By STEPHEN SHAVER & CHRISTIAN IERACI
Wachler & Associates P.C.

When a Medicare provider or supplier receives an overpayment demand that they believe is in error, the provider or supplier has a strategic and practical choice to make: let Medicare recoup the money while the appeal is pending or follow certain procedural steps to stop recoupment during the appeal. Either option may have unforeseen consequences and a new court case may offer some tools to providers and supplier caught in this situation.

A Medicare overpayment demand letter kickstarts the lengthy process of appeals and collection attempts, which can be costly and span several years. A demand letter will explain the reason for and the amount of the overpayment, the payment and interest accrual timeline (the provider generally has 30 days before accrual of interest begins), and the provider’s right to appeal the determination. The demand letter will also give the provider options for repayment, which include the immediate payment of the overpayment or recoupment. Recoupment is a process where the applicable Medicare Administrative Contractor (MAC) will recover the overpayment amount by withholding future Medicare payments until the full overpayment amount is recovered.

If the provider files their appeal within a certain timeframe, usually 30 days, it can generally stop recoupment of the overpayment while the appeal is pending. Stopping recoupment is often a provider’s only practical option, especially where Medicare demands the return of a significantly large overpayment or would otherwise recoup the provider’s revenue to a point where the provider cannot survive. The provider will often have to adhere to stricter timeframes as the appeal progresses to continue to prevent recoupment. However, if the provider stops recoupment, but later loses their appeal, it will owe any outstanding balance to the Medicare program, plus interest. Because Medicare appeals can take years to resolve, the interest accrued can be substantial.

On the other hand, where a provider opts to allow the MAC to recoup the overpayment, but then wins its appeal, the provider will generally be owed back any funds recouped, plus interest. Again, the interest accrued and due to the provider can be substantial. However, providers who find themselves in this situation, having already won their appeal, often have difficulty getting the funds returned by the MAC. This difficulty is often due to either poor accounting and financial record-keeping by the MAC or a misunderstanding by the MAC of its obligations in this situation.

This year, the Fifth Circuit Court of Appeals addressed this very situation in a case that involved a Medicare provider that had won its appeal but was still owed millions of dollars by the MAC. In D&G Holdings, L.L.C. v. Becerra , No. 20-30732, 2022 U.S. App. LEXIS 55 (5th Cir. Jan. 3, 2022), a clinical laboratory provider received a Medicare overpayment demand  for $8.3 million. The MAC began to recoup the overpayment 16 days later. Shortly thereafter, the provider appealed the overpayment. After several years in the appeal process, the Medicare Appeals Council awarded the provider a fully favorable decision and reversed the overpayment determination. The Council specifically identified the MAC’s poor record keeping and inconsistent documentation, noting that their records could not be relied upon to determine the overpayment amount. Unfortunately, the Council did not address the repayment of the already recouped funds.

By the time the provider won its appeal, the MAC had recouped $4.1 million from the provider, the recouped payments had accrued nearly $600,000 in interest, and the provider had been forced out of business. However, the MAC refused to refund the recouped payments to the provider, with the exception of $1.8 million that the MAC deposited in the provider’s account without explanation on the day the provider filed suit against the MAC and the Department of Health and Human Services (HHS). In response, the MAC and HHS argued that the provider in fact owed the MAC money, and that the provider was required to take the payment dispute through Medicare appeal process, despite having just prevailed on its appeal. However, the MAC had not kept sufficient records of what it had recouped from the provider in order to support its claims.

The Fifth Circuit disagreed, holding that the effectuation (i.e. the repayment) of the provider’s favorable determination on its appeal was an integral part of the determination itself and therefore the provider was not required to re-enter the years-long Medicare appeal process in order to receive the repayment it was owed. The Fifth Circuit also took time to admonish both the MAC for its poor record-keeping and for pulling the amount that it claimed it had recouped from the provider “out of thin air” and HHS itself for defending the MAC’s actions and allowing the MAC “to wield the sovereign authority of the United States to seize money from a private company but then be utterly unable to give an accounting for the amount pillaged.”

This case illustrates one of the pitfalls of allowing recoupment to occur while an appeal is pending. It may also give hope to other providers caught in the same dilemma. Providers facing recoupment should carefully consider their options. Further, providers who opt to allow recoupment should consider keeping careful financial records of recoupments and repayments in the event a dispute arises at a later date.