Medicare Audits, Overpayments, and Appeals

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By Peter W. Thomas, JD, and Christina A. Hughes, JD, MPH

Over the past few months, there has been increased activity within the federal government surrounding Medicare audits, overpayments, and appeals. This article summarizes two major developments that will impact all Medicare providers, including O&P providers.

The risks that Centers for Medicare & Medicaid Services (CMS) audits pose to O&P providers are expected to intensify before they begin to subside. The U.S. Department of Health and Human Services (HHS) recently announced that per beneficiary Medicare spending increased in 2012 by only 0.3 percent. This follows two years of less-than-expected program growth, resulting in a more-favorable-than-expected fiscal scenario for the program for the coming decade. In fact, the average per capita growth rate for Medicare over the past three years is just 1.9 percent, well below the national average. One of the primary factors HHS cited in its announcement was the recovery of overpayments from healthcare providers for unnecessary care, and recoveries for fraudulent and abusive billing.

Improper Payments Elimination and Recovery Improvement Act of 2012

On January 10, 2013, President Barack Obama signed the Improper Payments Elimination and Recovery Improvement Act of 2012 into law. The purpose of the act is "[t]o intensify efforts to identify, prevent, and recover payment error, waste, fraud, and abuse within Federal spending."

While not specifically targeted at the Medicare program, the Office of Management and Budget (OMB) is specifically tasked with identifying high-priority federal programs for increased oversight based annually on the highest dollar value, the rate of payment error, or where there is the highest risk of overpayment. The Medicare program is almost certain to wind up on that list. For each program OMB identifies, the Inspector General for the relevant agency must issue a report on the program that assesses the level of risk involved in the program, reviews the oversight and financial controls in place, and makes recommendations (for submission to Congress) regarding necessary changes and improvements for identifying overpayments.

The law also establishes a "Do Not Pay Initiative," under which each agency is required to check a variety of master governmental databases before making payment. Most notably, the agencies are required to check claims against the U.S. Social Security Administration's Death Master File. The Improper Payments Act also acknowledges that there may be instances in which an agency may still have to pay a claim despite information in the databases that suggests otherwise, but it does not indicate how agencies should deal with these situations.

Thus, it may become more difficult for O&P providers submitting claims for patients who died during the course of fitting to obtain reimbursement unless CMS takes steps to address this issue. However, the use of the databases is loosely described and is primarily aimed at identifying claimants who are not eligible for payment rather than beneficiaries. And because processing claims for deceased Medicare beneficiaries is not a new issue for CMS, the new requirements for checking databases prior to payment may not significantly impact the Medicare claims administration process.

Another provision of the new law directs OMB to assess current and past recovery rates for federal programs and to set future targets for those programs. The assessment and goal setting applies to all identified agency recovery audit contract programs and recovery audit contractors. This includes Medicare Recovery Audit Contractors (RACs), as well as Zone Program Integrity Contractors (ZPICs), Program Safeguard Contractors (PSCs), and Comprehensive Error Rate Testing (CERT) contractors. Although Medicare Administrative Contractors (MACs) have other, more essential duties than identifying overpayments, they may also be included in OMB's assessment since they are tasked with that issue as well.

The Improper Payments Act is unlikely to directly impact providers in a substantial way; however, it indicates the federal government's continued focus on overpayments and recoveries. It also demonstrates a shift in focus from solely emphasizing the recipients of the overpayments to greater accountability by the overseeing agencies and contractors. The likely outcome of this shift is merely added pressure on providers from CMS and audit contractors as they struggle to meet the goals established by OMB to improve their assessments.

Changes to Provider Liability for Overpayments

A major argument that providers often use during the administrative appeals process to secure payment for denied claims is being revised. This is commonly known as the "waiver of provider liability" for overpayments. Section 1870 of the Social Security Act (SSA) permits providers to essentially be forgiven for overpayments discovered after a certain period of time so long as the provider is "without fault" in causing the overpayment.

This provision of the SSA can play a major role in obtaining relief for providers, including O&P providers, during Medicare contractor audits. In the past, the applicable time period for an overpayment waiver was three years after the year in which the payment was originally made-essentially a three- to four-year time period depending on how early in a year the original payment was made.

The American Taxpayer Relief Act of 2012, designed to avert the worst effects of the "fiscal cliff," includes a provision to extend the time period that must elapse before waiver of overpayment liability may apply. The time period is now five years after the year in which the payment was originally made. Section 638 of the Taxpayer Relief Act amended the SSA to extend the time period, and corresponding changes will need to be made to the applicable federal regulations and manual provisions. Regardless of how long it takes for CMS to amend the regulations and guidance, the statutory provision became effective immediately, and it is anticipated that CMS will apply it.

Interaction between Waiver of Liability and False Claims Act

While this change in the law extends the period of time for which a provider may be held liable to repay CMS for an innocent overpayment or a difference of opinion as to what constitutes medical necessity, it is unclear how the change impacts the 60-day repayment obligation made part of the SSA by the Patient Protection and Affordable Care Act (PPACA). Briefly, the 60-day repayment rule requires providers to repay any identified overpayment within 60 days or risk having the overpayment become an "obligation" to which False Claims Act (FCA) liability may apply. If a provider's liability for an overpayment under the SSA is waived after a five- to six-year period (again, depending on the time of year the original payment was made), it is unclear whether FCA liability created under the 60-day repayment rule is also extinguished after this time period elapses.

Unfortunately, there has always been some tension between the waiver of liability provision in §1870 of the SSA and the FCA. The government could certainly take the position that although a provider is deemed to be without fault, there is still a separate duty for the provider to report and repay any overpayment. Currently, final regulations regarding the 60-day repayment rule are still pending publication. The proposed regulations suggested a ten-year "look back" limitation as the cutoff for liability under the repayment rule. With this new provision enacted into law, CMS may reconsider this position and line up the time frames for the repayment requirement and waiver of liability. However, until the repayment rule regulations are published, it may be difficult to determine what risk exists for providers under the FCA when liability for an overpayment is otherwise waived.

Looking Ahead to the Rest of 2013

More HHS- and CMS-related legislative, regulatory, policy, and other, less formal developments are likely to occur over the course of 2013. Increased activity from all of the Medicare contractors can also be anticipated. O&P providers must be sure they comply with Medicare documentation requirements, be diligent about appealing claim denials when they do occur, and keep up to date on ongoing conversations about Medicare coverage and auditing policy.

Peter W. Thomas, JD, is general counsel for the National Association for the Advancement of Orthotics and Prosthetics (NAAOP). Christina A. Hughes, JD, MPH, is an associate at Powers Pyles Sutter and Verville, Washington DC.