Revised 60-Day Overpayment Rule Expands FCA Exposure for Healthcare Providers

By EJ Odigwe, Claudia E. Stedman, Scott S. Driggs, and Paul J. Giancola

Introduction

The Department of Justice (DOJ) recently secured a $32 million settlement resolving allegations under the “reverse” false claims provision of the False Claims Act (FCA), based on the alleged knowing failure of a healthcare provider and its executives to return identified Medicare overpayments from 2021 to the present.¹ The settlement serves as a forceful reminder that the government is actively pursuing reverse FCA cases based on the retention of overpayments — not just the submission of affirmatively false claims for payment. Notably, the defendant had previously entered into a Corporate Integrity Agreement in 2021 as part of an earlier FCA settlement. The current case was initiated by employee whistleblowers who allegedly became aware that the provider continued to retain identified Medicare overpayments despite its prior settlement and compliance obligations.

This enforcement action coincides with the Centers for Medicare & Medicaid Services’ (CMS) January 1, 2025, amendment to the Medicare overpayment rule, which revised the standard for when an overpayment is considered “identified” for purposes of the 60-day report-and-return requirement. See 42 C.F.R. § 401.305(a)(2). By replacing the ambiguous “reasonable diligence” standard with a clearer regulatory framework, CMS has clarified providers’ repayment obligations while reinforcing the government’s focus on the timely identification and return of Medicare overpayments. Together, the revised rule and continued DOJ enforcement significantly raise the compliance stakes for healthcare providers and suppliers.

The “Reverse” False Claims Act

A “reverse” false claims violation arises under 31 U.S.C. § 3729(a)(1)(G), which imposes FCA liability on a party that knowingly conceals, or knowingly and improperly avoids or decreases, an obligation to pay or transmit money to the government. Retaining an identified overpayment beyond the statutory deadline creates such an obligation.

The Affordable Care Act’s 60-Day Overpayment Rule

The Affordable Care Act (ACA) requires healthcare providers to report and return Medicare or Medicaid overpayments within 60 days of identification. Failure to do so can give rise to FCA liability and, potentially, civil monetary penalties and exclusion from federal healthcare programs.

Identification of an Overpayment

Initially, CMS defined “identification” to include cases in which a healthcare provider determined — or should have determined through “reasonable diligence” — that it had received an overpayment. That standard covered both proactive compliance activities and responses to credible information about potential overpayments, effectively imposing a negligence-like duty of inquiry.

In 2018, a federal district court vacated CMS’s Medicare Advantage overpayment rule.  See UnitedHealthcare Insurance Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018). Among other things, the district court concluded that the rule’s “reasonable diligence” standard impermissibly imposed a negligence-like obligation that was inconsistent with the FCA’s scienter standard. In 2021, however, the D.C. Circuit largely reversed the district court’s vacatur of the Medicare Advantage overpayment rule, while leaving in place the vacatur “with respect to the Overpayment Rule’s definition of ‘identified.’” See UnitedHealthcare Insurance Co. v. Becerra, 16 F.4th 867 (D.C. Cir. 2021). Against that backdrop, CMS later amended the Medicare Parts A and B overpayment regulation to provide that a person has “identified” an overpayment when the person “knowingly receives or retains an overpayment.” “Knowingly,” as used in the regulation, is defined by reference to the FCA’s actual knowledge, deliberate ignorance, and reckless disregard standard.  See 42 C.F.R. § 401.305(a)(2).

Under the amended rule, an overpayment is now “identified” when a provider:

The amended rule no longer makes completed quantification part of the definition of “identified.” Instead, a person identifies an overpayment when the person knowingly receives or retains it. This means that the reporting-and-return obligation may be triggered before the provider or supplier has calculated the precise dollar amount of the overpayment. The amended rule, however, includes a limited suspension mechanism for related overpayments. Under 42 C.F.R. § 401.305(b)(3), if the provider or supplier has identified an overpayment but has not completed a timely, good-faith investigation of related overpayments arising from the same or similar cause, the 60-day reporting-and-return deadline is suspended until the earlier of: (1) the completion of the investigation and calculation of the aggregate overpayment amount; or (2) 180 days after the overpayment was identified. Providers and suppliers should consider documenting the timing, scope, and good-faith nature of any investigation relied on to support suspension of the deadline.

Determining when an overpayment has been “identified” by reasonable diligence has always involved some degree of uncertainty. Under this framework, the question was whether the provider should have discovered the overpayment through reasonable diligence — a negligence-based standard. However, the standard did require conducting ongoing, good-faith compliance activities and a good-faith inquiry, if the compliance activities revealed credible information that an overpayment might exist. Now, under the amended rule, the focus is instead on whether the provider had actual knowledge or acted with deliberate ignorance or reckless disregard of the existence of an overpayment.

Under both the former reasonable-diligence framework and the amended FCA-knowledge framework, determining the precise date on which the reporting obligation is triggered remains a fact-intensive and judgment-driven exercise. For that reason, contemporaneous documentation remains critical to establishing when the provider became aware of, or is deemed to have become aware of, a potential overpayment.

The 60-Day Deadline May Be Suspended

Although the amended rule provides a limited suspension mechanism, it is not necessarily an automatic 180-day extension. Providers and suppliers should be prepared to show that any investigation supporting suspension of the deadline was timely, conducted in good faith, and focused on related overpayments arising from the same or similar cause.

No Changes to the Lookback Period

However, the amended rule does not change the lookback period for returning overpayments. 42 C.F.R. § 401.305(f) provides that the lookback period for returning overpayments continues to be six years from the date the overpayment was received.

Compliance Suggestions

In light of the revised rule, providers and suppliers should consider taking the following steps:

Conclusion

The $32 million settlement underscores the government’s commitment to this enforcement theory. Providers should expect the DOJ and the Office of Inspector General to keep using the reverse FCA to recover retained overpayments and to impose significant financial consequences on providers that fail to meet their reporting and return obligations. For that reason, contemporaneous documentation remains critical to establishing when the provider became aware of, or is deemed to have become aware of, a potential overpayment.