The Centers for Medicare & Medicaid Services (“CMS”) has proposed a new rule that, among other changes, would amend the “identified overpayment” standard in the current regulations for Medicare to align with the False Claims Act’s (“FCA”) “knowingly” standard. The proposed rule plans to remove “the exercise of reasonable diligence” language from the relevant regulations and replace that language with the “knowingly” standard from the FCA.

The regulations at issue — 42 C.F.R. § 401.305(a)(2); 42 C.F.R. § 422.326(c) and 42. C.F.R. § 423.360(c) — are supposed to implement, in part, Section 6402(a) of the Affordable Care Act (“ACA”), codified at 42 U.S.C. § 1320a-7k. This section of the ACA explains that if an overpayment under the various Medicare programs has been identified and has not been reported and returned in a set amount of time, then an enforcement action can be brought under the FCA. This section also states that the terms “knowing” and “knowingly” have the same meaning as under the FCA.

The FCA defines these terms to mean that a person has actual knowledge of information, acts in deliberate ignorance of the truth or falsity of information, or acts in reckless disregard of the truth or falsity of information; the terms do not require a specific intent to defraud. 31 U.S.C. § 3729(b)(1).

Proposed Change Due to Litigation

As noted by CMS, the United States District Court for the District Court of Columbia found that the “reasonable diligence” language in one of the “identified overpayment” regulations “extends far beyond the [FCA] and, by extension, the [ACA]. Not being Congress, CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation.” UnitedHealthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173, 191 (D.D.C. 2018), rev’d in part on other grounds sub nom. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867 (D.C. Cir. 2021), cert. denied, 142 S. Ct. 2851 (U.S. June 21, 2022).

The court noted that CMS had previously stated that “reasonable diligence” in this context would “at a minimum . . . include proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments.” 330 F. Supp. 3d at at 190.

Thus, by proposing the removal of the “reasonable diligence” language and the update of the regulations with the “knowingly” standard from the FCA, CMS is responding to the district court’s finding that the previous language represents an overreach of CMS’s legislative authority.

Key Takeaways

This proposed change ensures that the less stringent “knowingly” standard of the FCA, along with the FCA case law interpreting this standard, is applied to any identified overpayment subject to enforcement activities brought under the “identified overpayment” regulations.

This proposed rule is set to be published in the Federal Register today, December 27, 2022 and comments regarding the rule must be submitted by February 13, 2023.

Reed Smith will continue to follow developments as this proposed rule is finalized. If you have questions about “identified overpayments” or other Medicare regulations, please reach out to the health care attorneys at Reed Smith.