CMS seeks to recover from providers $125 million in alleged overpayments for services to beneficiaries who are belatedly identified as ineligible (incarcerated/unlawfully present). In this post, Sheppard Mullin examines the recovery process CMS has put in place, noting CMS procedural shortcomings and reviewing some substantive defenses available to providers facing such demands.

In January 2013, CMS’ Office of Investigator General released two parallel reports, criticizing CMS for making improper payments to providers for services rendered to beneficiaries who, according to updated Social Security Administration records, were either incarcerated or unlawfully present in the United States at the time of such service.[1]

OIG concluded that between 2010-2012, CMS made more than $125 million in improper payments to providers (including hospitals, outpatient facilities, physicians, skilled nurses, DME suppliers, home health, and hospice). OIG recommended that CMS take steps to recover such funds and avoid such payments in future.

In response, CMS noted that it already had in place a system that checks, at the time a claim is submitted, the eligibility status of each beneficiary. If data indicates that a patient is not eligible, the claim is rejected. As a result, all overpayments identified by OIG resulted from changes to SSA data after claims were processed.

Apparently anticipating these OIG reports, in November 2012, CMS published two change requests[2] to implement an Informational Unsolicited Response Process (IUR). Through an IUR, the Common Working File system would automatically flag and report to the MACs any previously paid claims where subsequent data updates indicated that the beneficiary was not eligible at time of service due to incarceration or unlawfully present status. In Spring 2013, CMS began implementing the incarcerated patient IUR.

Although CMS has Regional Audit Contractors (RACs) in place to perform post payment technical bill review, CMS has bypassed the RAC process; instead, using the IUR, CMS has instructed the MACs to “initiate recoupment procedures” upon receipt of an IUR to recover these funds. MACs, acting upon this instruction, immediately initiated recoupment through remittance advice[3] based simply upon the subsequent SSA data change. By acting in this way, CMS:

Failed to provide any explanation of the reason for the overpayment redetermination;
Failed to provide the required 15 day opportunity for rebuttal;
Failed to defer recoupment pending the 15 day rebuttal period and through reconsideration;
Failed to address whether provider liability should be waived under section 1870 of the Social Security Act (no fault waiver); and
Failed to advise providers of their appeal rights.[4]

Providers reacted with surprise, placing many calls to the MACs and SSA (to address mistakes in data). In many cases, SSA data indicating incarceration of a patient was simply erroneous; even if valid, it appears that, like CMS, provider were generally unaware of ineligibility at the time of service.

CMS initially took the position that notice letters were not required and there would be no appeal rights; CMS at first indicated that any erroneous findings would be addressed by “data revisions” (presumably through a discretionary reopening by the MAC).

CMS has modified some of its positions based upon provider objection.

In recent FAQs,[5] CMS now concedes that providers do have appeal rights.

But CMS says most errors won’t be fixed until October 2013.

Critically, CMS has not yet addressed its failure to give providers proper notice, explanation of findings, rebuttal rights, its failure to consider no fault waiver. CMS also has so far failed to honor the post payment restrictions on recoupment pending rebuttal and appeal.

The SSA database is not perfect. In one case, a hospice was put on recoupment for months of service to a female beneficiary in 2010-2011 who was mistakenly identified in the SSA database with an unrelated incarcerated male patient. Notice and thoughtful consideration of rebuttal evidence would have prevented this error.

Perhaps more importantly for the general provider community, at the time each provider filed claims for services previously rendered, SSA data showed that the patient was eligible (or the claim would not have been paid). This fact presents a strong case for waiver of provider overpayment liability under the no fault provisions of section 1870 of the Social Security Act.

Sheppard Mullin is taking steps to ensure that CMS gives proper notice of post-payment audit determinations, respects recoupment restrictions, extends full appeal rights, and considers no fault waivers in these cases. If you have any questions, please contact us.

[2] CR 8007 and CR 8009; eg:

[3] Incarcerated Patient shows ANSI Code 81G.

[4] Key Authorities Include: 42 USC §§ 1395ff, 1395gg, 1395ddd(f); 42 CFR §§ 405.373, 405.379, 405.982; and the Medicare Financial Management Manual, Ch. 34, § 90.