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Audits and Reviews of Medical Claims

May 2012, Vol 2, No 3
Risë Marie Cleland
President, Oplinc, Inc, Portland, OR

Audits and reviews of medical claims are nothing new. However, we are seeing an unprecedented increase in the number of these audits in the hospital and in the physician practice setting. The increase in audits is directly related to the growing numbers of entities that are auditing medical claims and the increased focus on identifying and preventing overpayments.

Public and private payers alike recognize the excellent return on investment (ROI) of medical claims audit initiatives. Yet, as good as the ROI is on the recovery of overpayments, it is even better if the overpayment can be prevented. There - fore, providers should expect to see more prepayment audits and reviews in the future.

New Tools to Reduce Fraud

In fact, provisions in the massive healthcare reform legislation, the Affordable Care Act (ACA), provide new enforcement tools and resources for identifying and preventing overpayments as a result of fraud, abuse, and billing errors. The ACA provides an additional $350 million over 10 years to increase antifraud activity through more prepayment audits and reviews and new highly sophisticated data analytics.

The ACA also expands the successful Recovery Audit Contractor (RAC) program to Medicaid, Medicare Advantage (Part C), and Medicare Part D programs. The Centers for Medicare & Medicaid Services (CMS) reports that it expects to save $2.5 billion over the next 5 years in the Medicaid RAC program alone.

False Claims Act

Reducing fraud is a high priority for CMS; nevertheless, the identification and recovery of overpayments resulting from errors remains a key initiative. Because of the recent changes to the False Claims Act, inadvertent claims errors, the lack of adequate documentation to support billed claims, or inattention to billing errors or overpayments can rapidly snowball and threaten a clinic’s financial viability.

In 2009, Congress amended the federal civil False Claims Act to include the concealment or the knowing and improper avoidance of an obligation to pay or transmit money to the government. This is referred to as the “reverse false claims” provision, because it is the knowing retention and failure to refund federal funds that were paid in error that triggers violation of the False Claims Act. In 2010, Sec - tion 6402(a) of the ACA further strengthened the reverse false claims provision of the False Claims Act.

The ACA established a new section 1128J(d) of the act titled, “Reporting and Returning of Over - payments,” which requires providers to report and return any Medicare overpayment by the later of 60 days after the identification of the overpayment or the date the applicable cost report is due. Failure to refund promptly could result in a violation of the False Claims Act, which includes civil penalties between $5500 and $11,000 per violation, plus 3 times the government’s losses.

In addition to liability under the False Claims Act, a determination that an individual or entity knowingly concealed overpayments from federal healthcare programs may constitute grounds for additional civil money penalties, criminal penalties (including fines, imprisonment, or both), as well as exclusion from the Medicare and Medicaid programs.


On February 16, 2012, CMS published the “proposed rule,” Medicare Program; Reporting and Returning of Overpayments, in which CMS provides definitions and clarifications on the reporting and returning of overpayments.

The proposed rule defines an 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.”

The proposed rule would also clarify that an overpayment is “identified” (and therefore subject to the 60-day deadline) when a provider or supplier has actual knowledge or acts in “reckless disregard” or “deliberate ignorance” of the existence of the overpayment. CMS states that this gives providers and suppliers an incentive to undertake reasonable diligence to determine whether overpayments exist, “such as self-audits, compliance checks, and other additional research.”

Under the proposed rule, identified overpayments would be reported using the existing voluntary refund process, which CMS renamed the “self-reported overpayment refund process.” The current voluntary refund process (as described in Publication 100-06, Chapter 4 of the Medicare Financial Management Manual) requires providers to report overpayments using a form made available from the Medicare contractor. However, CMS plans to develop a uniform reporting form, thereby enabling overpayments to be reported and returned in a consistent manner across all Medicare contractors.

Extension Period

Finally, CMS proposes extending the “lookback” period for reporting and returning overpayments to 10 years. CMS reports that the proposed 10-year lookback period was selected because it is the outer limit of the federal False Claims Act statute of limitations. CMS is also suggesting amending the rules to provide for a 10-year reopening time frame consistent with the proposed lookback period.

Implications for Practices and Suppliers

In summary, Medicare’s reporting and returning of overpayments proposed rule will have a profound impact on Medicare providers and suppliers, and it would greatly increase the liabilities of billing and coding errors. Moreover, regardless of the outcome of this proposed rule, providers need to have policies and processes in place for avoiding billing errors and identifying and returning overpayments in a timely manner.

An effective compliance plan can assist in the identification of overpayments and the avoidance of future errors that might otherwise lead to overpayments. Furthermore, effective compliance plans and the development of compliance policies and procedures will help protect the practice from whistleblower claims.

The ACA requires providers to have a compliance program in place as a condition of enrollment in Medicare, Medicaid, or the Child - ren’s Health Insurance Program. The details for the new mandatory provider compliance plan are not yet finalized. CMS sought comments on 7 core elements, stating that they will work with the Office of Inspector General to establish the required core elements of the program. CMS will publish specific proposals in the future.

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