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Civil Resource Manual

85. Medicare Overpayment Cases

A. Regulatory Overview. The Secretary of Health and Human Services administers the Health Insurance for the Aged and Disabled Program, 42 U.S.C. §§ 1395 - 1395aaa (Medicare Program), and has delegated that responsibility to the Health Care Financing Administration (HCFA). HCFA contracts with private insurance companies to act as fiscal intermediaries and reimburse participating health care providers for services provided to Medicare beneficiaries. 42 U.S.C. § 1395u.

Part A of the Medicare Program pays for inpatient hospital, home health, and skilled nursing services provided to Medicare beneficiaries. Part B is a voluntary program which provides coverage for physician services, outpatient hospital services, and other supplementary medical insurance benefits. The providers of services must meet the statutory criteria and enter into Health Insurance Benefit Agreements (Provider Agreements) with the Secretary, through HCFA, pursuant to 42 U.S.C. § 1395cc. HCFA may not reimburse a provider unless it executes a Provider Agreement.

Under the provider agreements, Medicare providers are reimbursed for services on the basis of "reasonable costs" as defined in the federal regulations. 42 C.F.R. § 413. 1 et seq. The fiscal intermediary, such as Blue Cross and Blue Shield, determines reasonable costs and makes payment. 42 U.S.C. § 1395h.

The fiscal intermediary makes estimated payments based on historical levels of service. These payments are subsequently reconciled with the actual reasonable costs incurred by means of an annual cost report which the Medicare Provider is required to submit. 42 C.F.R. §§ 413.20, 413.24. Based on the audited cost report, the intermediary makes a final determination whether the facility was overpaid or underpaid during the year. Id.

The intermediary adjusts the estimated payments if it receives information that the compensation will be excessive based upon the projected level of services, 42 C.F.R. § 413.64, or because the provider refuses to furnish the required information to allow the fiscal intermediary to determine the correct amount due to the provider, 42 C.F.R. § 1395g(a).

In addition, the intermediary reconciles the total payments made with actual reimbursement due based on annual cost reports filed by the provider after the end of each fiscal year. 42 C.F.R. § 413.20. If the provider was underpaid, the intermediary immediately remits the difference. If the provider was overpaid, the intermediary notifies the provider of the overpayment, adjusts ongoing payments to reflect the fact that the provider was overpaid by the Medicare program, recoups funds owed the provider until the overpayment has been collected. 42 U.S.C. § 1395g(a); 42 C.F.R. § 405.1803(c).

A provider dissatisfied with the fiscal intermediary's determination may appeal. Depending on the amount in controversy, the provider's appeal is disposed of through a hearing before the fiscal intermediary or by appeal directly to the Provider Reimbursement Review Board (PRRB). 42 U.S.C. § 1395oo(a). Board decisions are final, 42 U.S.C. § 1395oo(f), and may be appealed to the federal district court, 42 U.S.C. § 405(g). The statutes require exhaustion of administrative remedies before a federal court has jurisdiction over a Medicare Program related matter. 42 U.S.C. § 405(h).

Medicare payments to suppliers may be suspended, in whole or in part, when overpayments are found or reasonably suspected. 42 C.F.R. § 405.370(a) (1992). The suspension must protect the program against financial loss. 42 C.F.R. § 405.370(b) (1992). Generally, suspension requires prior notice. 42 C.F.R. § 405.371(a) (1992). However, where fraud or misrepresentation is suspected, notice may be provided concurrently with the suspension. 42 C.F.R. § 405.371(b) (1992). Amounts suspended are segregated. Once imposed, a suspension remains in effect until either the overpayment is returned, a liquidation agreement is reached with the supplier, or the agency determines that no overpayment was made. 42 C.F.R. § 405.373 (1992).

The Medicare relationship is generally not considered a contractual one. Memorial Hospital v. Heckler, 706 F.2d 1130, 1136-37 (11th Cir. 1983) (Existence of the provider agreement "did not obligate the Secretary to provide reimbursement for any particular expenses."), cert. denied, 465 U.S. 1023 (1984); The Germantown Hospital and Medical Ctr. v. Heckler, 590 F. Supp. 24, 30-31 (E.D. Pa. 1983), aff'd, 738 F.2d 631 (3d Cir. 1984) ("There is no contractual obligation requiring HHS to provide Medicare reimbursement."). Cf. Hollander v. Brezenoff, 787 F.2d 834, 835-39 (2d Cir. 1986) ("Signing a provider agreement does not convert statutory mandates into a contract claim;" "[a]lthough the [Medicaid] relationship may be effectuated by means of a provider contract, all rights to reimbursement arise under the applicable statutes."). But see In re University Medical Ctr., 973 F.2d 1065 (3d Cir. 1992) (holding that Medicare provider agreement is an executory contract for bankruptcy purposes).

The Medicare statute, 42 U.S.C. § 405(h), bars judicial relief until a party exhausts administrative remedies. See, e.g., Heckler v. Ringer, 466 U.S. 602 (1984); Weinberger v. Salfi, 422 U.S. 749 (1975); American Fed'n of Home Health Agencies, Inc. v. Heckler, 754 F.2d 896, 897-98 (11th Cir. 1984). Thus, unless a provider exhausts its administrative remedies, federal courts do not have jurisdiction over claims arising under the Medicare Program for reimbursement. 42 U.S.C. §§ 1395oo(f), 405(h), 1395ii; see, e.g., Westchester Management Corp. v. U.S. Dept. of Health and Human Services, 948 F.2d 279, 282 (6th Cir. 1991), cert. denied, 504 U.S. 909 (1992); Bodimetric Health Services, Inc. v. Aetna Life & Casualty, 903 F.2d 480, 483-84 (7th Cir.), cert. denied, 498 U.S. 1012 (1990); Charter Medical Corp. v. Bowen, 788 F.2d 728 (11th Cir. 1986). But see In re University Med. Ctr., supra (exhaustion of administrative remedies not required where adversary proceeding is based on Bankruptcy Code and does not involve issue inextricably intertwined with any dispute within agency's normal review process); In re Town & Country Home Nursing Services, Inc., 112 B.R. 329 (Bankr. 9th Cir. 1990), aff'd, 963 F.2d 1146 (9th Cir. 1992) (same).

Fiscal intermediaries are merely conduits between the government and the Medicare providers. 42 U.S.C. § 1395(h). Thus, while a fiscal intermediary determines amounts to be paid on claims and disburses funds provided by the government, the United States is the real party in interest in Medicare litigation, and the claims against the fiscal intermediaries should be dismissed. Bodimetric Health Servs., Inc. v. Aetna Life & Casualty, 487-488 supra; Matranga v. Travelers Ins. Co., 563 F.2d 677 (5th Cir. 1977); Peterson v. Weinberger, 508 F.2d 45, 51-52 (5th Cir.), cert. denied, 423 U.S. 830 (1975); Pine View Gardens, Inc. v. Mutual of Omaha Ins. Co., 485 F.2d 1073, 1075 (D.C. Cir. 1973).

B. Medicare Overpayment Cases. Providers of Medicare services, usually nursing homes, are advanced funds by HHS for medically necessary services based on estimates of costs. If data furnished annually by a provider shows the provider was paid more than its reasonable costs for medically necessary services, the fiscal intermediary sends the provider a notice of provider reimbursement explaining the overpayment and demanding reimbursement. If the provider fails to repay the amount owed, HHS collects by offset. See Mt. Sinai Hospital of Greater Miami v. Weinberger, supra; but see In re University Medical Ctr., supra (Medicare offset not permissible in bankruptcy proceedings). [See banksetf.out]. A provider no longer in the Medicare Program may be sued to recover the overpayments. If the provider fails to submit complete accurate cost reports within the designated time there is a presumption that all Medicare payments during the relevant time period were overpayments. See United States v. Upper Valley Clinic Hospital, Inc., 615 F.2d 302, 306 n.8 (5th Cir. 1980). Administrative review of overpayment determinations is permitted for accounting periods ending on or after December 31, 1971, and before June 30, 1973, see 20 C.F.R. §§ 405.1801-1833, formerly 20 C.F.R. §§ 405.490-405.49(I). For accounting periods ending on or after June 30, 1973, see 42 U.S.C. § 11395oo, 20 §§ 405.1801-1889. The provider should be encouraged to seek administrative review of the overpayment claims against it even for earlier periods.

The statute of limitations is a serious factor in many of these cases. Thus, the government should obtain a waiver of the statute of limitations from the provider if administrative consideration of the overpayment determination is delayed.

C. Medicare Fraud Cases. Although Medicare's right to suspend payments where fraud is suspected is respected, Visiting Nurse Ass'n of Greater Tift County, Inc. v. Heckler, 711 F.2d 1020, 1031-1035 (11th Cir. 1983), some courts in bankruptcy proceedings hold that Medicare's suspension is barred by the bankruptcy filing or have restrained HCFA from suspending payments postpetition. Compare In re Medicar Ambulance Co., Inc., 166 B.R. 918, 926-27 (Bankr. N.D. Cal. 1994) (HHS fraud suspension violates the stay) with In re Orthotic Center, Inc., 193 B.R. 832 (N.D. Ohio 1996) (HHS suspension for fraud does not violate the stay).

Consult with HHS with respect to all compromise proposals and keep HHS apprised of developments in these cases. USA should contact the HHS Regional Counsel if support from HHS is requested.

[cited in JM 4-4.480]