"Fiscal Cliff” Legislation Extends Medicare Overpayment Recovery Period from Three to Five Years

On January 1, 2013, Congress passed the “American Taxpayer Relief Act of 2012,” purportedly designed to draw back the nation from the precipice of the so-called “fiscal cliff.” The law was signed by President Obama the following day. One tiny provision of that legislation, Section 638, which is entitled “Removing Obstacles to Collection of Overpayments” (and bears no relationship to the fiscal cliff), extends from three to five years the period within which Medicare contractors are permitted to collect overpayments. It has been estimated that this will result in an additional $500 million in Medicare recovery. Interestingly, CMS’s January 3rd summary of the applicable provisions of the law omits any reference to Section 638.

The provision appears to be the fruition of a recommendation included in a May 2012 Office of Inspector General report unambiguously entitled “Obstacles to Collection of Millions in Medicare Overpayments.” As the OIG noted in this report, Medicare contractors, in order to recover questionable Medicare payments, must first “reopen” the original payment determinations. The Social Security Act and Medicare regulations provide that, for “good cause,” a Medicare contractor is entitled to reopen a payment determination at any time within four years of the date of the original payment determination.

The OIG report also highlighted another provision of the Social Security Act, which has been interpreted to bar the recovery of overpayments from providers that are “without fault.” That same statute provides further that a provider is deemed to be “without fault” three years after the year in which the original payment was made, unless there exists “evidence to the contrary.” The OIG report refers to this three-year recovery period as a “statute of limitations.”

The OIG report, which is somewhat characteristically critical of its sister agency, pointed out that CMS had been unable to recover a significant amount of identified Medicare overpayments – over $330 million – from the 30-month period reviewed by OIG in the report as a result of the expiration of this three-year “statute of limitations.” Among the OIG’s recommendations was for CMS to “pursue legislation to extend the statute of limitations so that the recovery period exceeds the reopening period for Medicare payments.”

Apparently, the recommendation was taken under advisement. The new fiscal cliff legislation accomplished the OIG’s recommendation without flourish by simply revising two minor provisions of the Social Security Act to refer to a five-year period, rather than the three-year period, after which a provider may be deemed to be “without fault.” As a result, Medicare contractors now have a much larger window of opportunity to attempt the recovery of overpayments.

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