Federal Judge Vacates Medicare Advantage Overpayment Rule

On Friday, September 7, 2018, the U.S. District Court for the District of Columbia vacated the 2014 CMS rule, 42 C.F.R. § 422.326, that requires Medicare Advantage (MA) plans to report and return overpayments received from CMS within a 60 day period of identifying the overpayment (the 2014 Overpayment Rule).[1] This ruling is an important victory for all MA plans.

The 2014 Overpayment Rule was implemented to comply with an Affordable Care Act (ACA) requirement that MA plans identify and return overpayments within 60 days. While the ACA established this requirement, it left “several crucial terms undefined.”[2] If a MA plan failed to return an identified overpayment within this timeframe it could lead to False Claims Act (FCA) liability for avoiding an obligation to CMS and the federal government. The 2014 Overpayment Rule also classified any diagnostic code that was inadequately documented in a patient's medical chart as an "overpayment." Moreover, an overpayment was considered identified whenever a MA Plan had determined "or should have determined through the exercise of reasonable diligence," that it had received an overpayment from CMS.[3]

In 2016, UnitedHealthcare brought an action under the Administrative Procedure Act (APA) against the Department of Health and Human Services and CMS. The action challenged the MA provisions of the 2014 Overpayment Rule and, in particular, the 2014 Overpayment Rule’s definitions of “overpayment” and the “identification” of overpayments.[4]   

In its summary judgment motion, UnitedHealthcare argued that the 2014 Overpayment Rule violated the statutory requirement that monthly payments to MA plans must be adjusted to ensure “actuarial equivalence.”[5] Further, UnitedHealthcare asserted that CMS failed to use the “same methodology in determining patient risk scores as expected to be applied in making payments to [MA] Plans” as required by  42 U.S.C. § 1395w-23(b)(4)(D).[6]  UnitedHealthcare also alleged that CMS imposed a standard that was inconsistent with the standards of the FCA and that the final 2014 Overpayment Rule included a different definition of “identified” overpayments as compared to the definition in the Proposed Rule. [7] The court granted summary judgment to UnitedHealthcare and its affiliated MA plans, vacating the 2014 Overpayment Rule.[8]

The court ruled that the 2014 Overpayment Rule improperly imposed more stringent standards of liability on MA plans than permitted under the FCA.[9] Judge Collyer opined that this improperly expanded FCA liability beyond claims that are submitted to the government “knowingly.” By changing the standard, “the 2014 Overpayment Rule extends far beyond the False Claims Act and, by extension, the Affordable Care Act.  Not being Congress, CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation.”[10]

The court also held that the definition of how an overpayment was identified was developed without adequate notice to MA plans.[11] The definition of an "identified" overpayment (when it has been determined or should be determined through reasonable diligence) as adopted in the final version of the 2014 Overpayment Rule was impermissibly different than the standard used in the Proposed Rule. Judge Collyer stated that federal agencies may not “pull a surprise switcheroo . . . by adopting an interpretation that significantly departs from the one proposed.”[12] 

The court’s decision did not upend all of the MA plan provisions of the 2014 Overpayment Rule, however. MA Plans must still comply with the ACA requirement to report and return any overpayment "after reconciliation" within 60 days after the date on which the overpayment was identified.[13]

Now, CMS can appeal the decision on or before November 7, 2018, or it could initiate the rulemaking process to promulgate a new overpayment rule. It remains to be seen how CMS will respond; however, it is important to note that this decision only affects the 2014 Overpayment Rule as it pertains to MA plans. The separate obligation for federal health care program providers was not impacted by this decision.

Please contact your Dinsmore health care attorney with any questions regarding compliance with this recent decision impacting the Overpayment Rule or any other questions regarding compliance with the False Claims Act.