause an 

overpayment for other types of hospitals 

would often not result in a reduction in 

overall reimbursement for a cancer 

center if they were corrected. Therefore, 

commenters requested that CMS clarify 

that billing or other errors that would 

not impact the reimbursement amount 

that a provider receives would not 

constitute an overpayment for purposes 

of this final rule. 

Response: We agree with the 

commenters to the extent that section 

1128J(d) of the Act pertains only to 

overpayments. If a provider identifies an 

error or omission that does not result in 

an overpayment, then the requirements 

of section 1128J(d) of the Act or this rule 

do not apply. 

Comment: Commenters questioned 

whether there is a duty to revise past 

cost reports based on the results of a 

MAC audit on one cost report. For 

example, a MAC may audit a cost report 

for one year and make certain 

adjustments based on what it 

determines to be the improper treatment 

of certain costs. Commenters questioned 

whether, under this rule, a provider 

would be required to submit amended 

cost reports for all other unaudited cost 

report years in which the provider 

treated those costs in a similar fashion. 


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Response: If the MAC notifies a 

provider of an improper cost report 

payment, the provider has received 

credible information of a potential 

overpayment and must conduct 

reasonable diligence on other cost 

reports within the lookback period to 

determine if it has received an 

overpayment. 

Comment: Commenters questioned 

the rule’s effect on the hospice annual 

cap, the home health outlier revenue 

cap, and requests for anticipated 

payments (RAPs). According to 

commenters, hospices and home health 

agencies have no way of knowing 

whether they have received a cap 

overpayment, or the amount, until they 

are notified by the MAC. Commenters 

requested that CMS clarify that the rule 

does not apply in these situations. 

Response: The hospice and home 

health cap determinations are made at 

the end of the year and it is possible that 

the provider may not be aware of the 

cap status until their MAC calculates 

the final cap amount. Therefore, the 

provider is not responsible to report and 

refund the overpayment until they have 

received the cap determination from 

their MAC. There can be no applicable 

reconciliation until the final cap amount 

is determined. 

Comment: Commenters questioned 

the rule’s effect on payment adjustments 

under the long-term care hospitals 

(LTCHs) prospective payment system 

(PPS), including the so-called ‘‘25- 

percent threshold rule’’ payment 

adjustment policy as implemented by 42 

CFR 412.534 and 412.536. 

Response: In this final rule, we define 

overpayment as any funds that a person 

has received or retained under title 

XVIII of the Act to which the person, 

after applicable reconciliation, is not 

entitled under such title. To the extent 

the LCTH adjustments meet this 

definition they are overpayments. 

Comment: Commenters questioned 

how providers that receive periodic 

interim payments (PIP) would be 

expected to return any overpayments. 

Under the statutory and proposed 

regulatory definitions of 

‘‘overpayment,’’ during any cost 

reporting period, no overpayment exists 

until the provider submits its cost 

report. Commenters sought clarification 

that any overpayments identified by 

providers related to these interim 

payments must be reported and 

returned by the date any corresponding 

cost report is due, not within 60 days of 

identification. Commenters believed 

that the preamble language in the 

proposed rule indicated that CMS 

believed any overpayments associated 

with interim payments made to a 

provider throughout the cost report year 

would be reconciled at the time that the 

cost report is due, but they sought 

confirmation that this is CMS’s policy 

for PIP providers. 

Response: We agree with commenters. 

Overpayments as a result of PIP 

payments would be reported and 

returned at the time the initial cost 

report is due. There is no applicable 

reconciliation until the PIP payments 

are dealt with in the cost report process. 

However, if a provider is aware that 

their PIP payment may not be accurate, 

they should continue with normal 

business practices and inform its MAC 

of the issue. 

Comment: Some commenters 

questioned under what circumstances a 

provider would anticipate an outlier 

reconciliation will be performed at the 

time of cost report settlement and 

requested that CMS clarify that outlier 

payments may be returned via the 

overpayment reporting process for 

claims. Other commenters requested 

clarification of how the rule would 

apply in situations where a MAC 

amends the provider’s cost to charge 

ratio resulting in a reduction to its 

Medicare outlier payments for the cost 

reporting period. Specifically, 

commenters questioned whether it is 

the provider’s responsibility to 

recompute its outlier payments based on 

this new information and remit any 

overpayment to the Medicare contractor 

within 60 days of receiving the 

notification or whether the provider 

should wait for the MAC to audit, or if 

applicable, reopen the cost report and 

redetermine the settlement amount. 

Response: An overpayment as a result 

of an outlier reconciliation would be 

identified once the provider receives 

that information from its MAC as part of 

the cost report settlement process. The 

provider is not responsible for 

attempting to identify the cost report 

outlier reconciliation overpayment in 

advance of the MAC’s reconciliation 

calculation. However, for claims, if the 

provider identifies an inaccurate outlier 

claim payment, the provider must 

follow the overpayment payment 

reporting process for claims, as noted in 

this final rule. 

Comment: Given that cost reports can 

remain under audit review for 3 to 4 

years and are not finalized until the 

Notice of Program Reimbursement 

(‘‘NPR’’) date, commenters requested 

that CMS provide guidance on 

providers’ responsibilities when an 

overpayment is discovered by the 

provider or the MAC auditor after the 

cost report is due/filed but prior to the 

NPR date. Commenters questioned 

whether the provider would be required 

to report and repay the overpayment 

within 60 days of identification rather 

than allowing for completion of the 

audit process, which includes netting 

out of underpayments and 

overpayments, while the cost report is 

still open. Commenters stated that 

requiring reporting and returning within 

60 days of identification, as opposed to 

allowing completion of the audit 

process, would force providers to send 

in numerous overpayments for minor 

errors while the cost report is open and 

disrupt the normal MAC audit process. 

Commenters also questioned a 

number of other cost report issues that 

they believed to be not entirely known 

to the provider at the time of initially 

filing the as-filed cost report, but which 

are reconciled through the audit 

process, and finalized with the issuance 

of the NPR, including— 

• Home office cost statements 

(HOCS), providers usually file an 

estimate of home office costs on the 

hospital cost report, which is 

subsequently reconciled to the HOCS 

when the MAC audits the HOCS; 

• Any interim payments such as 

Medicare bad debt or graduate medical 

education (GME), including resident 

‘‘overlap’’ reports from the MAC; 

• Sole-community hospital (SCH)/

Medicare-dependent hospital (MDH) 

payments; 

• End-stage renal disease (ESRD) 

payments; 

• Organ payments; 

• Nursing and allied health 

payments; 

• Tentative settlement payments; 

• Updated Provider Statistical & 

Reimbursement Report (PS&R) for 

claims processed after cost report 

submission; 

• Prior-year audit adjustments, CMS 

rulings, and PRRB appeals; and 

• HITECH Act EHR incentive 

payments. 

Response: If the provider selfidentifies an overpayment after the 

submission and applicable 

reconciliation of the Medicare cost 

report, it is their responsibility to follow 

the procedures in this rule, and report 

and return the overpayment within 60 

days of identification. The provider 

must use the applicable reporting 

process for cost report overpayments 

(submit an amended cost report) along 

with the overpayment refund. The 

amended cost report must include 

sufficient documentation and data to 

identify the issue in order for the MAC 

to adjust the cost report. 

If the overpayment is identified by the 

MAC during the cost report audit, the 

MAC will determine and demand the 

exact amount of the overpayment at 


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final settlement of the cost report. The 

provider remains responsible to report 

and refund similar overpayments in cost 

reports for other years not covered by 

the MAC audit. 

Comment: Commenters noted that the 

proposed rule did not mention any 

changes to the cost report reopening 

period at § 405.1885, which is 3 years. 

Response: We did not propose and are 

not changing the time period in 42 CFR 

405.1885. 

3. Lookback Period 

Proposed § 401.305(g) specified that 

overpayments must be reported and 

returned only if a person identifies the 

overpayment within 10 years of the date 

the overpayment was received. We 

proposed 10 years because this is the 

outer limit of the FCA statute of 

limitations. We also proposed amending 

the reopening rules at § 405.980(b) to 

provide that overpayments reported in 

accordance with § 401.305 may be 

reopened for a period of 10 years to 

ensure consistency between the 

reopening regulations and § 401.305(g). 

Comment: Many commenters objected 

to the proposed 10-year lookback period 

in § 401.305(g) for several reasons. First, 

commenters stated that section 1128J(d) 

of the Act does not provide a basis to 

create a new lookback period that is 

different from the one in existing 

reopening rules. Second, commenters 

stated that it was not appropriate to use 

the outer limit of the FCA as the 

lookback period. Since the FCA is a 

fraud enforcement statute, commenters 

stated that it was not appropriate to 

apply this time period to all 

overpayments, which could also be 

caused by errors or mistakes that did not 

rise to the level of fraud. Third, 

commenters stated that 6 years is the 

more commonly used statute of 

limitations in the FCA and that the 10- 

year period only applied in certain 

circumstances. Thus, commenters stated 

that the proposed lookback period was 

broader than, and not parallel to, that of 

the FCA. 

Commenters also stated that the 

proposed 10-year period was overly 

burdensome. First, many commenters 

stated that compliance with the 

proposed time period would require a 

de facto 10-year record retention 

requirement and would be inconsistent 

with existing record retention 

requirements. Second, commenters 

stated that maintaining paper and 

electronic medical and billing records 

for the proposed 10-year period as well 

as the difficulties with retrieving that 

information from legacy systems would 

be costly and time-consuming. Third, 

commenters stated that the proposed 10- 

year period would increase the burden, 

costs, and complexity in investigating a 

potential overpayment. For example, 

commenters noted that they would 

likely need to create very large sample 

sizes to cover a 10-year timeframe. In 

addition, the review would need to 

account for any changes in the coding, 

including Current Procedural 

Terminology (CPT) codes (or other 

codes used to identify items or 

procedures billed), Correct Coding 

Initiative (CCI) editing protocols, local 

contractor determinations, coverage 

guidelines, and other CMS policies. 

Finally, commenters noted that staff 

turnover at both the provider or supplier 

and CMS contractor levels may create 

additional challenges in investigating 

claims filed up to 10 years ago. 

Commenters offered a variety of 

alternative lookback periods: 

• Many commenters suggested using 

the current reopening rules at 42 CFR 

405.980, which permit contractors to 

reopen claims within 1 year for any 

reason, within 4 years for good cause, 

and at any time if evidence of fraud or 

similar fault exists. These commenters 

stated that § 405.980 sets forth a 

reasonable timeframes and providers 

and suppliers have built their internal 

processes around them. 

• Other commenters recommended a 

3-year lookback period for all 

overpayments not resulting from fraud 

or other intentional misconduct. These 

commenters generally justified a 3-year 

period because the Medicare and 

Medicaid RACs are limited to 3 years in 

their audits. A commenter 

recommended 3 years because it 

matched the timeframe for coordination 

of benefits under Part D. 

• Other commenters recommended a 

5-year period because it was consistent 

with the medical record retention 

requirement in the hospital conditions 

of participation at 42 CFR 482.24. 

• Other commenters recommended a 

6-year period. These commenters stated 

that 6 years is consistent with the more 

commonly applicable FCA statute of 

limitations as well as the statute of 

limitations for section 1128A of the Act, 

which contains a variety of civil 

monetary penalty (CMP) authorities 

applicable to Medicare and Medicaid, 

including the CMP applicable to section 

1128J(d) of the Act. Several commenters 

also recommended 6 years because it is 

consistent with the medical record 

retention requirements for Part B 

providers under Chapter 24, 30.2 of the 

Medicare Claims Processing Manual and 

the HIPAA requirements at 45 CFR 

164.316(b)(2) for maintaining 

documentation of compliance policies 

and procedures as well as various state 

medical record retention requirements. 

• Other commenters recommended a 

7-year period. These commenters stated 

that most, if not all, providers and 

suppliers retain documentation for 

claims they submit for a 7-year period 

as part of their standard record retention 

policies. 

Response: We have carefully 

considered all of the comments on the 

lookback period and have concluded 

that 6-year time period is most 

appropriate for this rule. The change is 

reflected in § 401.305(f) of this final 

rule. The 6-year lookback period will be 

measured back from the date the person 

identifies the overpayment. As an initial 

matter, we believe that we have the 

authority to establish a lookback period 

for section 1128J(d) of the Act under our 

programmatic rulemaking authority, 

including our authority to create the 

reopening rules under section 1869 of 

the Act. We note that section 1128J(d) 

has no time limit to the obligation to 

report and return overpayments 

received by a provider or supplier. The 

enforcement mechanisms, the FCA and 

section 1128A of the Act, have time 

limits ranging from 6 to 10 years. We 

believe that the current reopening rules 

need to be adjusted to properly reflect 

section 1128J(d) of the Act, specifically 

the statute’s enforcement aspects. We 

are amending the reopening rules to 

provide for a reopening period that 

accommodates the 6-year lookback 

period for reporting and returning 

overpayments, and to ensure that the 

reopening rules do not present an 

obstacle or unintended loophole to 

compliance and enforcement of section 

1128J(d) of the Act. We specify in 

§ 405.980(c)(4) that providers may 

request that contractors reopen initial 

determinations for the purpose of 

reporting and returning an overpayment 

under § 401.305. However, this revision 

to the reopening regulation does not 

extend the lookback period specified in 

§ 401.305(f). Rather, it serves to make 

administrative accommodations so that 

contractors may reopen the initial 

determination associated with any 

overpayment reported and returned by a 

provider or supplier during the 6-year 

lookback period set forth in this final 

rule. 

After review of all the issues 

identified by the commenters, we 

conclude that a 6-year lookback period 

would appropriately address many of 

the concerns about burden and cost 

outlined previously. Specifically, we 

note that, according to commenters, 

many providers and suppliers retain 

records and claims data for between 6 

and 7 years based on various existing 


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federal and state requirements. Thus, we 

believe our final rule does not create 

additional burden or cost on providers 

and suppliers in this regard. Also, 6 

years is consistent with one component 

of the FCA statute of limitations as well 

as the statute of limitations under 

section 1128A of the Act. 

Comment: Several commenters 

recommended a lookback period that is 

no longer than the state medical record 

retention law in which the medical 

professional or facility is licensed and is 

not longer than 7 years from the date of 

service. 

Response: We decline to adopt this 

approach for the reasons discussed 

previously. In addition, we do not 

believe it is appropriate or desirable to 

have the time period vary based solely 

on the medical record retention laws of 

the state in which the provider or 

supplier is furnishing services. Section 

1128J(d) of the Act uniformly applies to 

all providers and suppliers in each state 

and, as such, all providers and suppliers 

should have the same obligations. 

Comment: A commenter 

recommended changing the reopening 

rules to eliminate the ability to reopen 

claims at any time for fraud or similar 

fault and instead modify reopening 

rules to be a 4-year lookback period for 

errors that are not the result of fraud or 

similar fault, a 6-year lookback period 

(consistent with one component of the 

FCA statute of limitations) for 

knowingly false or fraudulent claims, 

and a 10-year lookback period 

(consistent with the outer limit of the 

FCA statute) for the most extreme cases 

where knowingly false or fraudulent 

claims have been actively concealed 

from discovery. 

Response: We also decline to adopt 

this approach for the reasons discussed 

previously. In addition, we see no 

reason to change the ‘‘fraud or similar 

fault’’ aspect of the reopening rule. First, 

this issue is outside the scope of this 

rulemaking. Second, we do not believe 

changing this aspect of the reopening 

rule is necessary or desirable. We note 

that fraud investigations and judicial 

proceedings can require an extended 

period of time beyond the date the claim 

was filed to resolve, which counsels 

against imposing a limitation on 

reopening determinations procured by 

fraud or similar fault. 

Comment: Several commenters noted 

that in 2005 we considered extending 

the reopening periods to 5 years in 

certain circumstances and decided not 

to. Specifically, we proposed a 5-year 

reopening period if a contractor 

discovered a pattern of billing errors or 

identified an overpayment extrapolated 

from a statistical sample. (See the 

November 15, 2002 proposed rule (67 

FR 69327).) In response to this proposed 

provision, commenters maintained that 

we did not adequately justify the 

proposed 5-year timeframe and 

expressed concerns about the difficulty 

and burden of locating documentation 

on older claims. (See the March 8, 2005 

interim final rule with comment period 

(70 FR 11452).) In the interim final rule, 

we did not finalize the 5-year proposed 

period. Commenters questioned why we 

proposed a lookback period twice the 

length of the period proposed, and not 

finalized, in 2005 and suggested that we 

refrain from extending the look-back 

period for reported overpayments to 10 

years for the same reasons. 

Response: In the March 2005 interim 

final rule, we stated that we proposed 

the 5-year lookback period in an effort 

to accommodate overpayments 

identified by external auditors and law 

enforcement agencies where the 

external or law enforcement auditor 

used a 5-year sampling methodology, 

but the Medicare contractor was limited 

to a 4-year recovery period where there 

was no fraud determination. We 

decided to remove the proposal in 

recognition of commenters’ concerns 

and directed contractors to rely on the 

similar fault provisions to reopen claims 

where law enforcement findings suggest 

a need to reopen. Since the March 2005 

rulemaking, the Congress has changed 

the law by enacting section 1128J(d) of 

the Act. We believe that this law 

requires us to re-examine our reopening 

rules to ensure that those rules are 

consistent with the law. Previously in 

this final rule, we have articulated a 

rationale for the 6-year period in a way 

that balances giving full effect to the law 

the Congress passed with the cost and 

burden issues identified by commenters. 

Comment: Commenters questioned 

whether they had a responsibility to go 

back beyond the 3 years covered in a 

Recovery Audit Contractor (RAC) audit 

that identifies overpayments. 

Response: Yes, as discussed 

previously, this final rule clarifies that 

when the provider or supplier receives 

credible information of a potential 

overpayment, they need to conduct 

reasonable diligence to determine 

whether they have received an 

overpayment. RAC audit findings, as 

well as other Medicare contractor and 

OIG audit findings, are credible 

information of at least a potential 

overpayment. Providers and suppliers 

need to review the audit findings and 

determine whether they have received 

an overpayment. As part of this review, 

providers and suppliers need to 

determine whether they have received 

overpayments going back 6 years as 

stated in this rule. 

Comment: A commenter requested 

that, regardless of the lookback period 

we adopt, we allow Part B providers to 

use scanned records to justify their Part 

B claims for auditing purposes. The 

commenter stated that maintaining 

paper records for 6 or 10 years is 

burdensome, takes up significant 

physical space and is unnecessarily 

costly in terms of the cost of renting or 

purchasing space to store 6 or 10 years’ 

worth of paper records. The commenter 

noted that the proposed rule was silent 

as to whether scanned versus paper 

records are sufficient for validating 

claims under the lookback period and 

requested clarification that scanned 

records are acceptable for validating 

claims. 

Response: We agree with the 

commenter that scanned or electronic 

records are acceptable for validating 

claims for purposes of identifying 

overpayments within the context of this 

rule. 

Comment: Several commenters 

believed that the 10-year lookback 

period was appropriate. Commenters 

believed that the proposed rule was 

consistent with the 10-year FCA statute 

of limitations and would help ensure 

wrongfully retained overpayments were 

returned to the government. 

Commenters noted that the 10-year FCA 

provision has been in place since the 

1986 amendments, and thus does not 

impose new burdens or duties on 

providers and suppliers. Commenters 

stated that an alternative period would 

lead to unnecessary confusion and 

inconsistencies in light of existing 

expectations of liability for a 10-year 

lookback period. 

Response: We appreciate the 

commenters’ perspective and agree that 

a 10-year lookback period would be a 

justifiable option for this final rule. 

However, we have decided to adopt a 6- 

year period for the reasons discussed 

previously. 

Comment: A few commenters sought 

clarification of the proposed reopening 

rule change insofar as whether it affects 

the existing reopening rules for 

contractors reopening paid claims 

beyond 4 years. Commenters stated that 

they believed the proposed revision to 

the reopening rules was intended to 

eliminate an administrative hurdle that 

would otherwise prevent the contractor 

from adjusting claims following receipt 

of an overpayment disclosed by a 

provider. Commenters interpreted the 

revision to the reopening rules to not 

expand the authority of contractors to 

reopen paid claims that are not the 

subject of a voluntary disclosure by a 


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provider and requested that we confirm 

that interpretation in the final rule. 

Response: We agree with the 

commenters’ interpretation. The 

proposed rule amended § 405.980(b), 

which applies to reopenings initiated by 

the contractor. In the context of this 

final rule, providers or suppliers would 

be initiating the reopening by reporting 

and returning the overpayment, which 

falls under § 405.980(c). As such, we 

have included language concerning 

reopenings under this final rule in 

§ 405.980(c)(4) for clarity. Reopenings 

under this subsection are limited to 

reopenings requested by the provider or 

supplier under § 401.305. 

Comment: A commenter requested 

clarification of the statement in the 

preamble indicating that overpayments 

reported in accordance with § 401.305 

may be reopened for a period of 10 

years. The commenter suggested this 

statement could mean that the decision 

to adjust a paid claim following the 

report of an overpayment would be 

subject to revision for 10 years after the 

adjustment is made. The commenter 

requested that we clarify that claims 

reported as overpayments in accordance 

with § 401.305 may be reopened for a 

period of 10 years after the date the 

claim was paid. 

Response: Consistent with the 

lookback period specified in § 401.305, 

any initial determination that is 

subsequently reported and returned as 

an overpayment is subject to reopening 

and revision by a contractor whenever 

the overpayment is returned. 

Comment: A commenter questioned 

whether the adjustment to a paid claim 

following a provider’s report and return 

of an overpayment constitutes a 

redetermination for purposes of the 

reopening rules. 

Response: An adjustment to any 

individual paid claim constitutes a 

revised initial determination for 

purposes of the reopening rules. 

Comment: Several commenters noted 

that the Medicare hospital conditions of 

participation at 42 CFR 482.24 requires 

hospitals to retain medical records for 5 

years and requested clarification on how 

(if at all) the implementation of the 

proposed 10-year lookback period 

impacts or alters recordkeeping rules. 

Response: First, we note that 

§ 482.24(b)(1) states that hospitals must 

retain medical records for a period of at 

least 5 years, which sets a minimum 

record retention period, not a 

maximum. We also note that, as 

discussed previously, other commenters 

cited other record retention rules and 

practices for 6 to 7-year periods. Since 

we are establishing a 6-year lookback 

period, we believe hospitals will have 

little, if any, additional record retention 

burden as the result of this rule. 

Comment: A commenter 

recommended that any lookback period 

be phased-in over a series of years to 

balance the need for the return of 

Medicare overpayments with the 

amount of time medical groups need to 

prepare for such a change. The 

commenter stated that a phase-in period 

would provide medical groups with a 

greater transition period to adjust their 

record retention policies and develop 

additional efficiencies to ensure that the 

identification, quantification, and 

accuracy of Medicare overpayments are 

not compromised. 

Response: Given our finalized 

lookback period, we do not believe a 

phase-in period is necessary or 

appropriate. 

Comment: Several commenters 

requested clarification on whether this 

rule is retroactive. More specifically, 

commenters questioned how this rule 

would apply to overpayments received 

prior to—(1) March 23, 2010, the 

effective date of section 1128J(d) of the 

Act; and (2) the effective date of the 

final rule. Commenters frequently posed 

these questions in conjunction with 

objecting to the proposed 10-year 

lookback period. First, commenters 

stated that they believed retroactive 

application of the rule to overpayments 

received prior to March 23, 2010 would 

not be legally supportable because the 

Affordable Care Act does not indicate 

that section 1128J(d) of the Act applies 

retroactively. In addition, commenters 

believed that the Secretary was not 

given retroactive rulemaking authority 

here. 

Response: Section 1128J(d) of the Act 

is not retroactive; thus, failure to 

comply with the specific requirements 

of this section prior to March 23, 2010 

is not a violation of this statutory 

provision. However, we note that other 

statutes governed the disposition of 

overpayments prior to the enactment of 

the Affordable Care Act. We do not 

address here compliance with such 

other statutory provisions. Beginning on 

March 23, 2010—the enactment date of 

the Affordable Care Act and section 

1128J(d) of the Act—providers and 

suppliers that had not already returned 

a particular overpayment were required 

to report and return the overpayment in 

accordance with the provisions of 

section 1128J(d) of the Act. This 

requirement exists even if the provider 

or supplier received the overpayment 

prior to March 23, 2010. 

Similarly, this final rule is not 

retroactive. Providers and suppliers that 

reported and/or returned overpayments 

prior to the effective date of this final 

rule and that made a good faith effort to 

comply with the provisions of section 

1128J(d) of the Act are not expected to 

have complied with each provision of 

the final rule. However, all providers 

and suppliers reporting and returning 

overpayments on or after the effective 

date of this final rule—even 

overpayments received prior to the 

rule’s effective date—must comply with 

the new regulatory requirements. 

For example, self-referral 

overpayments reported to us in 

accordance with the CMS Voluntary 

Self-Referral Disclosure Protocol (SRDP) 

prior to the effective date of this final 

rule will not be governed by the 6-year 

lookback specified in this final rule. 

This includes both overpayments 

reported and returned (via compromise 

and settlement) as well as those 

reported and still in the process of being 

reviewed through the SRDP. Providers 

and suppliers that made a good faith 

effort to comply with section 1128J(d) of 

the Act by reporting self-referral 

overpayments to the SRDP, which, until 

now, has operated with a 4-year 

lookback period, are not expected to 

return overpayments from the fifth and 

sixth year through other means. 

Providers and suppliers reporting 

overpayments to the SRDP on or after 

the effective date of this final rule are 

subject to the 6-year lookback period 

specified in this final rule. However, at 

this time, we are only authorized under 

the Paperwork Reduction Act to collect 

financial analysis of overpayments that 

occurred during a 4-year lookback 

period. In connection with this final 

rule, we are seeking authorization from 

OMB to collect financial information 

regarding overpayments using the 6-year 

lookback period. Until the revised 

collection is approved by OMB, 

providers and suppliers reporting 

overpayments to CMS in accordance 

with the SRDP have no duty to provide 

financial information from the fifth and 

sixth years, that is, the 2 years outside 

of the currently authorized 4-year 

lookback period. Accordingly, until 

notification of changes to the SRDP 

lookback period, providers and 

suppliers submitting to the SRDP may 

voluntarily provide financial 

information from the fifth and sixth 

years or report and return overpayments 

from the fifth and sixth years through 

other means. 

There are two time periods of concern 

to commenters—the time prior to the 

enactment of the Affordable Care Act on 

March 23, 2010 and the time period 

between March 23, 2010 and the 

effective date of this final rule. For the 

time prior to March 23, 2010, while 

providers and suppliers had an existing 


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obligation to return overpayments, the 

specific obligations contained in section 

1128J(d) of the Act are not retroactive 

prior to March 23, 2010. Therefore, 

failing to report and return 

overpayments within the deadline in 

section 1128J(d) of the Act would not be 

actionable prior to March 23, 2010. The 

obligations of section 1128J(d) of the Act 

were effective March 23, 2010. Thus, 

providers and suppliers were obligated 

to comply with section 1128J(d) of the 

Act as of that date. For the time period 

between March 23, 2010 and the 

effective date of this final rule, 

providers and suppliers may rely on 

their good-faith and reasonable 

interpretation of section 1128J(d) of the 

Act. 

Comment: Some commenters 

suggested that providers with a 

‘‘certified’’ or ‘‘approved’’ compliance 

program should not be subject to the 

lookback period because commenters 

stated that any overpayment would be 

caused by a simple mistake and not 

fraud or abuse. 

Response: We see no justification in 

section 1128J(d) of the Act for the 

commenters’ suggestion. As we stated 

earlier, section 1128J(d) of the Act 

requires the reporting and returning of 

all overpayments received by a provider 

or supplier. 

Comment: Many commenters 

expressed concerns that certain 

requirements in the proposed rule, 

particularly the proposed lookback 

period, would increase the 

administrative burden on providers and 

suppliers, which would lead to 

increased operating costs and may lead 

to certain providers and suppliers 

opting out of Medicare. Commenters 

expressed concerns about the overall 

tone of the proposed rule as one that 

appeared to assume that all 

overpayments are caused by fraud and 

abuse. Commenters stated that most 

providers and suppliers are honest and 

use their best efforts to submit claims to 

Medicare that are appropriate. Some 

commenters characterized the proposed 

rule as a ‘‘one-size-fits-all’’ approach 

that did not take into account the 

differences between large and small 

providers and suppliers or providers 

and suppliers that CMS has designated 

as lower fraud risks. 

Response: We appreciate all the 

comments and have amended the final 

rule to take many of these comments 

into account, as discussed elsewhere in 

this final rule. We understand the 

concerns expressed and have fashioned 

the final rule to balance concerns raised 

by commenters with fulfilling the 

requirements and purpose of section 

1128J(d) of the Act. The final rule 

contains flexible yet strong standards 

that can be applied to many different 

circumstances and providers and 

suppliers. The statute and this rule are 

not limited to overpayments caused by 

fraud or abuse. 

4. How To Report and Return 

Overpayments 

Section 1128J(d) of the Act provides 

that if a person has received an 

overpayment, the person shall both 

report and return the overpayment to 

the Secretary, an intermediary, a carrier, 

or a contractor, as appropriate, at the 

correct address; and notify the 

Secretary, intermediary, carrier, or 

contractor to whom the overpayment 

was returned in writing of the reason for 

the overpayment. 

In § 401.305(e)(1), we proposed to 

require the use of the existing voluntary 

refund process, which will be renamed 

the ‘‘self-reported overpayment refund 

process,’’ set forth by the applicable 

Medicare contractor to report and return 

overpayments except as provided in 

§ 401.305(e)(2). Section 401.305(e)(2) 

provided that a person would satisfy the 

reporting obligations of this section by 

making a disclosure under the OIG’s 

Self-Disclosure Protocol resulting in a 

settlement agreement using the process 

described in the OIG Self-Disclosure 

Protocol. The existing voluntary refund 

process is referenced in Publication 

100–08, Chapter 4, Section 4.16 of the 

Medicare Program Integrity Manual. 

Under the existing voluntary refund 

process, providers and suppliers report 

overpayments using a form that each 

Medicare contractor makes available on 

its Web site. 

In § 401.305(d) of the February 16, 

2012 proposed rule (77 FR 9179), we 

also proposed a specific list of 13 data 

elements that were required in the 

report: (1) Person’s name; (2) person’s 

tax identification number; (3) how the 

error was discovered; (4) the reason for 

the overpayment; (5) the health 

insurance claim number, as appropriate; 

(6) date of service; (7) Medicare claim 

control number, as appropriate; (8) 

National Provider Identification (NPI) 

number; (9) description of the corrective 

action plan to ensure the error does not 

occur again; (10) whether the person has 

a corporate integrity agreement with the 

OIG or is under the OIG Self-Disclosure 

Protocol; (11) the timeframe and the 

total amount of refund for the period 

during which the problem existed that 

caused the refund; (12) if a statistical 

sample was used to determine the 

overpayment amount, a description of 

the statistically valid methodology used 

to determine the overpayment; and (13) 

a refund in the amount of the 

overpayment. We recognized that some 

of the current reporting forms may differ 

among the different Medicare 

contractors and stated we planned to 

develop a uniform reporting form that 

will enable all overpayments to be 

reported and returned in a consistent 

manner across all Medicare contractors. 

Until such uniform reporting form is 

made available, we stated in the 

preamble that providers and suppliers 

should utilize the existing form 

available from the Web site of the 

applicable Medicare contractor. 

Comment: Many commenters 

appreciated CMS’ use of an existing 

process, the voluntary refund process, 

as the method for reporting and 

returning overpayments. Generally, 

commenters agreed that using an 

existing process to implement the 60- 

day rule will ease the burden for 

reporting and returning overpayments. 

However, many commenters requested 

clarification about how this rule affected 

other existing processes that enable 

providers and suppliers to report and 

return claims-based overpayments. 

Commenters confirmed that providers 

and suppliers sometimes use the 

voluntary refund process. Commenters 

also noted that this process is not the 

only way to make overpayment refunds 

and is usually only used when a refund 

is made by check and the overpayment 

was calculated using a sampling 

methodology. 

Commenters stated that, in most 

overpayment cases, other processes are 

used that are effective and efficient both 

for the Medicare program and providers 

and suppliers. Commenters repeatedly 

noted the claims adjustment and 

reversal process for Part A and B claims. 

The claims adjustment process for Part 

A claims is electronically accomplished 

through access to the Fiscal 

Intermediary Standard System (FISS). 

The claim adjustment is then recorded 

on the Provider Statistical & 

Reimbursement Report (PS&R). 

Commenters uniformly stated that it is 

critical that providers and suppliers be 

permitted to continue to use the claims 

adjustment process to refund 

overpayments, when appropriate, to 

ensure that the claims data is adjusted 

in the FISS. Claims adjustment for Part 

B claims is currently a paper-based 

process, but one in which commenters 

stated providers and suppliers 

frequently use. In both Part A and B, 

claims adjustments include an 

adjustment reason code on the claim. 

The claim is reprocessed and the 

overpayment is recouped via the 

remittance advice. 

In addition, commenters noted that 

hospitals are required to submit the 


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Medicare Credit Balance Report (CMS– 

838; OMB control number 0938–0600) 

within 30 days of the close of each 

calendar quarter to disclose any credits 

due to the Medicare program as a result 

of patient billing or claims processing 

errors, for example, being paid by 

Medicare and another payer for the 

same services, or overpayments 

resulting from incorrect calculation of 

the beneficiary’s deductible or 

coinsurance. Any amounts due to 

Medicare must be repaid or claims 

adjusted at the time the CMS–838 is 

filed. 

Commenters suggested that CMS 

permit the use of the claims adjustment 

and credit balance report process for 

returning overpayments because these 

existing processes are well-known to 

providers, suppliers, and Medicare 

contractors and work effectively and 

efficiently for all parties at recouping 

overpayments. In many commenters’ 

experience, Medicare contractors prefer 

that providers and suppliers submit 

adjusted bills so that each beneficiary’s 

account properly reflects how and why 

the payment was adjusted or how the 

contractors recouped a full or partial 

overpayment. 

Response: We agree with commenters 

and amended the final rule accordingly 

in § 401.305(d)(1) by allowing for 

additional processes beyond the 

voluntary refund process. Providers and 

suppliers may use the claims 

adjustment, credit balance, self-reported 

refund process, or another appropriate 

process to report and return 

overpayments. This position preserves 

our existing processes and preserves our 

ability to modify these processes or 

create new processes in the future. 

Comment: Commenters requested 

clarification on how the timing of the 

credit balance reporting process 

interacts with the timing of the report 

and return obligation in the proposed 

rule. Under the credit balance reporting 

process, the credit balance report is due 

30 days after the end of each quarter, 

which would mean that overpayments 

received during the first 2 months of 

each quarter may be reported after the 

60-day time period under the proposed 

rule has passed. Commenters requested 

guidance on how to comply with the 

proposed rule and follow the credit 

balance reporting process. 

Response: We have revised the 

requirement to include the credit 

balance reporting process as a way to 

report and return overpayments under 

this final rule. 

Comment: Some commenters 

requested that CMS permit 

electronically correcting or adjusting 

claims for the self-reported refund 

process as opposed to completing a 

form, cutting a check, and mailing it to 

the contractor for processing. It would 

reduce the administrative burden and 

allow for expeditious return of 

overpayments, while furthering the 

move to electronic processing of 

records. 

Response: We will continue to review 

our processes and will consider this 

suggestion in future process 

improvements. Any changes to our 

administrative processes, including the 

self-reported refund process, will be 

addressed in the applicable manual. 

Comment: Commenters questioned 

whether, instead of submitting a check 

with the overpayment reporting form, a 

provider continue to be able to request 

a voluntary offset. 

Response: Yes, providers and 

suppliers may request a voluntary offset 

from the contractor. 

Comment: Several commenters 

questioned how providers and suppliers 

should handle delays by the Medicare 

contractor in processing the refund, 

whether submitted through the 

electronic claims adjustment system, 

filing of the CMS–838, or by submitting 

a check or requesting an offset through 

the self-reported refund process. 

Commenters reported that there is great 

variability in how the contractors 

handle voluntary refunds. Some 

commenters reported that contractors at 

times have returned a refund check 

submitted by a provider or supplier or 

refused to accept it. Other commenters 

noted that some contractors claimed to 

be unable to process a refund if the 

claims were for a time period before that 

particular company was engaged as the 

contractor. Commenters requested that 

the rule should be modified to expressly 

state that a provider or supplier satisfies 

its repayment obligation under the 

statute and the rule by making good 

faith efforts to submit a valid form of 

payment to the contractor or 

government entity that the provider or 

supplier reasonably believes to be the 

appropriate recipient of a particular 

repayment. Other commenters suggested 

that the contractor inform the provider 

or supplier when it has preliminarily 

determined that the overpayment report 

complied with the rule. Commenters 

also suggested a processing deadline for 

the contractors. 

Response: We agree with commenters 

that the obligations of this final rule are 

satisfied when the provider or supplier 

follows the appropriate process for the 

overpayment issue in good faith to 

report and return the overpayment, 

including calculating the amount of the 

overpayment. Publication 100–08, 

Chapter 4, Section 4.16 of the Medicare 

Program Integrity Manual requires 

contractors to process all voluntary 

refunds. The Program Integrity Manual 

specifically prohibits contractors from 

returning voluntary refund checks. We 

see no basis for a contractor to refuse a 

refund because a different company was 

the contractor during the period covered 

by the refund. Finally, we may consider 

a processing deadline for contractors in 

the future. 

Regarding obtaining a preliminary 

determination, we believe contractors 

may not be able to conclude whether the 

overpayment refund complied with this 

rule on the face of the report. The 

provider or supplier is ultimately 

responsible for complying with this 

rule. Contractors are instructed to refer 

suspected fraud to law enforcement. 

Any overpayment refund does not 

negate any potential liability the 

provider or supplier may have for the 

overpayment issue. 

Comment: Several commenters raised 

the situation where a contractor notifies 

a provider or supplier of an 

overpayment due to the contractor’s 

error. Commenters stated that in this 

situation, where the contractor 

identifies and takes responsibility for 

collecting the overpayment by adjusting 

claims, the provider or supplier should 

not also be required to conduct an 

inquiry and report and return the 

overpayment on its own. Commenters 

noted that it may take the contractor 

more than 60 days to adjust the claims 

related to its error. 

Response: We agree that where the 

contractor identifies a payment error by 

the contractor and notifies the provider 

or supplier that the contractor will 

adjust the claims to correct the error, the 

provider or supplier does not need to 

report and return the overpayment 

separately. 

Comment: Many commenters objected 

to the proposed list of data elements in 

§ 401.305(d) for several reasons, 

including that the data elements exceed 

the statutory requirements, are not 

necessary for Medicare to reconcile the 

payments, and create unnecessary 

burden. Commenters believed that the 

proposed list exceeded the requirements 

of section 1128J(d)(1)(B) of the Act, 

which states that the person must notify 

the Secretary in writing of the reason for 

the overpayment. Commenters 

specifically objected to the following 

items in the list of data elements in 

§ 401.305(d) as overly burdensome: (3) 

How the error was discovered; (9) 

description of the corrective action plan 

to ensure the error does not occur again; 

and (12) if a statistical sample was used 

to determine the overpayment amount, 

a description of the statistically valid 


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methodology used to determine the 

overpayment. The discovery and 

corrective action plan elements were 

objected to because commenters stated 

that these elements appeared to assume 

that the overpayment were the fault of 

the provider or supplier. Overpayments 

may be caused by various reasons for 

which a corrective action plan is not 

necessary, such as an error or a routine 

adjustment, according to commenters. 

In addition, commenters noted that 

requiring claim-specific data, such as 

the date of service, health insurance 

claim number, and the Medicare claim 

control number for all of the claims 

associated with the overpayment would 

be impossible when a sampling and 

extrapolation methodology are used. 

Finally, commenters stated that 

compliance with the proposed reporting 

requirements would result in additional 

time and expense in reporting. 

Response: We appreciate the 

comments and have adjusted the final 

rule in several ways. As discussed 

previously, this final rule permits using 

the most applicable process set forth by 

the Medicare contractor to report and 

return overpayments. As a result, we 

eliminated the specific list of data 

elements from the rule as proposed in 

§ 401.305(d) to accommodate these 

existing processes. While we believe 

that the facts about how the 

overpayment was discovered and 

corrective action plans are relevant 

information relating to the reason for the 

overpayment, and thus within the 

purview of the statute, we also 

recognize that the additional burden of 

providing this information may not be 

necessary in all overpayment situations. 

In addition, we note that providers and 

suppliers submitting self-disclosures to 

the OIG Self-Disclosure Protocol (SDP) 

and the CMS Voluntary Self-Referral 

Disclosure Protocol (SRDP) must use the 

reporting process described in the 

respective protocol. 

However, we continue to believe that, 

where the overpayment amount is 

extrapolated based on a statistical 

sampling methodology, it is necessary 

for the overpayment report to explain 

how the overpayment amount was 

calculated. The statute requires the 

return of an amount of money for the 

overpayment; therefore, it is a 

reasonable interpretation of the statute 

to require an explanation of how the 

overpayment amount was calculated by 

the provider or supplier by 

extrapolation. As commenters noted, 

statistical sampling is already used by 

providers and suppliers in the voluntary 

refund process. Therefore, we believe 

that requiring an explanation of the 

statistical sampling methodology results 

in little, if any, additional burden. 

Comment: Many commenters stated 

that the differences between the 

regulatory requirement in proposed 

§ 401.305(d) and various contractors’ 

existing voluntary refund forms created 

confusion. Specifically, commenters 

requested clarity on how the provider or 

supplier could comply with the 

regulation by using a contractor form 

that did not contain all of the elements 

required by the regulation. Commenters 

noted that we stated in the preamble 

that we intended to create a 

standardized reporting form in the 

future and, until we issued a 

standardized reporting form, providers 

and suppliers should utilize the existing 

form available from the Web site of the 

applicable Medicare contractor. 

Commenters requested guidance on 

whether they would need to supplement 

the contractor’s form to include any 

missing regulatory elements to be in 

compliance with the regulation. Many 

commenters expressed this concern in 

connection with using sampling to 

calculate the overpayment. These 

commenters noted that, when a provider 

or supplier identifies a systemic error, it 

is frequently most efficient and effective 

to determine the overpayment amount 

utilizing extrapolation. In such cases, 

commenters noted that it would be 

impossible to identify specific data 

items, such as specific dates of service 

and Medicare claim control numbers, 

for claims included in an extrapolation 

estimate other than for the specific 

claims in the sample. Thus, many 

commenters requested that we create an 

exception in the regulation to identify 

the data elements that were required 

only as appropriate, such as health 

insurance claim and Medicare claim 

control numbers, and specific dates of 

service. In addition, many commenters 

requested that we create the 

standardized refund form before or at 

the same time as issuing the final rule 

to avoid confusion and potential 

inconsistency among the contractors in 

the way that overpayments are handled. 

Response: We recognize commenters’ 

concerns and believe the revisions 

presented in this final rule address these 

concerns. We removed the proposed 

data element list from the regulation to 

eliminate confusion between 

compliance with the regulation and 

compliance with the applicable refund 

process, with the exception of the 

statistical sampling methodology 

explanation. We understand that 

providers and suppliers currently report 

extrapolated overpayments through the 

current voluntary reporting process. In 

these circumstances, providers and 

suppliers should make a good faith 

effort to provide the information on 

their contractor’s refund form, which 

would include providing details of the 

statistical sampling methodology and 

indicating that certain data elements, 

such as health insurance claim and 

Medicare claim control numbers, are not 

available for all the claims in an 

extrapolation. Providers and suppliers 

should continue to report extrapolated 

overpayments through currently 

available methods. Given these changes, 

we do not believe it is necessary to 

create a standardized refund form for 

the self-reported refund process prior to 

finalizing this rule. We will work with 

the contractors to adjust their current 

forms and instructions to address the 

requirements of § 401.305(d) and will 

consider creating a standardized form in 

the future. 

Comment: Several commenters stated 

that we should add a section on the 

refund form to allow a provider or 

supplier to indicate that it is reporting 

an overpayment as ‘‘contested’’ or ‘‘with 

reservations’’ to meet the 60-day 

deadline while allowing further 

investigation. This would provide the 

opportunity for providers and suppliers 

to document they do not agree that the 

reported amount is an overpayment, and 

yet, are reporting and returning the 

payment to ensure that they are in 

compliance with the rule. 

Response: We decline to accept the 

commenters’ suggestion. Providers and 

suppliers are reporting and returning 

overpayments that they have identified. 

Thus, we see no purpose in designating 

a refund as contested or with 

reservations. 

Comment: Some commenters 

requested that we direct contractors to 

accept one single refund form with an 

attachment that contains the required 

elements on a spreadsheet. Commenters 

stated that the current refund process 

requires providers and suppliers to 

complete a single refund form for each 

account identified as an overpayment, 

resulting in an extensive resource 

burden with no value. 

Response: We agree with the 

commenter that the practice they 

describe (submitting one form and 

attaching a spreadsheet containing the 

appropriate data) is acceptable for 

complying with this final rule. 

Comment: Some commenters 

recommended that we create a process 

for providers and suppliers to report 

potential overpayments without a 

requirement to return the overpayment 

pending further review by the contractor 

or the government. Commenters 

acknowledged that the requirement that 

providers and suppliers report and 


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refund an overpayment is consistent 

with the statutory language. However, 

commenters recommended that CMS 

consider situations where it is not easy 

to determine whether the identified 

issue is an overpayment. The 

commenters recommended that we 

create a process permitting the 

submission of a written report to the 

Medicare contractor, which would 

satisfy the rule’s reporting obligation. 

The Medicare contractor would then 

review the report to determine whether 

an overpayment existed, at which time 

the returning obligation requirement 

would be triggered. 

Response: We decline to adopt the 

commenters’ suggestion. As the 

commenters acknowledge, section 

1128J(d) of the Act requires providers 

and suppliers to report and return 

overpayments they have received. It 

does not cover overpayments 

determined and demanded by a 

Medicare contractor or government 

agency. 

Comment: A commenter 

recommended that we remove the 

reference to statistical samples because 

it may be interpreted to suggest a 

statistically valid sample is always 

required. The commenter stated that 

there are many situations where the size 

of the potential overpayment is small 

and does not warrant the expense of 

creating a statistical sample to calculate 

a refund amount. In these situations, the 

commenter believes providers and 

suppliers should do the best job they 

can to estimate the overpayment and 

give all benefit of the doubt to the 

government. The commenter believes 

requiring statistical validity for all 

estimated refunds will create the largest 

burden on small providers and 

suppliers. The commenter suggested 

that the final regulation instead require 

the explanation of the methodology 

used in any sample to protect the 

government’s interest. 

Response: We decline to adopt the 

commenter’s suggestion. We structured 

the final rule to have certain flexibilities 

for providers and suppliers to account 

for the various circumstances that may 

involve an overpayment. However, 

providers and suppliers need to 

calculate an overpayment amount that is 

reliable and accurate, which in some 

cases can be accomplished using 

statistically valid sampling 

methodologies. This final rule expressly 

anticipates that providers and suppliers 

may, but are not required to, use 

statistical sampling and extrapolation 

for calculating the overpayment amount. 

We note that reasonable diligence 

requires that any statistical sampling be 

conducted in a manner that conforms to 

sound and accepted principles. These 

principles include randomly selecting 

claims from the population and 

extrapolating only within the time 

period covered by the population from 

which the sample was drawn. 

Comment: Many commenters 

questioned whether the existing selfreported refund process would need to 

be used to report and return 

overpayments associated with cost 

reports. Commenters noted that the 

proposed rule does not specifically 

identify a separate process for cost 

report-related overpayments. If we 

intended to propose using the selfreported refund process for cost report 

overpayments, commenters suggested 

that we reconsider. Commenters stated 

that the voluntary refund process is not 

designed for providers, such as federally 

qualified health centers, returning 

overpayments identified through the 

cost reimbursement process, where the 

overpayment amount is based on the 

reimbursement of allowable costs, 

particularly where an overpayment 

resulted from the inclusion of costs in 

error or that are otherwise nonreimbursable (in which case no specific 

claims for payment can be identified for 

repayment). Requiring the use of the 

self-reported refund process for these 

overpayments would be ineffective and 

inefficient according to commenters. 

Commenters recommended we clarify 

that overpayments associated with cost 

reports be reported and returned 

through the existing cost reporting 

process. 

Response: We agree with commenters 

and note that § 401.305(d)(1) allows for 

overpayments associated with cost 

reports to be reported through the 

existing cost report reconciliation 

process, and does not require the use of 

the self-reported refund process for 

overpayments based on cost reports. If 

an overpayment is identified through 

the initial submission of a cost report, 

the cost report should state that the 

overpayment resulted from 

reimbursements made at an estimated 

rate exceeding actual reimbursable costs 

and the overpayment is submitted along 

with the transmittal of the cost report to 

the contractor. Where an overpayment is 

identified in connection with cost-based 

reimbursement paid to a provider 

during a previous cost reporting cycle, 

the overpayment should be reported by 

amending or reopening the cost report 

and the overpayment should be 

returned by submitting payment along 

with the amended or reopened cost 

report. 

Comment: A number of commenters 

requested creation of a materiality or de 

minimis exception for small-dollar 

overpayments from the rule. 

Commenters expressed concern that in 

many situations the cost and resources 

associated with reporting and refunding 

the overpayment would exceed the 

amount of the overpayment. 

Commenters stated that the 

administrative burden to process an 

overpayment could have a significant 

negative financial impact on the 

provider’s ability to offer future 

services. In support of their position, 

commenters noted that a materiality 

standard is included in other areas of 

Medicare payment policy and related 

fraud and abuse enforcement policies. 

For example, the Medicare Financial 

Management Manual (MFMM) instructs 

Medicare contractors not to attempt 

recovery of overpayments under $10. 

(See MFMM Ch. 3, section 170.2 (Rev. 

29, January 2, 2004). Similarly, under 

the physician self-referral law 

regulations, certain incidental medical 

staff benefits with limited value (less 

than $31 for 2012) are exempted. (See 

42 CFR 411.357(m)). Moreover, 

commenters stated that CMS currently 

follows a materiality threshold of $300 

for Medicare Secondary Payer liability 

recoveries. Under the CMPL, OIG stated 

that they may enforce the prohibition 

against improper remuneration to 

patients when the remuneration exceeds 

$10 for each item or $50 in the 

aggregate. (See the August 30, 2002 HHS 

OIG Special Advisory Bulletin on 

Offering Gifts and Other Inducements to 

Beneficiaries (67 FR 55855). Finally, in 

its Corporate Integrity Agreements 

(‘‘CIAs’’), OIG recognizes a materiality 

threshold by permitting the offset of 

underpayments to overpayments for 

purposes of calculating a net financial 

error rate, which then is used to 

determinate whether a sample review 

must be expanded to a larger review. As 

such, commenters requested a 

regulatory de minimis standard for this 

rule. Suggested minimum monetary 

thresholds ranged from $5 to $5,000. 

Alternatively, commenters requested 

CMS acknowledge that providers and 

suppliers can and should perform 

responsible cost and benefit analyses 

before committing resources to 

investigate low-dollar overpayments. 

Some commenters requested a 

minimum threshold for the voluntary 

refund program that permitted 

aggregating small-dollar overpayments 

identified over a period of time into one 

submission. 

Response: We decline to adopt a 

minimum monetary threshold in this 

final rule. We believe adopting a 

regulatory de minimis standard would 

be susceptible to abuse, especially in the 


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context of claims-based overpayments. 

We also note that some of the examples 

provided by commenters require 

clarification. For example, the 

referenced Medicare Secondary Payer 

threshold relates to the size of certain 

liability insurance settlements, not the 

amount of the debt. In addition, the 

physician self-referral law’s exception 

for medical staff incidental benefits of 

low value is not only unrelated to 

overpayments made to providers, but is 

also subject to additional program 

safeguards in order for the exemption to 

be available. With the exception of the 

physician self-referral law, we note that 

the remaining examples are detailed in 

subregulatory guidance, program 

instructions, or a negotiated contract 

with OIG that is applicable only to a 

specific party. We also disagree with 

commenter’s request to acknowledge 

cost and benefit analyses before 

committing resources to investigating a 

potential overpayment. Providers and 

suppliers need to take reasonable steps 

to determine whether they have 

received overpayments and are required 

to return any funds received or retained 

under title XVIII of the Act to which 

they, after applicable reconciliation, are 

not entitled under such title. 

Given the differences in cost reportrelated payments and the resources 

needed on both the provider and the 

contractor’s part in the cost report 

process, we are considering establishing 

a minimum monetary threshold for cost 

report-related overpayments. This 

threshold would be published in 

program guidance or future rulemaking. 

Comment: Some commenters 

requested that we exempt small-dollar 

overpayments from the voluntary refund 

process. Under the proposed rule, any 

overpayment would have to be reported 

and returned through the voluntary 

refund process, which requires 

submitting a significant amount of 

information. Therefore, commenters 

recommended establishing a minimum 

threshold overpayment amount under 

which providers can use existing claims 

adjustment processes to return the 

overpayment. Commenters offered the 

New York State Office of the Medicaid 

Inspector General (NY OMIG) as an 

example of a reporting process that has 

established a $5,000 threshold. 

According to the comments, if the 

amount of the overpayment falls below 

this threshold, providers are permitted 

to return the overpayment through 

existing claims adjustment processes. 

Response: We decline to establish a 

regulatory minimum threshold amount 

for the voluntary refund process. 

However, we believe that we addressed 

commenters’ concerns by clarifying in 

the final rule that providers and 

suppliers may use the most applicable 

process established by the contractor to 

report and return, including the claims 

adjustment process. We note that even 

under the NY OMIG process offered as 

an example, overpayments of any size 

need to be reported and returned. 

Comment: Many commenters agreed 

with the treatment of the CMS 

Voluntary Self-Referral Disclosure 

Protocol (SRDP) and the OIG SelfDisclosure Protocol (SDP) as tolling the 

deadline for returning the overpayment. 

Commenters requested that CMS clarify 

that self-disclosure by providers and 

suppliers to other government entities, 

such as DOJ and MFCU, would similarly 

suspend the 60-day deadline. 

Response: We finalized the treatment 

of the SRDP and SDP as tolling the 

obligation to return the overpayment as 

proposed. With regard to the SRDP, the 

requirement to return the overpayment 

within 60 days of identification is tolled 

for the full duration of the time that the 

provider or supplier is negotiating a 

potential settlement with CMS in 

accordance with the requirements of the 

SRDP. While engaged in the SRDP, a 

provider or supplier is subject to all the 

requirements of the SRDP, and any 

subsequent changes or updates to the 

SRDP instructions issued by CMS, 

independent of any similar 

requirements imposed by this rule. At 

such time that a provider or supplier is 

no longer actively negotiating a 

settlement or is not considered to be 

engaged in the SRDP process, the tolling 

will no longer be in effect and the 

provider or supplier is expected to 

comply with the 60-day returning 

requirements of this rule. This treatment 

applies to all providers and suppliers 

already engaged in the SRDP at the time 

this final rule is effective as well as 

those who submit a reported 

overpayment to the SRDP after the 

effective date of this rule. 

We decline to extend this treatment to 

self-disclosure to entities outside of the 

SRDP and SDP in this final rule. The 

SRDP and SDP are both formal 

processes managed by agencies within 

the Department, CMS and OIG 

respectively. As such, we believe it is 

appropriate to include those processes 

in this rule. However, DOJ is a separate 

department and we are not aware of any 

formal self-disclosure process by DOJ 

that is analogous to the SRDP or SDP. 

Also, we are not aware of a similar 

MFCU process and, more importantly, 

Medicaid is not covered in this 

rulemaking. 

Comment: Many commenters 

questioned treating the SRDP and SDP 

differently for purposes of satisfying the 

reporting obligation. In the proposed 

rule, the SDP submission satisfied the 

reporting obligation but the SRDP did 

not, which required the provider to file 

reports with both the overpayment 

refund process and the SRDP. 

Commenters questioned the utility of 

this duplicative reporting and requested 

that CMS eliminate it in the final rule. 

Response: We agree with commenters 

and have revised § 401.305(d)(2) to 

permit the SRDP report to satisfy the 

reporting obligation in addition to the 

SDP. 

Comment: A commenter requested 

confirmation that a provider or supplier 

may provide a single notification to the 

Department or its contractors to satisfy 

the report and return requirement and 

does not also need to use the SDP or 

SRDP. 

Response: Providers and suppliers 

need to decide who is the most 

appropriate recipient of the 

overpayment report and refund as 

provided in § 401.305(d)—the 

applicable Medicare contractor, the 

SDP, or the SRDP. Providers and 

suppliers should review the SDP and 

SRDP to determine whether either of 

those avenues is available. The 

commenter also appears to believe that 

overpayments can be reported and 

returned to the Department, which is 

incorrect. Sending an overpayment 

report and refund to anyone other than 

the appropriate Medicare contractor 

according to the applicable 

administrative process (or otherwise 

following § 401.305(d)) does not 

conform to any applicable process as 

discussed in this final rule. 

Comment: Some commenters 

requested guidance on when a 

contractor would refer an overpayment 

report to OIG. 

Response: Medicare contractors have 

long been instructed to refer potential 

fraudulent conduct to law enforcement. 

Comment: Many commenters 

questioned using CMS or OIG’s 

acknowledgement of receipt of the 

disclosure as the action that suspends 

the returning deadline. Commenters 

expressed concern that they do not 

always receive this acknowledgement in 

a timely way. Commenters requested 

CMS use the date the submission was 

sent to CMS or OIG as the suspension 

date and require the provider or 

supplier to retain the appropriate 

documentation. 

Response: We decline to adopt this 

suggestion. While we understand the 

concern about receiving a timely 

acknowledgement response, we believe 

that this concern does not outweigh the 

benefit of using the government’s 

acknowledgement to avoid any potential 


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question as to whether the government 

actually received the submission. Selfdisclosures to the SRDP must be 

submitted by email to 1877SRDP@

cms.hhs.gov. Parties that send their 

submission to 1877SRDP@cms.hhs.gov 

receive a response email acknowledging 

receipt of the submission. This response 

email serves as CMS’ acknowledgement 

of receipt. We understand that parties 

that send their submission through 

OIG’s SDP online submission portal, 

http://oig.hhs.gov/compliance/selfdisclosure-info/index.asp, also receive a 

response email. We also understand that 

SDP hard-copy submitters receive an 

acknowledgement letter from OIG 

confirming receipt. Either of these 

communications from OIG serves as the 

acknowledgement of receipt for 

purposes of this final rule. 

Comment: A commenter questioned 

what would happen if the provider or 

supplier and OIG are unable to reach a 

settlement in the SDP. The proposed 

rule provided that the deadline for 

returning overpayments will be 

suspended when the OIG acknowledges 

receipt of a submission to the OIG SelfDisclosure Protocol until such time as a 

settlement agreement is entered, the 

person withdraws from the OIG SelfDisclosure Protocol, or the person is 

removed from the Self-Disclosure 

Protocol. The commenter requested 

CMS clarify that, if a settlement could 

not be reached through the SDP, then 

the provider would have a reasonable 

amount of time to make a report to the 

relevant Medicare contractor to meet its 

obligations under this rule. 

Response: This final rule contains the 

same language as the proposed rule 

concerning the returning obligation. In 

the event that a SDP settlement is not 

reached, the provider or supplier has 

the balance of the 60-day time period 

remaining from identification to the 

suspension of that 60-day period when 

OIG acknowledged receiving the SDP 

submission to report and return any 

overpayment to the contractor. If the 

overpayment has been identified, we 

believe that the balance of the 60-day 

period is a reasonable amount of time to 

report and return the overpayment to 

the contractor if the SDP does not result 

in a settlement. We revised this final 

rule to clarify that the same rule would 

apply to a failure to reach a SRDP 

settlement. 

Comment: A commenter requested 

additional exceptions from the rule or 

lengthier timeframes for reporting and 

returning overpayments based upon the 

size of the provider. The commenter 

stated that small providers and 

suppliers may lack the infrastructure to 

audit claims at the frequency required to 

be in compliance with the proposed 

rule. 

Response: We decline to adopt the 

commenter’s suggestion. The timeframe 

is established by the statute does not 

create different obligations based on 

provider type or size. We recognize that 

there is great diversity in the health care 

industry in provider type and size. All 

members of that industry who 

participate in the Medicare program are 

obligated to ensure they bill Medicare 

properly and to return overpayments 

they have received. 

Comment: Several commenters 

objected to the 60-day deadline for 

reporting and returning an 

overpayment. Some commenters 

expressed concern that certain providers 

and suppliers might not have the 

resources to complete an investigation 

within 60 days and that CMS should 

establish a process for requesting an 

extension to the 60-day deadline. A 

commenter suggested that CMS adopt a 

process that allows the provider to 

report, but not to return, the 

overpayment within 60 days. Similarly, 

another commenter requested that the 

final rule clarify whether the obligation 

to report an overpayment is distinct 

from the obligation to return an 

overpayment. 

Response: The 60-day deadline to 

report and return is contained in section 

1128J(d) of the Act. We believe we 

addressed the concerns that underlie 

these comments by clarifying the 

provider or supplier’s ability to conduct 

reasonable diligence and that this 

reasonable diligence time period of 6 

months is in addition to the 60-day 

report and return time period, as 

discussed previously. We considered 

but declined to establish a new process 

for reporting, but not returning, 

overpayments. We believe we have 

addressed those comments by both the 

reasonable diligence clarifications and 

the expansion to using other processes 

to report and return besides the selfreported refund process. 

Comment: Some commenters 

recommended that that 60-day 

timeframe for reporting and returning 

overpayments be reduced to 30 days. 

These commenters did not believe 

providers and suppliers should have 

such a long grace period to keep 

taxpayer money to which they are not 

entitled. 

Response: We understand the 

commenters’ concerns, but the 60-day 

deadline to report and return is 

contained in section 1128J(d) of the Act. 

Comment: Several commenters 

questioned the proposed rule’s use of 

the Extended Repayment Schedule 

(ERS) and requested that the definition 

of ‘‘hardship’’ and the documentation 

requirements be changed so that 

providers and suppliers could more 

easily utilize ERS. These commenters 

stated that the hardship standard was 

too difficult to meet. Commenters also 

requested more guidance on the 

documentation requirements for using 

the ERS. Commenters suggested 

changing the definition of ‘‘hardship’’ to 

focus on the provider’s financial 

stability and not simply the amount of 

their Medicare payments and 

overpayments in comparison to their 

total Medicare billing. Some 

commenters suggested that the process 

be streamlined so that small providers 

and suppliers may more easily take 

advantage of ERS. Finally, commenters 

recommended that the ERS include a 

provision allowing for a waiver of an 

obligation to repay an overpayment ‘‘if 

circumstances exist to merit such 

waiver.’’ 

Response: We appreciate the 

comments. In the February 16, 2012 

proposed rule (77 FR 9183), we stated 

that providers or suppliers who needed 

additional time to return the 

overpayment due to financial 

limitations should use the existing ERS 

process as outlined in Publication 100– 

06, Chapter 4 of the Financial 

Management Manual. We also proposed 

modifying the definition of ‘‘hardship’’ 

in § 401.607 to ensure that providers 

and suppliers could seek to use ERS by 

amending the definition to include 

overpayments reported in accordance 

with § 401.301 through § 401.305. We 

noted in the proposed rule (77 FR 9183) 

that requests for ERS are not 

automatically granted and that 

providers and suppliers seeking to use 

ERS must submit significant 

documentation to verify true financial 

hardship. We have added 

§ 401.305(b)(2)(iii) in this final rule to 

allow for the suspending of the deadline 

for returning overpayments when a 

person requests an ERS as defined in 

§ 401.603. Explanation of the ERS and 

its documentation requirements are 

contained in Publication 100–06, 

Chapter 4 of the Financial Management 

Manual. 

Comment: A commenter stated that 

providers and suppliers do not have 

access to the same data formats and 

elements as the contractor. This 

commenter recommended that CMS 

create a portal with a unique provider 

identifier that would allow unlimited 

access to the National Data Repository. 

Response: We appreciate the 

comment. Questions about data format 

and elements should be directed to the 

provider or supplier’s applicable 

contractor. We will consider ways to 


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4https://www.cms.gov/Research-Statistics-Dataand-Systems/Monitoring-Programs/Medicare-FFSCompliance-Programs/CERT/index.html?redirect=/

cert. 

further educate providers and suppliers 

on these issues in the future. 

Comment: Some commenters 

expressed concern about increasing 

billing errors, and consequent 

overpayments, when ICD–10 is 

implemented. These commenters 

recommended a grace period to 

accommodate these changes. 

Response: We understand the 

commenters’ concerns, but decline to 

adopt a grace period as suggested. It is 

unclear from the comments whether 

they are advocating for a grace period 

from the requirement to report and 

return overpayments relating to ICD–10 

miscoding or an extension of the 60-day 

timing requirement. Regardless, we see 

no basis in section 1128J(d) of the Act 

to permit either suggestion. 

III. Provisions of the Final Regulations 

For the most part, this final rule 

incorporates the provisions of the 

proposed rule, with the following 

exceptions: 

• In § 401.305 we modified our 

proposals as follows: 

++ In paragraph(a)(1), we revised the 

requirements for reporting and returning 

of overpayments to more clearly 

distinguish between the concepts of 

receiving and identifying an 

overpayment. A person that has 

received an overpayment must report 

and return in the form and manner 

required. 

++ In paragraph (a)(2), we revised the 

requirements for reporting and returning 

of overpayments slightly to remove the 

terms ‘‘actual knowledge’’, ‘‘reckless 

disregard’’, and ‘‘deliberate ignorance’’ 

and to state that a person has identified 

an overpayment when the person 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. A person should have 

determined that the person received an 

overpayment if the person fails to 

exercise reasonable diligence and the 

person in fact received an overpayment. 

++ Added a new paragraph (b)(2)(iii) 

to specify that the deadline for returning 

overpayments will be suspended when 

a person requests an extended 

repayment schedule as defined in 

§ 401.603. 

++ Removed proposed paragraph (d), 

which specified 13 specific data 

elements that were to be included in the 

report that providers and suppliers use 

to report and return overpayments. We 

subsequently renumbered paragraphs (e) 

through (g) as (d) through (f). 

++ In paragraph (d)(1) (which was 

proposed paragraph (e)(1)), we revised 

the allowable reporting process to 

include an applicable claims 

adjustment, credit balance, self-reported 

refund, or other reporting process set 

forth by the applicable Medicare 

Contractor. We specified that if the 

person calculates the overpayment 

amount using a statistical sampling 

methodology, the person must describe 

the statistically valid sampling and 

extrapolation methodology in the report. 

++ In paragraph (d)(2) (which was 

proposed paragraph (e)(2)), we added 

disclosure to the CMS Voluntary SelfReferral Disclosure Protocol (SRDP) as a 

method of satisfying the reporting 

obligations for self-identified 

overpayments. 

++ In paragraph (f) (which was 

proposed paragraph(g)), we revised the 

lookback period from 10 years to 6 years 

to specify that overpayments must be 

reported and returned only if a person 

identifies the overpayment within 6 

years of the date the overpayment was 

received. We carefully considered all of 

the comments on the lookback period 

and concluded that a 6-year time period 

is the most appropriate time period. 

• In § 405.980, we— 

++ Removed proposed paragraph 

(b)(6). This paragraph would only apply 

to reopenings initiated by the 

contractor. 

++ Added paragraph (c)(4) to clarify 

that a reopening may be requested 

under § 405.980(c). 

IV. Collection of Information 

Requirements 

A. Background 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to OMB for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following is a discussion of the 

provisions, as stated in section II. of this 

final rule, that contain information 

collection requirements. 

B. ICR Estimates in the Proposed Rule 

Proposed § 401.305 stated that a 

provider or supplier must (1) report and 

return an overpayment to the Secretary, 

the state, an intermediary, a carrier or a 

contractor to the correct address by the 

later of 60 days after the overpayment 

was identified or the date the 

corresponding cost report is due, and (2) 

notify the Secretary, the state, an 

intermediary, a carrier, or a contractor 

in writing of the reason for the 

overpayment. The burden associated 

with this requirement was the time and 

effort necessary to report and return the 

overpayment in the manner described at 

§ 401.305. 

For purposes of § 401.305 only, we 

estimated that approximately 125,000 

providers and suppliers (or roughly 8.5 

percent of the total number of Medicare 

providers and suppliers) would report 

and return overpayments in a typical 

year under our provisions. We estimated 

this based on the improper payment rate 

for the Medicare Fee-for-Service 

program, which was approximately 12 

percent in FY 2014 and FY 2015,4 and 

we expect that some number of 

improper payments will be identified by 

sources other than providers and 

suppliers themselves. We projected that 

each of these providers and suppliers 

would, on average, separately report and 

return approximately 3 to 5 

overpayments. In addition, we 

estimated that it would take a provider 

or supplier approximately 2.5 hours to 

complete the applicable reporting form 

and return an overpayment. 

We are developing an information 

collection request for OMB review and 

approval that will authorize the 

collection of the applicable reporting 

form. The public will have an 

opportunity to review the information 

collection and submit comments. We 

plan to announce the information 

collection request under the required 

60-day and 30-day Federal Register 

notice and comment periods. These 

notices will incorporate the process 

described below and the burden 

calculated in Table 1, among other 

processes. 

We determined that the two main 

categories of individuals who would 

most likely complete and submit the 

applicable reporting form included: (1) 

Accountants and auditors (external and 

in-house); and (2) miscellaneous inhouse administrative personnel. Each 

provider’s and supplier’s individual 

operations are different and, as a result, 


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it was not possible to break down the 

percentage of total affected providers or 

suppliers that would fall within the 2 

previously stated categories (for 

example, percentage of providers that 

would use an accountant). 

Consequently, in order to determine the 

burden cost, we utilized the average 

hourly wage of these 2 occupational 

categories based on the most recent 

wage data provided by the Bureau of 

Labor Statistics (BLS) data for May 

2010. The mean hourly wage for the 

category of ‘‘accountants and auditors’’ 

was $33.15 (see http://www.bls.gov/oes/ 

current/oes132011.htm) and the mean 

hourly wage for the category of 

‘‘bookkeeping, accounting, and auditing 

clerks’’ was $16.99 (http://www.bls.gov/ 

oes/current/oes433031.htm). The 

average of these 2 figures, including 

fringe benefits and overhead, was 

$37.10. This lead to an aggregate annual 

ICR cost burden—attributable to the 

impacted 125,000 providers and 

suppliers, and using the range of 3 to 5 

overpayments, of $34.78 million and 

$57.97 million, respectively. 

C. Comments Received 

We received a number of comments 

regarding our proposed ICR estimates: 

Comment: Several commenters 

suggested that the burden analysis 

offered by CMS in the proposed rule 

was inadequate because it only 

considered two types of individuals 

involved in the reporting and returning 

of overpayments, accountants/auditors 

and in-house administrative personnel. 

Commenters suggested that additional 

and more costly individuals, such as 

legal counsel and compliance 

consultants, would be necessary to 

comply with this rule. 

Response: We disagree. We believe 

only the rarest of circumstances (such as 

potential fraud or certain investigations 

of potential violations of the physician 

self-referral law) would necessitate more 

costly personnel, such as legal counsel, 

to comply with this final rule. In the 

overwhelming majority of cases, we 

expect overpayment identification and 

return to be sufficiently handled by 

accountants, auditors, and in-house 

administrative personnel. 

Comment: Several commenters stated 

that CMS—(1) underestimated the 

administrative burden imposed by this 

rule; and (2) failed to adequately 

support the assumptions underlying the 

regulatory impact analysis. 

Response: We understand the 

commenters’ concerns regarding the 

underestimation of the administrative 

burden and the failure to adequately 

support assumptions underlying the 

regulatory impact analysis. Therefore, 

we have increased the projected ‘‘per 

report’’ burden—which includes 

researching, reporting, and returning the 

overpayment—from 2.5 hours to 6 hours 

to address these concerns. Our 

assumptions also include our belief that 

the majority of these 6 hours will be 

spent researching and identifying the 

overpayment, and that the time burden 

for reporting and returning the 

overpayment after it is identified is 

minimal. 

D. Final Estimated ICR Burden 

There are two major changes from our 

projected burden in the proposed rule. 

First, as noted previously, we are 

increasing the ‘‘per report’’ hour burden 

from 2.5 hours to 6 hours. Second, we 

must use more recent BLS data in 

calculating the hourly wage. 

According to BLS information for May 

2014, the national estimated mean 

hourly wage for the category of 

’’accountants and auditors’’ was $35.42 

(see http://www.bls.gov/oes/current/

oes132011.htm) and the national 

estimated mean hourly wage for the 

category of ’’bookkeeping, accounting, 

and auditing clerks’’ was $18.30 (http:// 

www.bls.gov/oes/current/

oes433031.htm). The average of these 2 

figures, is $26.86. This does not include 

fringe benefits and overhead which are 

generally calculated as being 100% of 

salary. This means the cost of an hour 

of work is $53.72. 

The following table shows the 

projected annual ICR hour and cost 

burdens associated with § 401.305: 

TABLE 1—ESTIMATED ICR BURDEN OF § 401.305 

Number of reported 

and returned 

overpayments per 

affected provider 

OMB Control No. Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total labor 

cost of 

reporting 

($) 

3 ............................ 0938—New ........... 125,000 375,000 6 2,250,000 $53.72 $120,870,000 

4 ............................ 0938—New ........... 125,000 500,000 6 3,000,000 53.72 161,160,000 

5 ............................ 0938—New ........... 125,000 625,000 6 3,750,000 53.72 201,450,000 

Therefore, we project an annual ICR 

cost burden of between $120.87 million 

and $201.45 million. The former 

represents our low-end estimate, while 

the latter is our high-end estimate. The 

$161.16 million estimate represents our 

primary, or mid-range, projection. While 

we have used a range of values to 

illustrate the possible burden estimates 

that providers may incur, we cannot 

submit a range of values for OMB 

approval. For purposes of OMB review 

and approval, we will use the mid-range 

estimate related to 4 reported and 

returned overpayments. 

V. Regulatory Impact Statement 

A. Background 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects; distributive impacts and equity). 

Executive Order 13563 emphasizes the 

importance of quantifying both costs 

and benefits, of reducing costs, of 

harmonizing rules, and of promoting 

flexibility. A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any one year). 

As discussed earlier in the preamble, 

even without a final rule, all 

stakeholders are subject to the statutory 

requirements found in section 1128J(d) 

of the Act and could face potential FCA 


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liability, CMPL liability, and exclusion 

from federal health care programs for 

failure to report and return an 

overpayment. This final rule imposes a 

new deadline on the return of any 

overpayment that has been identified. 

We believe that this change will spur 

providers and suppliers to be more 

diligent in reporting and returning 

overpayments. That will likely increase 

the overpayments that we collect, but 

we do not have a basis for estimating the 

magnitude of that change, and note the 

substantial uncertainty surrounding the 

magnitude of new collections. The 

annual burden costs for reporting and 

returning of overpayments, as discussed 

in section IV. of this final rule, are 

estimated between $120.87 million and 

$201.45 million. Since there may be 

years where the burden costs exceed 

$100 million, we believe this rule is a 

major rule and economically significant. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of less than $7.5 million to $38.5 

million in any 1 year. With a maximum 

cost of $201,450,000, we do not believe 

that the reporting and returning of 

overpayments identified by providers 

and suppliers of services will have a 

significant impact on a substantial 

number of small entities. We are not 

preparing an analysis for the RFA 

because we have determined, and the 

Secretary certifies, that this final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital located outside of the 

Metropolitan Statistical Area for 

Medicare payment regulations and that 

has fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined 

and the Secretary certifies that this final 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits before issuing any rule 

whose mandates require spending in 

any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2015, that threshold is approximately 

$144 million. This rule will have no 

consequential effect on state, local, or 

tribal governments or on the private 

sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it announces a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has Federalism implications. 

Since this final rule does not impose 

any costs on states or local governments, 

the requirements of Executive Order 

13132 are not applicable. 

Comment: A commenter expressed 

concern that the proposed rule creates 

an unfunded requirement that forces 

medical practices to implement selfaudits and internal compliance plans, 

and that CMS did not address this 

burden in the RIA. 

Response: We disagree that this rule 

creates a requirement for any formal 

compliance plan or audit strategy; 

rather, it requires that providers and 

suppliers maintain responsible business 

practices and conduct a reasonably 

diligent inquiry when information 

indicates that an overpayment may 

exist. 

B. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at link http://

www.whitehouse.gov/sites/default/files/

omb/assets/regulatory_matters_pdf/a4.pdf), we have prepared an accounting 

statement. The entries in Table 2 reflect 

the application of a 7 percent and 3 

percent annualized rate to the high-end, 

primary, and low-end estimates referred 

to in section V. of this final rule. The 7 

and 3 percent figures were applied over 

a 10-year period beginning in 2015, with 

the figures in the accounting statement 

reflecting the average annualized costs 

over this period. 

The accounting statement does not 

address the potential financial benefits 

of this final rule from the standpoint of 

its effectiveness in recouping 

overpayments. We do not have 

sufficient data on which to base a 

monetary estimate of recovered funds. 

We note that the only costs associated 

with this final rule for providers and 

suppliers involve the actual researching, 

reporting, and returning of 

overpayments. For purposes of our RIA 

estimates, we do not deem the actual 

refunded overpayment as a cost since it 

constitutes money to which the provider 

or supplier was not entitled. 

TABLE 2—ACCOUNTING STATEMENT: ESTIMATED COSTS RESULTING FROM REPORTING AND RETURNING OF

OVERPAYMENTS

Category 

Primary 

estimates 

(in $ millions) 

Low 

estimates 

(in $ millions) 

High 

estimates 

(in $ millions) 

Year dollars Discount rate 

(%) 

Period 

covered 

Costs: 

Resulting from reporting and returning of overpayments ...................... $161.16 $120.87 $201.45 2015 7 2015-2024 

161.16 120.87 201.45 2015 3 2015-2024 

Who Is Affected ....................................... Providers and Suppliers. 

C. Alternatives Considered 

In light of the statutory mandate in 

section 6402(a) of the Affordable Care 

Act, we did not consider any 

alternatives to the implementation of 

the proposed provisions. However, we 

contemplated several operational 

mechanisms to alleviate the burden on 

the provider and supplier communities. 

First, we proposed a new, unified 

form as part of the reporting and 

returning process in our proposed rule. 

However, the comments received 

indicated that this could cause needless 

additional burden. Instead, we elected 

to utilize existing processes for 

reporting and returning, including the 

voluntary refund process. This would 

allow providers and suppliers to use a 

reporting mechanism with which they 

are already familiar. After reviewing the 


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comments, we raised the burden to 6 

hours for identifying and reporting and 

returning, but that is lower than if we 

had finalized our plan to develop a new 

singular form for reporting and 

returning. 

Second, we contemplated the 

appropriate length of time in which 

overpayments must be reported and 

returned. A time period of 10 years was 

proposed, as this is the outer limit of the 

FCA statute of limitations. We solicited 

comment on this issue, and as discussed 

at length in section II.C.3. of this final 

rule, we agreed with commenters that a 

period of 6 years was more appropriate 

and will reduce the burden imposed on 

providers and suppliers by this final 

rule compared to the longer proposed 

lookback period of 10 years. 

D. Beneficiary Access 

We do not anticipate any impact on 

beneficiary access to care as a result of 

this rule. As noted previously, the only 

burden associated with our proposed 

provisions involves the ICR aspects of 

reporting and returning overpayments. 

We do not believe that this burden— 

which, in any event, would only affect 

a small percentage of providers and 

suppliers—would cause a particular 

provider or supplier to reduce the 

services it furnishes to beneficiaries. 

In accordance with the provisions of 

Executive Order 12866, this rule was 

reviewed by OMB. 

List of Subjects 

42 CFR Part 401 

Claims, Freedom of information, 

Health facilities, Medicare, Privacy. 

42 CFR Part 405 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medical 

devices, Medicare, Reporting and 

recordkeeping requirements, Rural 

areas, X-rays. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 401—GENERAL 

ADMINISTRATIVE REQUIREMENTS 

■ 1. The authority citation for part 401 

continues to read as follows: 

Authority: Secs. 1102, 1871, and 1874(e) of 

the Social Security Act (42 U.S.C. 1302, 

1395hh, and 1395w–5). 

■ 2. Part 401 is amended by adding 

subpart D to read as follows: 

Subpart D—Reporting and Returning of 

Overpayments 

Sec. 

401.301 Basis and scope. 

401.303 Definitions. 

401.305 Requirements for reporting and 

returning of overpayments. 

Subpart D—Reporting and Returning 

of Overpayments 

§ 401.301 Basis and scope. 

This subpart sets forth the policies 

and procedures for reporting and 

returning overpayments to the Medicare 

program for providers and suppliers of 

services under Parts A and B of title 

XVIII of the Act as required by section 

1128J(d) of the Act. 

§ 401.303 Definitions. 

For purposes of this subpart— 

Medicare contractor means a Part 

A/Part B Medicare Administrative 

Contractor (A/B MAC) or a Durable 

Medical Equipment Medicare 

Administrative Contractor (DME MAC). 

Overpayment means any funds that a 

person has received or retained under 

title XVIII of the Act to which the 

person, after applicable reconciliation, 

is not entitled under such title. 

Person means a provider (as defined 

in § 400.202 of this chapter) or a 

supplier (as defined in § 400.202 of this 

chapter). 

§ 401.305 Requirements for reporting and 

returning of overpayments. 

(a) General. (1) A person that has 

received an overpayment must report 

and return the overpayment in the form 

and manner set forth in this section. 

(2) A person has identified an 

overpayment when the person 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. A person should have 

determined that the person received an 

overpayment and quantified the amount 

of the overpayment if the person fails to 

exercise reasonable diligence and the 

person in fact received an overpayment. 

(b) Deadline for reporting and 

returning overpayments. (1) A person 

who has received an overpayment must 

report and return the overpayment by 

the later of either of the following: 

(i) The date which is 60 days after the 

date on which the overpayment was 

identified. 

(ii) The date any corresponding cost 

report is due, if applicable. 

(2) The deadline for returning 

overpayments will be suspended when 

the following occurs: 

(i) OIG acknowledges receipt of a 

submission to the OIG Self-Disclosure 

Protocol and will remain suspended 

until such time as a settlement 

agreement is entered, the person 

withdraws from the OIG Self-Disclosure 

Protocol, or the person is removed from 

the OIG Self-Disclosure Protocol. 

(ii) CMS acknowledges receipt of a 

submission to the CMS Voluntary SelfReferral Disclosure Protocol and will 

remain suspended until such time as a 

settlement agreement is entered, the 

person withdraws from the CMS 

Voluntary Self-Referral Disclosure 

Protocol, or the person is removed from 

the CMS Voluntary Self-Referral 

Disclosure Protocol. 

(iii) A person requests an extended 

repayment schedule as defined in 

§ 401.603 and will remain suspended 

until such time as CMS or one of its 

contractors rejects the extended 

repayment schedule request or the 

provider or supplier fails to comply 

with the terms of the extended 

repayment schedule. 

(c) Applicable reconciliation. (1) The 

applicable reconciliation occurs when a 

cost report is filed; and 

(2) In instances when the provider— 

(i) Receives more recent CMS 

information on the SSI ratio, the 

provider is not required to return any 

overpayment resulting from the updated 

information until the final 

reconciliation of the provider’s cost 

report occurs; or 

(ii) Knows that an outlier 

reconciliation will be performed, the 

provider is not required to estimate the 

change in reimbursement and return the 

estimated overpayment until the final 

reconciliation of that cost report. 

(d) Reporting. (1) A person must use 

an applicable claims adjustment, credit 

balance, self-reported refund, or other 

reporting process set forth by the 

applicable Medicare contractor to report 

an overpayment, except as provided in 

paragraph (d)(2) of this section. If the 

person calculates the overpayment 

amount using a statistical sampling 

methodology, the person must describe 

the statistically valid sampling and 

extrapolation methodology in the report. 

(2) A person satisfies the reporting 

obligations of this section by making a 

disclosure under the OIG’s SelfDisclosure Protocol or the CMS 

Voluntary Self-Referral Disclosure 

Protocol resulting in a settlement 

agreement using the process described 

in the respective protocol. 

(e) Enforcement. Any overpayment 

retained by a person after the deadline 

for reporting and returning the 

overpayment specified in paragraph (b) 

of this section is an obligation for 

purposes of 31 U.S.C. 3729. 

(f) Lookback period. An overpayment 

must be reported and returned in 

accordance with this section if a person 

identifies the overpayment, as defined 


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7684 Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Rules and Regulations 

in paragraph (a)(2) of this section, 

within 6 years of the date the 

overpayment was received. 

§ 401.607 [Amended] 

■ 3. In § 401.607(c)(2)(i), the definition 

of ‘‘Hardship’’ is amended by removing 

the phrase ‘‘outstanding overpayments 

(principal and interest)’’ and adding in 

its place the phrase ‘‘outstanding 

overpayments (principal and interest 

and including overpayments reported in 

accordance with §§ 401.301 through 

401.305)’’. 

PART 405—FEDERAL HEALTH 

INSURANCE FOR THE AGED AND 

DISABLED 

■ 4. The authority citation for part 405 

continues to read as follows: 

Authority: Secs. 205(a), 1102, 1861, 

1862(a), 1869, 1871, 1874, 1881, and 1886(k) 

of the Social Security Act (42 U.S.C. 405(a), 

1302, 1395x, 1395y(a), 1395ff, 1395hh, 

1395kk, 1395rr and 1395ww(k)), and sec. 353 

of the Public Health Service Act (42 U.S.C. 

263a). 

■ 5. Section 405.980 is amended by 

adding paragraph (c)(4) to read as 

follows: 

§ 405.980 Reopenings of initial 

determinations, redeterminations, 

reconsiderations, hearings, and reviews. 

* * * * * 

(c) * * * 

(4) A party may request that a 

contractor reopen an initial 

determination for the purpose of 

reporting and returning an overpayment 

under § 401.305 of this chapter. 

* * * * * 

Dated: August 27, 2015. 

Andrew M. Slavitt, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: February 5, 2016. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2016–02789 Filed 2–11–16; 8:45 am] 

BILLING CODE 4120–01–P 


asabaliauskas on DSK9F6TC42PROD with RULES2