Fiscal deal gives Medicare more time to recover overpayments

A little-noticed provision in the fiscal-cliff bill that President Barack Obama signed Wednesday will give Medicare officials the ability to take back an estimated $500 million in payments that hospitals and physicians received as long as five years ago.

The eight-line provision in the law, Section 638, "Removing Obstacles to Collection of Overpayments," says that Medicare contractors now have five years to collect on errors in Medicare payments.

Previously, the statute of limitations on nonfraudulent Medicare overpayments was only three years. But last May, HHS' inspector general's office wrote (PDF) that the three-year limit had prevented the CMS from collecting as much as $332 million in overpayments that had already been identified by investigators because the auditing process takes so long.

Citing a March 2010 presidential directive, the OIG recommended that the CMS "pursue legislation” to reopen Medicare overpayments within five years of the first day of the year following when the payment was made.

And that's exactly what Section 638 of the American Taxpayer Relief Act of 2012 (PDF) did. (The law actually amends the last sentence of two subsections of a section of the Social Security Act.

The change was not mentioned in the CMS' official public explanation of the law, but a summary of the bill provided by Congressional sources estimated it would add up to $500 million to the federal treasury, on the advice of the OIG.

An executive with one major trade association—the Chicago-based American Hospital Association—criticized how the provision ended up in the bill. "Let's put it this way: This process was not the most transparent," said Rick Pollack, AHA executive vice president of advocacy and public policy. "A lot of legislators might not even have known what they were voting on."

Although auditors said the change was needed to help government agencies recover known overpayments, Pollack said the change in law seemed unnecessary. "Our view: They already have three years, why do they need five? We don't understand that justification."

David Glaser, a partner with Fredrikson & Byron in Minneapolis, said the change was likely to have a major impact in cases where providers retroactively discover patterns of problems.

For example, if a hospital discovers that a nurse practitioner had been receiving payments at the full physician Medicare rate instead of the discounted 85% rate that most nurses receive, that facility will now have to go back and audit five years' worth of billings for which that nurse's services were billed, instead of just three.

"If you find a billing mistake, a two-year swing in how far back you go may be a lot of work," Glaser said. "Often, overpayments aren't clear. There are many situations where you ultimately make a judgment if you were overpaid or not. And if it's a close call, this may make you make a harder argument that, 'No, this wasn't an overpayment.' "

Separately, a provision in the Affordable Care Act in 2010 gives the CMS the power to collect some overpayments going back 10 years. However, Glaser said that proposed rule for this practice—which has yet not been finalized—applies only to payments that are covered by the False Claims Act.

Commonly known as "the 60-day rule," this regulation says providers who knowingly hold onto Medicare overpayments for more than 60 days are liable under the False Claims Act and its 10-year "look-back" period. It says that failure to investigate a tip about a potential overpayment may constitute the reckless disregard or willful ignorance that can trigger steep sanctions.

Jessica Zigmond contributed to this story.