Providers Should Exercise Caution When Handling Overpayments, More Than Likely You Can’t Keep It, Even if the Payor Doesn’t Want it Back!

July 15, 2010 by  
Filed under False Claims Act, Medicare Audits

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(July 15, 2010):  Since the May 2009 passage of the Fraud Enforcement and Recovery Act (FERA) and subsequent enactment of the PPACA, we’ve heard a lot about how the government looks at Medicare overpayments and how providers should handle them.  Two major misconceptions seem to underlie the public response to provisions clarifying that failure to timely refund Medicare overpayments can result in False Claims Act (FCA) liability.

I.          Historical Overview of the “Overpayment” Issue

Prior to the clarification and statutory reinforcement of the “overpayment” issue provided by PPACA, a number of providers have mistakenly believed that in the absence of a direct demand for repayment, an identified overpayment would belong to the provider.  Notably, this issue is not new.  In fact, the recent enacted provisions have merely reinforced the government’s long-standing position that a provider has a responsibility to voluntarily refund Medicare overpayments without an overpayment determination being made by the government.

As you will recall, the agreement to return any overpayments is fundamental to a provider’s eligibility to participate in the Medicare program.  Section 1866(a)(1)(C) of the Social Security Act (42 U.S.C. § 1395cc) requires participating providers to furnish information about payments made to them and to refund any monies incorrectly paid.  Implemented in 2006, the Medicare Credit Balance Report (CMS-838) is designed to ensure timely compliance with this obligation.

Secondly, PPACA Section 6402 echoes the requirements of CMS’ 2002 proposed rule that providers “must, within 60 days of identifying or learning of the excess payment, return the overpayment to the appropriate intermediary and carrier, at the correct address, and notify the intermediary and carrier, in writing, of the reason for the overpayment.”  (67 Fed. Reg. 3662 (January 25, 2002)).  A conservative reading of that proposed rule arguably suggested that HHS-OIG’s voluntary disclosure protocol may not be “voluntary” after all but a mandatory repayment may be required.  Thus, the government has long sought to clarify when, not if, overpayment refunds would be required.

Despite the publicity resulting from PPACA and its FCA implications, it is important to remember that this issue was addressed over a decade ago.  As set out in the 1998 holding in United States v. Yale University School of Medicine, Civil Action No. 3:97CV02023 (D.Conn.), the government intervened in a qui tam and obtained $1.2 million settlement based on alleged FCA  violations for failing to return credit balances.  In summary, providers who fail to promptly (within 60 days of identification) return an overpayment to the government do so at their own peril.

II.         Handling Non-Federal Overpayments

As an aside, even if the overpayment at issue is not owed to a Federal payor (such as Medicare or Medicaid), it is imperative to remember that virtually no overpayments belong to a provider.  In the case of non-Federal payors (such as a private insurance company), we are aware of numerous instances where the non-Federal payor has notified the provider that due to the administrative burden of applying an overpayment to a beneficiary’s account (typically due to the complexity of the payment history), the non-Federal payor has chosen to either “waive” collection of an overpayment or not to cash a check sent by the provider.  This also regularly occurs when the identified overpayment is under a certain amount (such as $25.00).  When faced with such a situation, a provider must review applicable State law to ascertain how an overpayment must be handled.  For instance, in Texas, Title 6 of the Property Code requires businesses and other entities holding unclaimed property to turn the property over to the Texas Comptroller’s Office after the appropriate abandonment period has expired.  As in most States, violation of these escheat laws can subject a provider to various penalties.

III.        Conclusion

The lesson to be learned here is quite clear – regardless of who the payor is, an overpayment can rarely, if ever, properly be retained by a provider, regardless of the amount in controversy.  A provider must carefully examine both Federal and State statutes when faced with this issue.  The best practice is to return an overpayment to the payor (Federal, State, or private patient), regardless of the amount, upon identification.  Should a provider be unable to identify who is owed an overpayment or cannot locate a valid address to return the overpayment (due to a variety of factors), your State’s escheat law must be considered.

This can be a complicated issue, especially when a large overpayment has been identified and it is owed to a Federal payor.  While time is of the essence, it is strongly recommended that you contact your legal counsel as soon as it appears that a potential large or complicated Federal overpayment has been found.  Your attorney can help guide you through this complex process.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

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