Medicare and Medicaid Repayments and Self-Disclosures * * * * * Part II: Overpayment Issues Relating to the Medicaid Program

Medicare and Medicaid Repayments and Self-Disclosures * * * * * Part II: Overpayment Issues Relating to the Medicaid Program by: Robert L. Roth, Esq. Hooper, Lundy & Bookman, P.C. 2000 K Street, N.W., Suite 200 Washington, D.C. 20006 Tel: (202) 587-2590 Fax: (202) 587-2594 Email: rroth@health-law.com I. Introduction When considering whether to make disclosures and repayments relating to the Medicaid program, it is important to determine the amount of the overpayment at issue, the reporting, assignment, and refund obligations of the various entities involved in the Medicaid payment process, and the recovery rights of the federal and state governments. To assist in making this determination, this outline reviews federal and state obligations relating to Medicaid overpayments, as opposed to claims where fraud is alleged, including the significant changes made by the Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148 ("PPACA"), to the duty to report and refund Medicaid overpayments. In doing so, this outline focuses on overpayment recoveries from providers, while touching on recoveries from third party payers ( TPPs ), but does not address in any significant detail recoveries from individual Medicaid recipients. II. How Medicaid Overpayments Arise A. A Medicaid overpayment occurs where the Medicaid payment exceeds what should have been paid. See 42 C.F.R. 433.304 ( Overpayment means the amount paid by a Medicaid agency to a provider which is in excess of the amount that is allowable for services furnished under [42 U.S.C. 1396a] and which is required to be refunded under [42 U.S.C. 1396b]. ). Medicaid overpayments generally arise in one of five contexts: 1

1. The patient was not eligible for Medicaid at the time the service was provided, 2. Medicaid has made a payment where there was another responsible payer, 3. The service was not Medicaid-covered, 4. The service was covered but not medically necessary, or 5. Medicaid was the responsible payer for a medically-necessary, covered service but the payment amount was incorrect and excessive. B. If Medicaid is the proper payer and the service is both covered and medically necessary, Medicaid will be obligated to make payment on a timely-submitted and otherwise proper claim. If the payment is incorrect, either an overpayment or underpayment occurs, giving rise to: 1. the right of the provider to appeal the underpayment, or 2. the obligation of the provider to refund, or the right of the government to seek to recover, the overpayment. III. How Recovery Actions Differ Under Medicare and Medicaid A. Unlike Medicare, which is a federal government program, Medicaid is a joint state and federal program under which the federal government provides financial support, in the form of matching grants, to states that establish and administer a State Medicaid Program, in accordance with federal law, through an approved Medicaid State Plan, to pay for medical costs for children from low-income families and others. Accordingly, while Medicare provider overpayments can potentially affect the federal government, federal Medicare contractors, Medicare Advantage plans, and Medicare beneficiaries, Medicaid provider overpayments can potentially affect federal, state, and local governments, federal and state Medicaid contractors, Medicaid managed care organizations, and Medicaid recipients. B. The Medicaid provisions of the Social Security Act (Title XIX), 42 U.S.C. 1396 et seq. ( the Act ), and the implementing rules adopted by the Centers for Medicare and Medicaid Services ( CMS ), set out the broad requirements concerning coverage, payment, etc., which states are required to follow as a condition of receiving their federal matching funds. Each state has a Medicaid State Plan that contains specific requirements that apply to that state. 42 U.S.C. 1396b(a). 2

C. Federal authorities address in detail recovery of Medicare overpayments from providers. For Medicaid, however, the federal government generally focuses on recovering from the state which, in turn, is expected to recover from the provider. See Review of Medicaid Credit Balances at Baystate Franklin Medical Center for the Period Ending June 30, 2006 (Report Number A-01-07-00002) (July 11, 2007) (reviewing federal and state roles in recovering Medicaid provider overpayments). D. When Medicaid recipients enroll, they are required to assign to the Medicaid program their rights to any medical payments. 42 U.S.C. 1396k(a)(1) and 1396k(a)(25)(H). Under 42 C.F.R. 433.145(a), a Medicaid State Plan:... must provide that, as a condition of eligibility, each legally able applicant or recipient is required to: (1) Assign to the Medicaid agency his or her rights, or the rights of any other individual eligible under the plan for whom he or she can legally make an assignment, to medical support and to payment for medical care from any third party;... and (3) Cooperate in identifying and providing information to assist the Medicaid agency in pursuing third parties who may be liable to pay for care and services under the plan, unless the individual establishes good cause for not cooperating." IV. Medicaid Payment and Third Party Liability Recovery Provisions A. Because Medicaid is the payer of last resort, all other payers are required to pay before Medicaid. 42 U.S.C. 1396a(a)(25)(H) and 1396b(o). Conversely, Medicaid has the right to recover from other responsible TPPs. These payment and recovery rights are often referred to as Medicaid Third Party Liability or TPL. B. CMS regulations, at 42 C.F.R. 433.135 et seq., set forth the obligations of the states and others with respect to TPL. These obligations can be divided into two basic approaches to TPL - "cost avoidance" and "pay and recover later." 42 C.F.R. 433.139(a)(2). 1. In furtherance of "cost avoidance," if the probable existence of a responsible TPP is established at the time a claim is filed, the state Medicaid agency is required to reject the claim and return it 3

to the provider for a determination of the amount of [TPP] liability. 42 C.F.R. 433.139(b). 2. In furtherance of pay and recover later, if the agency learns of the existence of a liable third party after a claim is paid, or benefits become available from a third party after a claim is paid, the agency must seek recovery of reimbursement within 60 days after the end of the month it learns of the existence of the liable third party or benefits become available. See 42 C.F.R. 433.139(d)(2). 1 This requirement is confirmed in 3904.3 of the CMS State Medicaid Manual, which instructs states as follows: If you learn of the existence of a third party after you have paid the claim, or benefits become available from the third party after the claim is paid, seek recovery of reimbursement from the third party to the limit of legal liability within 60 days from the end of the month in which you learn of the existence of the third party or benefits become available, whichever is later. Take whatever action is necessary to meet the 60 day requirement for seeking recovery of reimbursement. C. The 60-day requirement was adopted to assure that state pay and recover later actions follow industry norms. The 60-day limit is consistent with the average time limit under generally accepted insurance practices. (In the proposed regulations, we had originally proposed to delete the time limit. After further analysis, we now believe it is more appropriate to specify a limit that is consistent with generally accepted insurance practices.). 50 Fed. Reg. 46652, 46654 (Nov. 12, 1985). D. The Deficit Reduction Act of 2005 ( DRA ), Public Law No. 109-171, amended 42 U.S.C. 1396a(a)(25)(I) to require states to "provide assurance to the 1 This 60-day period may be subject to modification in light of 42 U.S.C. 1396b(d)(2)(C), as amended by PPACA 6506, which extends from 60 days to one year the time for a State to pursue Medicaid overpayment recoveries. 4

Secretary 2 that the State has in effect laws requiring health insurers, including self-insured plans... to (iv) agree not to deny a claim submitted by the State solely on the basis of the date of submission of the claim, the type or format of the claim form, or a failure to present proper documentation at the point-of-sale that is the basis of the claim, if (I) (II) the claim is submitted by the State within the 3-year period beginning on the date on which the item or service was furnished; and any action by the State to enforce its rights with respect to such claim is commenced within 6 years of the State s submission of such claim." E. Under 42 U.S.C. 1395vv, the Secretary may withhold Medicare payments to recover Medicaid overpayments and, under 42 U.S.C. 1396m, may withhold Medicaid payments to recover Medicare overpayments. V. The Medicaid Integrity Program ( MIP ) A. The DRA created the Medicaid Integrity Program ( MIP ) to address, among other issues, [i]dentification of overpayments to individuals or entities receiving Federal funds under [Medicaid]. 3 Congress demonstrated its seriousness about this program by appropriating significant funding specifically for MIP activities. B. At the federal level, the DRA MIP overpayment initiatives are being implemented through the CMS Medicaid Integrity Group ( MIG ) of the Center for Medicaid and State Operations, which was established in June 2006 pursuant to DRA 6034. These initiatives are summarized in the Comprehensive Medicaid Integrity Plans of the Medicaid Integrity Program ( CMIP ) (attached), which can be found on the CMS website. Among the specific actions in the CMIP are (1) developing protocols for reviewing providers, auditing claims, and identifying overpayments and (2) conducting Medicaid integrity reviews of various states. C. Many of the policies established by the MIG will be implemented by Medicaid Integrity Contractors ( MICs ), which the MIG oversees. 4 Specifically, under 42 2 In this outline, unless otherwise noted, references to the "Secretary" means the Secretary of the United States Department of Health and Human Services. 3 42 U.S.C. 1396u-6(b)(3). 4 The MIG also oversees State Program Integrity Operations. 5

U.S.C. 1396u-6(a): "... the Secretary shall promote the integrity of the program under this subchapter by entering into contracts in accordance with this section with eligible entities to carry out the activities described in subsection (b)." The activities listed under 42 U.S.C. 1396u-6(b) are: "(1) Review of the actions of individuals or entities furnishing items or services (whether on a fee-for-service, risk, or other basis) for which payment may be made under a State plan approved under this title (or under any waiver of such plan approved under section 1115) to determine whether fraud, waste, or abuse has occurred, is likely to occur, or whether such actions have any potential for resulting in an expenditure of funds under this title in a manner which is not intended under the provisions of this title. (2) Audit of claims for payment for items or services furnished, or administrative services rendered, under a State plan under this title, including (A) (B) (C) cost reports; consulting contracts; and risk contracts under section 1903(m). (3) Identification of overpayments to individuals or entities receiving Federal funds under this title. (4) Education or training, including at such national, State, or regional conferences as the Secretary may establish, of State or local officers, employees, or independent contractors responsible for the administration or the supervision of the administration of the State plan under this title, providers of services, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care." D. Specifically related to overpayments, the MIG s Division of Fraud Research and Detection ( DFRD ) plans to award a contract to assist in developing approaches to data mining. In addition, the State Program Integrity Contractor provides technical advice in the development of protocols for the MIC activities of reviewing providers, auditing claims, identifying overpayments, and educating providers. E. Historically, governmental recovery efforts have used a pay and chase approach. Because such an approach is both slow and costly, there seems to be a trend to adopting other strategies including using data mining contractors to identify aberrations in claims. The government then gives notice of overpayment refund expectations and uses spot audit and 6

enforcement actions to encourage internal audits, overpayment refunds, and self-disclosures. F. Also, PPACA 6411(a) amended 42 U.S.C. 1396a(a)(42) to provide for an expansion of the Medicare Recovery Audit Contractor ("RAC") program into Medicaid. While it is unclear how these new "Medicaid RACs" will interact with the MICs, each State participating in Medicaid shall, not later than December 31, 2010: 5 "(i) establish a program under which the State contracts (consistent with State law and in the same manner as the Secretary enters into contracts with recovery audit contractors under section 1395ddd(h) of this title, subject to such exceptions or requirements as the Secretary may require for purposes of this subchapter or a particular State) with 1 or more recovery audit contractors for the purpose of identifying underpayments and overpayments and recouping overpayments under the State plan and under any waiver of the State plan with respect to all services for which payment is made to any entity under such plan or waiver; and (ii) provide assurances satisfactory to the Secretary that-- (I) (II) under such contracts, payment shall be made to such a contractor only from amounts recovered; from such amounts recovered, payment-- (aa) (bb) shall be made on a contingent basis for collecting overpayments; and may be made in such amounts as the State may specify for identifying underpayments; (III) the State has an adequate process for entities to appeal any adverse determination made by such contractors; and (IV) such program is carried out in accordance with such requirements as the Secretary shall specify, including-- 5 After initially extending this implementation date until April 1, 2011, CMS stated in a February 1, 2011 Bulletin (CPI-B 11-03) that a new implementation deadline would be included in the Final Rule on Medicaid RACs, which CMS "anticipate[s]... will be issued later this year." The proposed rule can be found at 75 Fed. Reg. 69,037 (November 10, 2010). 7

(aa) (bb) (cc) for purposes of section 1396b(a)(7) of this title, that amounts expended by the State to carry out the program shall be considered amounts expended as necessary for the proper and efficient administration of the State plan or a waiver of the plan; that section 1396b(d) of this title shall apply to amounts recovered under the program; and that the State and any such contractors under contract with the State shall coordinate such recovery audit efforts with other contractors or entities performing audits of entities receiving payments under the State plan or waiver in the State, including efforts with Federal and State law enforcement with respect to the Department of Justice, including the Federal Bureau of Investigations, the Inspector General of the Department of Health and Human Services, and the State medicaid fraud control unit...." VI. Selected Authorities Relating to Refunding Medicaid Overpayments A. Statutory Authorities. 1. Overpayments: Under 42 U.S.C. 1320a-7k(d), discussed in detail in Part I of this Outline, Medicaid providers must return and report any "identified" overpayments within the later of (a) 60 days after the overpayment has been identified, or (b) the date the corresponding cost report is due, if applicable. On February 16, 2012, CMS published in the Federal Register its notice of proposed rule making regarding Medicare provider and supplier obligations to report and return Medicare and Medicaid overpayments. 6 This proposed rule is addressed at length in an article entitled Tick, Tick, BOOM: CMS s Proposed 60-Day Rule Would Create Intense Time Pressure for Providers to Identify, Report, and Return Overpayments, reproduced with permission from BNA s Health Care Fraud Report (Enclosure C to Part I of this Outline). 6 77 Fed. Reg. 9179 et seq. (Feb. 16, 2012). Comments are due no later than 5:00 p.m. Eastern time on April 16, 2012. 8

2. Overpayments: Under 42 U.S.C. 1396b(d)(2) (emphasis added): "(A) The Secretary shall... pay to the State, in such installments as he may determine, the amount so estimated [under the previous paragraph], reduced or increased to the extent of any overpayment or underpayment which the Secretary determines was made under this section to such State for any prior quarter and with respect to which adjustment has not already been made under this subsection. (B) Expenditures for which payments were made to the State under subsection (a) of this section shall be treated as an overpayment to the extent that the State or local agency administering such plan has been reimbursed for such expenditures by a third party pursuant to the provisions of its plan in compliance with section 1396a(a)(25) of this title. (C) For purposes of this subsection, when an overpayment is discovered, which was made by a State to a person or other entity, the State shall have a period of 1 year in which to recover or attempt to recover such overpayment before adjustment is made in the Federal payment to such State on account of such overpayment. Except as otherwise provided in subparagraph (D), the adjustment in the Federal payment shall be made at the end of the 1-year period, whether or not recovery was made. (D) (i) In any case where the State is unable to recover a debt which represents an overpayment (or any portion thereof) made to a person or other entity on account of such debt having been discharged in bankruptcy or otherwise being uncollectable, no adjustment shall be made in the Federal payment to such State on account of such overpayment (or portion thereof). (ii) In any case where the State is unable to recover a debt which represents an overpayment (or any portion thereof) made to a person or other entity due to fraud within 1 year of discovery because there is not a final determination of the amount of the overpayment under an administrative or judicial process (as applicable), including as a result of a judgment being under appeal, no adjustment shall be made in the Federal payment to such State on account of such overpayment (or portion thereof) before the date that is 30 9

days after the date on which a final judgment (including, if applicable, a final determination on an appeal) is made." Under 42 U.S.C. 1396b(d)(3): The pro rata share to which the United States is equitably entitled, as determined by the Secretary, of the net amount recovered during any quarter by the State or any political subdivision thereof with respect to medical assistance furnished under the State plan shall be considered an overpayment to be adjusted under this subsection. 3. State Plans: Under 42 U.S.C. 1396a(a)(25), a state plan must provide, inter alia (emphasis added): (A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties (including health insurers, group health plans (as defined in section 607(1) of the Employee Retirement Security Act of 1974 [29 U.S.C. 1167(1)]), service benefit plans, managed care organizations, pharmacy benefit managers, or other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service) to pay for care and services available under the plan, including -- (i) (ii) the collection of sufficient information (as specified by the Secretary in regulations) to enable the State to pursue claims against such third parties, with such information being collected at the time of any determination or redetermination of eligibility for medical assistance, and the submission to the Secretary of a plan (subject to approval by the Secretary) for pursuing claims against such third parties, which plan shall be integrated with, and be monitored as a part of the Secretary's review of, the State's mechanized claims processing and information retrieval systems required under section 1396b(r) of this title; (B) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the 10

amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability;... (H) that to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.... B. Regulatory Authorities: 1. Regulations implementing the general statutory recovery authorities can be found at 42 C.F.R. 433.300 et seq. Under 42 C.F.R. 433.312 (emphasis added): (a) Basic rules 7 (1) Except as provided in paragraph (b) of this section, the Medicaid agency has 60 days from the date of discovery of an overpayment to a provider to recover or seek to recover the overpayment before the Federal share must be refunded to HCFA. (2) The agency must refund the Federal share of overpayments at the end of the 60-day period following discovery in accordance with the requirements of this subpart, whether or not the State has recovered the overpayment from the provider. (b) Exception. The agency is not required to refund the Federal share of an overpayment made to a provider when the State 7 See, supra, note 1. 11

is unable to recover the overpayment amount because the provider has been determined bankrupt or out of business in accordance with 433.318. 2. Under 42 C.F.R. 433.320(a): (1) The agency must refund the Federal share of overpayments that are subject to recovery to HCFA through a credit on its Quarterly Statement of Expenditures (Form HCFA-64). (2) The Federal share of overpayments subject to recovery must be credited on the Form HCFA-64 report submitted for the quarter in which the 60-day period following discovery, established in accordance with 433.316, ends. 8 (3) A credit on the Form HCFA-64 must be made whether or not the overpayment has been recovered by the State from the provider. 3. Under 42 C.F.R. 433.138(b)(1), concerning potentially responsible TPPs: If the [state] Medicaid agency determines eligibility for Medicaid, it must, during the initial application and each redetermination process, obtain from the applicant or recipient such health insurance information as would be useful in identifying legally liable third party resources so that the agency may process claims under the third party liability payment procedures specified in 433.139 (b) through (f). 4. Under 42 C.F.R. 433.138(k), also concerning potentially responsible TPPs: "If a State has a mechanized claims processing and information retrieval system approved by CMS under subpart C of this part, the agency must have an action plan for pursuing third party liability claims and the action plan must be integrated with the mechanized claims processing and retrieval system." 5. Under 42 C.F.R. 433.310(b)(1) (emphasis added), also concerning potentially responsible TPPs: 8 Id. 12

"The requirements of this subpart [concerning refunds of Medicaid provider overpayments] do not apply to... [c]ases involving third party liability because, in these situations, recovery is sought for a Medicaid payment that would have been made had another party not been legally responsible for payment." Citing this regulation (and others), a State Medicaid program was found to have unlawfully recouped from a provider Medicaid payments that were allegedly the responsibility of a TPP, i.e. Medicare, stating: [t]hus, the regulations establish that payment of a Medicaid claim for which third-party coverage was also available is not an overpayment as that term is used in the Medicaid statute and the recoupment regulations. Petition of Maxi Drug, Inc., 2006 WL 3802955, Medicaid & Medicaid Guide (CCH) 301,969 (N.H. Dec. 28, 2006). 9 VII. Responding to Medicaid Overpayment Recovery Demands When responding to Medicaid overpayment recovery demands, providers need to be aware of federal and state overpayment refund obligations and should consider the following possible available regulatory defenses: 10 1. Are the claims administratively final and, therefore, no longer subject to governmental recovery actions? 2. Did the state follow the TPL requirements? 3. Can the provider seek a waiver of recovery directly or on behalf of a patient? 4. Is there, in fact, an overpayment? 5. Has the amount of the overpayment been calculated properly? 6. Did the state meet all applicable procedural requirements? 11 9 See also Atlanticare Med. Center v. Com'r of Div. of Medical Assistance, 785 N.E.2d 346 (Mass. 2003). 10 Part I of this Outline discusses many of these defenses in detail in the context of the Medicare program. 13

VIII. Developments at the State Level A. States have become very active legislatively and regulatorily with regard to Medicaid enforcement generally, and recovery of overpayments in particular, employing a variety of approaches. 1. As discussed in more detail below, the New York Office of the Medicaid Inspector General ( OMIG ) has incentivized providers to report Medicaid overpayments through its Self-Disclosure Guidance. New York is the clear leader in the overpayment recovery effort, reportedly recovering $551 million in the period from 2008-2009, while all 50 states recovered $305 million in toto in 2007. 2. North Carolina has proposed withholding all future Medicaid payments until all overpayments have been repaid. 3. Alaska is considering legislation requiring the state agency to develop regulations addressing the use of extrapolation methodology following an audit of Medicaid providers that clearly define the difference between actual overpayment of funds to a provider and ministerial omission or clerical billing error that does not result in overpayment to providers. 4. Louisiana, having identified overpayments that seem to have been prevalent with a certain type of provider (In-Home Direct Care Providers), is using contractors to audit all such providers. 5. Massachusetts has issued a policy requiring return of credit balances within 60 days of their receipt. B. New York State Medicaid Self-Disclosure Guidance. 1. The OMIG issued this Guidance on March 12, 2009 - http://www.omig.state.ny.us/data/images/stories/self_disclosure/omig_pro vider_self_disclosure_guidance.pdf. "OMIG has developed this approach to encourage and offer incentives for providers to investigate and report matters that involve possible fraud, ( continued) 11 See St. Francis Med. Ctr. v. Shewry, 134 Cal. App. 4th 1556 (Cal. Ct. App. 2005). 14

waste, abuse or inappropriate payment of funds whether intentional or unintentional under the state s Medicaid program." Guidance at 1. 2. Guidance cites a regulation, 18 NYCRR 515.2, in support of the following statement: "[P]roviders who identify that they have received inappropriate payments from the Medicaid program are obligated to return the overpayments...." Guidance at 1 note 1. 18 NYCRR 515.2 is entitled Unacceptable Practices Under the Medical Assistance Program. 18 NYCRR 515.2(b)(3) reads as follows: "(3) Failure to Disclose. Having knowledge of any event affecting the right to payment of any person and concealing or failing to disclose the event with the intention that a payment made when not authorized or in a greater amount than due." 3. Incentives for disclosure include: a. Forgiveness or reduction of interest payments (for up to 2 years); b. Extended repayment terms; c. Waiver of penalties and/or sanctions; d. Timely resolution of the overpayment; e. Recognition of the effectiveness of the provider s compliance and a decrease in the likelihood of imposition of an OMIG Corporate Integrity Program; and f. Possible preclusion of subsequently filed New York State False Claims Act qui tam actions based on the disclosed matters. Guidance at 2. 4. The Guidance also addresses: a. When to disclose (pages 2-3); b. What issues are appropriate for disclosure (page 3); c. The disclosure process (pages 3-4); and d. Restitution. 15

5. Other Important Points a. Matters related to an on-going audit/investigation of the provider are not generally eligible for resolution under the self-disclosure protocol. Guidance at 2 note 3. b. Providers should be aware that the OMIG monitors both the number of occurrences and dollar amounts of voids and/or adjustments, as well as any pattern of voids and/or adjustments. The OMIG highly discourages providers from attempting to avoid the self-disclosure process when circumstances in fact warrant its use. Guidance at 3. c. Assuming complete provider cooperation and timely response to information requests, the OMIG expects that the vast majority of self-disclosures will be completed within six months of submission of this information. Guidance at 4. d. The OMIG will consider the provider s involvement and level of cooperation throughout the disclosure process in determining the most appropriate resolution and the best mechanism to achieve that resolution. Id. e. The OMIG is committed to working with providers in a cooperative manner to obtain relevant facts and evidence without interfering with the attorney-client privilege or work-product protection. Id. 6. The Guidance includes a self-disclosure form with the following certification: "I certify that, to the best of my knowledge, the information in this selfreport is truthful and is based on a good faith effort to assist the OMIG in it s [sic] inquiry and verification of the disclosed matter." Form at 4. 7. When Medicaid repayment or disclosure protocols, such as the New York Medicaid Self-Disclosure Guidance, are established by states, it is important to scrutinize them for federal/state issues. This helps assure that repayments/disclosures are properly coordinated at both governmental levels. 16