Overpayment as a Debt


During this appeals process the government considers the provider or supplier’s alleged overpayment a “debt.” The Debt Collection Improvement Act of 1996 (DCIA) governs what happens to that debt during the appeals process, and requires federal agencies (such as the Centers for Medicare & Medicaid Services, or CMS) to refer debt to the U.S. Department of the Treasury after that debt has gone unpaid for 180 days – this is termed “cross-servicing.” Regulations and CMS Medicare Manual provisions specify with greater detail how government agencies are to handle these debts.


Agencies are limited by regulation to referring to the Treasury only those debts that are the result of a final agency determination and deemed “legally enforceable.” While a debt is still being appealed, it is not a final agency determination; thus, collection would be barred as legally unenforceable. Furthermore, federal regulations and the CMS Medicare Manual provisions specifically state that any debt still subject to the appeals process is ineligible for cross-servicing to the Treasury. Accordingly, it appears that an alleged Medicare overpayment being appealed by a provider  also would not be subject to referral to the Treasury.


Treasury is Notified


Unfortunately for many providers – though no two contractors deal with these situations in exactly the same way – in the vast majority of cases, Medicare contractors do not follow what we think is very clear law and guidance. Instead they refer the alleged overpayments to the Treasury 180 days after the initial determination of the audit without regard to whether providers are engaged in the appeals process. Our experience has been that contractors will send out computer-generated notices that an alleged debt is to be referred to the Treasury, then do just that despite our office sending letters to the contractor disputing that they have the right to cross-service. Once the Treasury has received the debt, it is very difficult to have the debt “recalled” from the department; only under certain circumstances will this be allowed.


Cross-servicing of debt becomes a major problem for providers because the Treasury often refers the debt – split into several pieces – to private collections firms that then inundate providers with demands for payment. The Treasury also has the power to offset the debt by withholding income tax returns and other state payments to which the provider otherwise would be entitled, and the department even can refer the matter to the U.S. Department of Justice for litigation.


In addition to requesting the actions taken by the Treasury, the Medicare contractor retains the right to continue withholding payments to a provider after the reconsideration level of appeal. This can lead to mass confusion on the part of the provider, as it can be difficult to tell who is sending letters and demanding money, who is withholding reimbursement, and what do to about it – all while still navigating the appeals process for an overpayment being disputed. Even if the provider attempts to resolve the debt by entering into a repayment plan with either the contractor or the Treasury, in our experience, there is no guarantee that the other party will cease its collection attempts. That is, if a provider enters into a payment plan with a contractor to pay the debt in full, the Treasury or its contractors may continue  to inundate the provider with phone calls and letters, and even may attempt to withhold federal payments to which the provider otherwise would be entitled.


Successful Strategy


The only strategy with which we have had success in keeping an alleged overpayment with a contractor (and not having that contractor refer the overpayment to the Treasury) is for a provider to enter into an extended repayment plan (ERP) immediately once the provider has received the initial determination of an audit. Normally, once a provider and the contractor enter into an ERP, the contractor no longer will seek to refer the overpayment to the Treasury and the provider will be free to continue the appeals process as it would normally. Entering into an ERP also should stop the contractor from withholding Medicare payments after the reconsideration stage of appeal.


There are significant disadvantages to entering into an ERP so early in the process, of course. We generally would not advise a client to enter into an ERP before it had exhausted their appeal rights (although there are special cases, of course); the time and money it takes to enter an ERP can be extremely high, and there is no need to incur those costs so early in the appeals process if it can be avoided. In addition, before a Medicare contractor issues a reconsideration decision, entering into an ERP can significantly affect a provider’s cash flow. Normally, during this period before a reconsideration decision is issued, a contractor cannot withhold from a provider. Once a provider receives a reconsideration decision, an ERP can stop recoupment and offer significant value, but by entering into an ERP before then, a provider can lose financial flexibility.


Ultimately, providers need to weigh the pros and cons of either entering into an ERP early in the appeals process or accepting the risk that a contractor might refer the overpayment to the Treasury – which, again, is something we consider to be clear violation of law and Medicare guidance. Providers need sound counsel early in the process to make an informed decision.




About the Author


Christopher J. Laney is an attorney at Wachler & Associates, P.C. He graduated cum laude in 2010 from Wayne State University Law School, where Mr. Laney served as an associate editor of The Wayne Law Review. Mr. Laney counsels clients in areas of healthcare law.


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