Major Change to Time Limit on Overpayment Recovery Buried in the Fiscal Cliff

January 1, 2013

By David M. GlaserKatherine B. Ilten

One provision in the “American Taxpayer Relief Act of 2012,” the “fiscal cliff” bill, received little attention in the press, but will have a major impact on health care organizations. It expands the time limit on recovering overpayments, and presumably the time limit for making refunds. Since its inception, the Medicare law has waived recovery of overpayments when the recipient of the payment is “without fault.” The law includes a presumption that a recipient is “without fault” after the passage of time. Until now, the presumption took effect “three years after the year in which payment was made.” The amendment increases the time to five years after the year in which payment was made.

The law has always been somewhat challenging to apply because the presumption is based on the year in which payment was made, not when the service is performed, and because it works on a calendar basis. For example, imagine that a service is performed on December 1, 2009, and payment was received on January 7, 2010. Under the old law, the presumption that a health care organization is “without fault” (that is, there is no overpayment) would have been effective January 1, 2014. (This is three years after the year 2010.) Now, however, the presumption does not apply until January 1, 2016. If the payment had been received just a few days earlier, December 31, 2009, the recovery period is shortened by a whole year. Under the old law, the overpayment was presumed waived on January 1, 2013. Now, the presumption won’t apply until January 1, 2015.

Medicare Manuals have included instructions that Medicare Administrative Contractors (MACs) should only reopen claims for 48 months. Because the 48 month test is much easier to administer, and it generally yields a result similar to “three years after the year in which payment was made” test, we have often advised clients to use 48 months as a look-back period for refunds. The new amendment calls that advice into question. Since the Manual language has not yet been changed, there is still an argument that claims are only to be reopened for 48 months. Therefore, there is still an argument to be made that the 48 month window is proper. In the coming weeks we will carefully consider whether to change our advice regarding refunds. The key point is that the legal framework is far less clear than it was a just days ago, and the government is clearly seeking authority to recover payments further back.

One glaring question raised by the amendment is how it applies to refunds made over the last few years. The amendment’s effective date is immediate. This raises a question as to whether refunds that were made last week, last year, or even in 2011 need to be reconsidered with this new time frame in mind.

You may recall that CMS issued proposed rules in 2012 outlining the recovery of overpayments. While those rules were only proposed, and have no legal effect, CMS did propose a ten year recovery period. If the proposed rule is ever finalized, It is unclear how this new statutory provision would affect it.

We will discuss this and other provisions affecting health care organizations in the fiscal cliff (avalanche?) bill in a webinar at 1 pm Eastern/10 Pacific Time on Wednesday January 16th.