As hospitals across the United States evaluate the recent Centers for Medicare & Medicaid Services (CMS) offer of an administrative agreement to resolve their pending appeals and waive their right to request new appeals in exchange for partial payment of 68 percent of the net payable amount, new attention is being focused on interest — specifically, “935 interest.”

The term, 935 interest, derives its name from Section 935 of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA). Section 935 amended Title XVIII of the Social Security Act to add to Section 1893, which addresses changes to overpayments made to providers, physicians, and suppliers. This amendment requires CMS to change how it recoups certain overpayments and how it pays interest if the overpayments were reversed at the administrative law judge (ALJ) or judicial appeal levels.

“As Medicare contractors collected the alleged overpayment, interest in favor of Medicare accrues on the remaining overpayment amount,” wrote Andrew B. Wachler, managing partner at Wachler & Associates, in a letter to clients. “After a partially or fully favorable decision by ALJ and only if funds have been involuntary recouped, 935 interest should be paid to the provider.”

Wachler cites 42 CFR 405.378(j) as the regulatory provision that addresses 935 interest, noting as well that it is, to quote from the regulation, a “special rule for provider(s) or supplier(s) subject to §405.379.” Wachler explained that if a provider has elected immediate recoupment following receipt of a demand letter, the recoupment is considered a “voluntary repayment” and not subject 935 interest; however, three mandatory exclusions to voluntary payment arrangements exist when interest is payable.

In his letter to clients, Wachler wrote that these exclusions include when immediate recoupment continues after the qualified independent contractor (QIC) proceedings; when the provider appeals to the ALJ level and prevails; and when any money is collected beyond 30 days after the QIC decision (this does not constitute a voluntary payment).

Wachler added that there are three elements that comprise the 935 interest calculation: time, rate, and amount.

“Time is calculated on a 30-day period,” Wachler wrote, advising clients that 935 interest will not be payable on any amount held for any period of time less than the 30 days in which the Medicare contractor had possession of the funds. Wachler also noted that days in which the ALJ or the appeals council’s adjudication period extends are “tolled to conduct a hearing … (and) making a determination shall not be counted for purposes of calculating 935 interest.”

The rate, Wachler wrote to clients, is 9.625 percent, a figure he said he confirmed with CMS. This is the annual rate of interest, which goes into effect on the date the ALJ decision that reverses the overpayment consideration is issued — in whole or in part.

Regarding amounts, Wachler wrote that interest is calculated on a simple rather than a compound basis and will be paid only on the principal amount that has been recouped.

On this issue of late payment of interest, Wachler tells clients that Medicare contractors are obligated to pay it if an overpayment determination is reversed at either the redetermination or reconsideration level and contractors do not come to a decision in a timely fashion regarding the calculation of refunded monies to providers. Contractors, Wachler notes, have 30 days from the date of the final determination to calculate this sum and refund the provider. 

“As you are aware, CMS will not award 935 interest in addition to the settlement sum paid to settling hospital,” Wachler noted. “Hospitals with claims involuntarily recouped, who have waited years for an ALJ hearing following unfavorable lower level determinations, are likely to be owned substantial 935 interest by CMS.” 

What Wachler finds troubling are circumstances in which hospitals would experience a nearly 50 percent reduction in claim value by accepting the settlement offer.

“For example, if 935 interest accrues at approximately 9.625 percent pro rata per annum at the time CMS begins recoupment and a hospital receives a favorable ALJ decision after three years of recoupment, the hospital would be entitled to almost 130 percent of the favorable claim value, as opposed to 68 percent of the claim value through settlement,” he noted.

Wachler additionally pointed out that in the aforementioned scenario, a 68 percent settlement is a loss of 50 percent of the reimbursement “properly owed to the hospital.” 

“In light of the significant financial impact 935 interest may have on eligible hospitals, I encourage hospitals to thoughtfully consider this factor as they weigh the costs and benefits of (accepting) CMS’s settlement offer,” Wachler concluded.

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Chuck Buck is the publisher of RACmonitor and executive producer and program host of Monitor Mondays.

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