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[Federal Register Volume 74, Number 178 (Wednesday, September 16, 2009)]
[Rules and Regulations]
[Pages 47458-47470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22166]

[[Page 47458]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 405

[CMS-6025-F]
RIN 0938-AN42

Medicare Program; Limitation on Recoupment of Provider and 
Supplier Overpayments

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements a provision of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
which prohibits recouping Medicare overpayments from a provider or 
supplier that seeks a reconsideration from a Qualified Independent 
Contractor (QIC). This provision changes how interest is to be paid to 
a provider or supplier whose overpayment is reversed at subsequent 
administrative or judicial levels of appeal. This final rule defines 
the overpayments to which the limitation applies, how the limitation 
works in concert with the appeals process, and the change in our 
obligation to pay interest to a provider or supplier whose appeal is 
successful at levels above the QIC.

DATES: Effective Date: These regulations are effective on November 16, 
2009.

FOR FURTHER INFORMATION CONTACT: Debbie Miller (410) 786-1492.

SUPPLEMENTARY INFORMATION:

I. Background

    Prior to passage of the MMA, CMS could recoup overpayments 
regardless of whether a provider or supplier had appealed. Section 
935(f)(2) of the MMA, codified at section 1892(f) of the Social 
Security Act, prohibits the recoupment of Medicare overpayments during 
a provider or supplier appeal to a Qualified Independent Contractor 
(QIC). CMS will also stop recoupment during the first level of appeal, 
the redetermination, if the provider or supplier files a timely request 
for appeal, as explained in detail within the text of this regulation. 
However, the contractor may initiate or resume recoupment, whether or 
not the provider or supplier subsequently appeals the QIC determination 
to the Administrative Law Judge (ALJ), the Medicare Appeals Council, or 
Federal court.
    This final rule defines the overpayments to which the limitation on 
recoupment applies, how the limitation works in concert with the 
appeals process, and sets time limits for recouping overpayments, 
specifically providing 41 days for a provider or supplier to file the 
first level of appeal before the contractor can begin recoupment and 
providing the provider or supplier 60 days to appeal at the second 
level before the contractor can begin recoupment.
    This final rule also changes how interest is to be paid to a 
provider or supplier whose overpayment is subsequently reversed at the 
ALJ, Medicare Appeals Council, or Federal court levels of appeal. 
Before the MMA was passed, CMS was liable for interest charges if it 
did not pay within 30 days of an underpayment determination. This final 
rule requires that if an overpayment determination is overturned in 
administrative or judicial appeals, above the QIC level of appeal, CMS 
is liable for interest on recouped overpayments that has accrued since 
the original determination. This final rule implements this new 
requirement, while leaving all other interest calculation regulations 
intact. Therefore, if a provider or supplier takes advantage of the 
limitation on recoupment, and ultimately loses on appeal, it will still 
be liable for all accrued interest.

A. Legislation

    Section 935 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended Title XVIII 
of the Social Security Act (the Act) to add a new paragraph (f) to 
section 1893 of the Act, the Medicare Integrity Program. This new sub-
section contains eight substantive provisions addressing the recovery 
of overpayments. This final rule implements the second of these 
provisions--the limitation on recoupment.
    The statute requires us to change the way we recoup certain 
overpayments. It also changes how interest is to be paid to a provider 
or supplier whose overpayment determination is reversed at 
administrative or judicial levels of appeal above the QIC. We note that 
the changes to recoupment and interest work in tandem with Medicare 
fee-for-service claims appeal process. We refer readers to the 
September 22, 2006 proposed rule (71 FR 55406) or to the applicable 
regulations at 42 CFR 405.900 for a further discussion of the claims 
appeal process. The September 22, 2006 proposed rule includes a brief 
discussion of the appeals process and a detailed chart which sets forth 
the levels of appeals as well as applicable time frames and amount in 
controversy requirements.

B. Appeals and Limitation on Recoupment

    Recoupment is the recovery of a Medicare overpayment by reducing 
present or future Medicare payments and applying the amount withheld 
against the debt. Under our existing regulations, providers and 
suppliers can challenge an overpayment determination through both the 
rebuttal and appeals processes. The rebuttal process provides the 
debtor the opportunity to submit a statement and/or evidence stating 
why recoupment should not be initiated. The outcome of the rebuttal 
process could change how or if we recoup. Section 1893 of the Act as 
amended by Section 935 of the MMA and the provisions of this final rule 
do not alter the rebuttal process. The regulatory definition of 
``recoupment'' is set forth at Sec.  405.370. See Sec.  405.374 for 
information on the rebuttal process.
    An appeal is an examination of the validity of the overpayment 
determination. Before section 1893(f)(2) of the Act was enacted, if a 
provider or supplier elected to appeal, there was no effect on our 
ability to recover the debt. However, if the overpayment determination 
was reversed in whole or in part, at any stage of the administrative or 
judicial appeal process, appropriate adjustments would be made to the 
overpayment and the amount of interest assessed.
    When section 1893(f)(2) of the Act was enacted, our recoupment 
process was changed. Section 1893 (f)(2) of the Act states:

    In the case of a provider of services or supplier that is 
determined to have received an overpayment under this title and that 
seeks a reconsideration by a qualified independent contractor on 
such determination under section 1869(b)(1), the Secretary may not 
take any action (or authorize any other person, including any 
Medicare contractor, as defined in subparagraph (C)) to recoup the 
overpayment until the date the decision on the reconsideration has 
been rendered.

C. Assessment of Interest

    In addition to changing the recoupment process, section 1893(f)(2) 
of the Act also has the effect of changing how we pay interest to a 
provider or supplier who is successful in having an overpayment 
determination fully or partially reversed at the latter stages of the 
appeal process.
    Previously, we paid interest on underpayments solely in accordance 
with sections 1815(d) and 1833(j) of the Act. (See also, Sec.  
405.378.) An

[[Page 47459]]

underpayment would usually result when we had recovered, through 
recoupment or otherwise, an overpayment; the decision was fully or 
partially reversed at some point in the appeal process; and after 
appropriate adjustments, we owed the balance to the provider or 
supplier. Interest would accrue from the date of the ``final 
determination'' and was owed if the underpayment was not paid within 30 
days. Following an appeal decision favorable to a provider or supplier, 
the Medicare contractor would effectuate the decision. If the decision 
created an underpayment, the contractor would issue a written 
determination of the amount Medicare owed as an underpayment. The 
written determination was considered a new final determination; 
interest would accrue from the date of the final determination and 
would be owed/payable if the underpayment was not paid by the Medicare 
contractor within 30 days of the final determination of the 
underpayment.
    The new interest provision found in section 1893(f)(2)(B) of the 
Act revises the way interest is to be paid to a provider or supplier 
whose overpayment determination is overturned in administrative or 
judicial appeals subsequent to the second level of appeal (the QIC 
reconsideration). Section 1893(f)(2)(B) of the Act states:

    Insofar as the determination on such appeal is against the 
provider of services or supplier, interest on the overpayment shall 
accrue on and after the date of the original notice of overpayment. 
Insofar as such determination against the provider of services or 
supplier is later reversed, the Secretary shall provide for 
repayment of the amount recouped plus interest at the same rate as 
would apply under the previous sentence for the period in which the 
amount was recouped.

    Section 1893(f)(2)(B) of the Act does not specifically amend 
sections 1815(d) and 1833(j) of the Act. In addition, the MMA 
conference report does not reference these sections. The statute and 
the conference report are both silent on the relationship between 
paying or collecting interest: (1) Based on the final determination 
concept embodied in sections 1815(d) and 1833(j) of the Act; and (2) 
the concept of paying interest based on how long we held funds, 
ultimately determined through the latter stage of the appeal process to 
belong to the provider, as incorporated in section 1893(f)(2)(B) of the 
Act.
    The statute does not change the obligation of the provider or 
supplier to pay interest if the overpayment determination is affirmed 
at any level of administrative or judicial appeal. In accordance with 
sections 1815(d) and 1833(j) of the Act, interest continues to accrue 
from the date of the final determination as defined in Sec.  
405.378(c). Section 1893(f)(2)(B) of the Act explains that if an appeal 
of an overpayment is upheld before the QIC, ``interest on the 
overpayment shall accrue on and after the date of the original notice 
of overpayment.'' For overpayments subject to the limitation on 
recoupment provision, the date of the final determination is the date 
of the original notice of overpayment (that is, the demand letter). 
Therefore, section 1893(f)(2)(B) of the Act is consistent with sections 
1815(d) and 1833(j) of the Act and does not alter our ability to assess 
interest against the provider or supplier.
    In addition, the statute does not change the obligation of Medicare 
to pay the provider or supplier interest if the overpayment 
determination is reversed at the first (redetermination) or second 
(reconsideration) level of the administrative appeal process and the 
appeal decision generates an underpayment. At these levels of appeal, 
interest would continue to be payable by Medicare if an underpayment is 
not paid to the provider or supplier within 30 days of the date of the 
final determination. The change in the method of paying interest 
resulting from section 1893(f)(2)(B) of the Act is applicable only 
where the reversal occurs at the Administrative Law Judge (ALJ) level 
or subsequent levels of administrative appeal or judicial review. At 
these higher levels of administrative appeal or judicial review, 
interest becomes payable by Medicare based on the period we recouped 
and retained the provider's or supplier's funds where the decision 
results in a full or partial reversal and Medicare previously recouped 
funds.
    We determine the rate of interest in accordance with Sec.  405.378 
by comparing the private consumer rate with the current value of funds 
rate. Interest is assessed at the higher of these two rates that is in 
effect on the date of the final determination of the amount of the 
overpayment or underpayment. Since February 2001 to the present time, 
it has ranged from a low of 10.75 percent to a high of 14.125 percent. 
In accordance with Sec.  411.24(m)(2), interest is calculated on 
Medicare Secondary Payer (MSP) debts in the same manner as for Medicare 
overpayments and underpayments. In addition, the same interest rate is 
used.
    Interest accrues daily but is assessed and calculated in full 30 
day periods. We charge simple rather than compound interest, and 
payments we receive are applied first to accrued interest and then to 
principal. Interest we collect on overpayments and MSP recoveries goes 
to the general fund of the U.S. Treasury. The principal amount we 
recover is used to reimburse the applicable Medicare Trust Fund the 
Hospital Insurance (Part A) or the Supplementary Medical Insurance 
(Part B and now D) trust funds, which are special accounts in the U.S. 
Treasury. Interest we pay on Medicare underpayments comes from the 
applicable Medicare Trust Fund.

D. Suspension

    We note that this new MMA provision does not affect how we recover 
overpayments from providers or suppliers that have been placed on 
payment suspension. Under Sec.  405.371, an intermediary, a carrier, or 
CMS may suspend the payment of claims if there is reliable information 
that an overpayment, fraud, or willful misrepresentation exists or that 
payments to be made may not be correct. Once an overpayment amount is 
determined, suspended payments must first be applied to eliminate any 
overpayment as specified in Sec.  405.372(e). We do not interpret 
section 1893(f)(2) of the Act as amending our authority to apply 
suspended payments toward reducing or eliminating an overpayment. 
Furthermore, we do not interpret section 1893(f) of the Act to require 
that suspended payments be released to a provider or supplier once an 
overpayment amount is determined. If the suspended payments are 
insufficient to fully eliminate any overpayment, and the provider or 
supplier meets the requirements of this final rule, the limitation on 
recoupment provision under section 1893(f)(2) of the Act will be 
applicable to any remaining balance still owed to CMS.
    We also note that section 1893(f)(2) of the Act does not alter the 
process for providers or suppliers to appeal overpayment determinations 
that follow suspension actions. Providers and suppliers may continue to 
appeal the overpayment determination as they could before the enactment 
of the MMA.

II. Provisions of the Proposed Regulations and Response to Comments

    In the September 22, 2006 Federal Register (71 FR 55404), we 
published the proposed rule entitled, ``Limitation on Recoupment of 
Provider and Supplier Overpayments'' and provided for a 60-day comment 
period. The rule proposed to implement a provision of the MMA that 
prohibited recouping Medicare overpayments when a reconsideration 
appeal is received from

[[Page 47460]]

a provider or supplier until a decision is rendered by a QIC. The 
provision changes how interest is to be paid to a provider or supplier 
whose overpayment is reversed at subsequent administrative or judicial 
levels of appeal. The proposed rule defined the overpayments to which 
the limitation applies, how the limitation works in concert with the 
appeals process, and the change in our obligation to pay interest to a 
provider or supplier whose appeal is successful at levels above the 
QIC.
    We received a total of 11 timely comments from physicians, hospital 
associations, home health facilities, medical equipment providers, and 
other individuals and health care associations.
    Brief summaries of each proposed provision, a summary of the public 
comments we received, and our responses to the comments are set forth 
below.

A. General Comments

    Most of the comments received ranged from general comments that 
supported or opposed the proposed provisions, to very specific 
questions or comments regarding the proposed changes.
    Comment: We received two comments that supported CMS's decision to 
halt recoupment during the period that the provider seeks a first level 
of appeal (redetermination) as stated in proposed Sec.  405.379(d)(1).
    Response: We appreciate the commenters recognizing that CMS has 
attempted to fairly implement the requirements of section 1893(f)(2) of 
the Act while still fulfilling its fiduciary responsibility to collect 
overpayments aggressively.
    Comment: One commenter expressed concern that CMS's limitation on 
recoupment provisions afford greater protections to overpaid providers 
than to providers who are merely suspected to have overpayments and for 
whom payments are suspended while an overpayment is being determined.
    Response: Section 1893(f)(2) of the Act prevents the Secretary from 
taking any ``action * * * to recoup the overpayment''. The disposition 
of suspended funds as explained in Sec.  405.372(e) is not a 
``recoupment'' as that term is defined in Sec.  405.370. The statute 
does not broaden or alter CMS's definition of recoupment to also apply 
to the application of suspended funds. Because CMS is only limited by 
section 1893 (f)(2) of the Act from recouping Medicare payments, we are 
not restricted in our ability to apply suspended funds to reduce or 
dispose of an overpayment.

B. Authority Citation for Subpart C of Part 405

    Subpart C of part 405 implements several sections of the Act 
including sections authorizing the recovery of overpayments and 
assessment of interest. In the September 22, 2006 proposed rule, we 
proposed to revise the authority citation to explicitly add Section 
1893 of the Act, amended by section 935 of the MMA, to add the 
limitation on recoupment as well as other provisions addressing the 
recovery of overpayments. We received no comments on this provision. 
Thus, in this final rule, we are adopting the authority citation 
provisions of the proposed rule without change.

C. Proposed Change to Sec.  405.370 Definitions

    Section Sec.  405.370 defines key terms that apply to subpart C of 
part 405. In the September 22, 2006 proposed rule, we proposed to 
revise Sec.  405.378 and add a new Sec.  405.379. We added new 
definitions to Sec.  405.370. We also proposed that selected terms used 
in Sec.  405.378 and proposed Sec.  405.379 be given the same meaning 
as in the appeals context.
    Comment: Several commenters suggested that the definition of 
Medicare contractor be amended to include Recovery Audit Contractors 
(RACs).
    Response: We agree with the commenter and have revised the 
definition of Medicare Contractor to include this change. We note that 
our intent was not to exclude RACs from being subject to the rule.
    Accordingly, we are revising the definition of Medicare Contractor, 
and finalizing all other definitions in Sec.  405.370 as proposed 
without change.

D. Sec.  405.373 Proceeding for Offset or Recoupment

    Section 405.373 establishes the general rules and procedures to be 
followed once CMS or a Medicare contractor determines that an offset or 
recoupment should be put into effect. Specifically, Sec.  405.373(e) 
addresses the duration of a recoupment or offset that has been put into 
effect and identifies the three specific circumstances under which a 
recoupment or offset would stop. In the September 22, 2006 proposed 
rule, we proposed to revise the introductory text of paragraph (e) to 
explicitly refer to Sec.  405.379, implementing the statutory 
limitation on recoupment, as a separate basis to stop recoupments that 
have been put into effect.
    We received no comments on these provisions. Accordingly, we are 
finalizing Sec.  405.373 as proposed without modification.

E. Sec.  405.378 Interest charges on overpayment and underpayments to 
providers, suppliers and other entities

    Section 405.378 implements sections 1815(d) and 1833(j) of the Act 
which requires us to charge interest on overpayments and pay interest 
on underpayments if payment is not made within 30 days of the date of 
the ``final determination''. Under sections 1815(d) and 1833(j) of the 
Act, the date of the final determination dictates when interest begins 
to accrue and determines whether we pay interest on an underpayment or 
collect interest on an overpayment.
    In paragraph (c), we define what constitutes a final determination 
both for overpayments and underpayments arising from a cost report 
determination as well as those that are claims based.
    In paragraph (d), we establish the basis for the interest rate used 
for Medicare overpayments and underpayments as well as for other 
Medicare program activities, for example Medicare Secondary Payer 
recoveries (Sec.  411.24(m) which references Sec.  405.378(d)).
    In the September 22, 2006 proposed rule, we proposed to revise 
Sec.  405.378 to specify how interest is assessed for the subset of 
overpayments subject to the limitation on recoupment under section 
1893(f)(2) of the Act. In Sec.  405.378, we proposed to clarify that if 
a provider or supplier overpayment determination is affirmed at any 
level of administrative or judicial appeal, interest owed by the 
provider or supplier would continue to accrue from the final 
determination. If the overpayment determination is reversed in favor of 
the provider or supplier, interest may be payable by Medicare to the 
provider or supplier under one of two different methodologies depending 
upon the appeal level at which the reversal occurs. If a full or 
partial reversal in favor of the provider or supplier occurs at the 
first (redetermination) or second (reconsideration) level of the 
administrative appeal process, interest may be payable by Medicare to 
the provider or supplier if the underpayment is not paid within 30 days 
of the final determination as that term is defined in the proposed 
revisions to Sec.  405.378(c).
    It is only where the reversal occurs at the ALJ level or 
Departmental Appeals Board's Appeals Council level of

[[Page 47461]]

administrative appeal or judicial review that interest becomes payable 
by Medicare based on the period that we recouped and retained the 
provider's or supplier's funds.
    In the September 22, 2006 proposed rule, we proposed to amend Sec.  
405.378(a) by adding the reference to 1893(f)(2)(B) of the Act, which 
is one of the enumerated provisions of the Act that this regulatory 
section is designed to implement.
    We also proposed to revise paragraph (b)(2), which states the basic 
rule that interest accrues from the date of final determination, to 
clarify there is a new exception to this rule by referencing paragraph 
(j) of this section.
    In addition, we proposed to amend paragraph (c)(1)(ii) which lists 
what constitutes a final determination in cases where a Notice of 
Amount of Program Reimbursement (NPR) is not issued.
    First, we proposed to remove the existing final determination 
definition based on certain Administrative Law Judge (ALJ) decisions 
under paragraph(c)(1)(ii)(C). The change in how interest is assessed 
under section 1893(f)(2) of the Act applies at the third level of 
appeal (ALJ) and subsequent administrative and judicial review levels. 
Therefore, we proposed to make these changes at paragraph (j).
    Second, we proposed to add an additional definition for a final 
determination, at paragraph (c)(1)(ii)(C), arising from a full or 
partial reversal at the redetermination level of appeal. This change 
was designed to clarify that if an overpayment is reversed in whole or 
in part at the first level of appeal, the redetermination level, 
interest accrues from the date of the ``final determination'' and is 
owed by Medicare if the underpayment is not paid within 30 days. 
Following a redetermination decision favorable to a provider or 
supplier, the contractor must effectuate the decision and make a 
written determination of the amount Medicare owes. Interest accrues 
from the date of the written determination.
    Finally, we proposed to add paragraph (c)(1)(ii)(D) as an 
additional type of final determination. This is a written determination 
arising from a full or partial reversal of an overpayment determination 
at the QIC reconsideration level (the second level of appeal). This 
addition was designed to clarify that if an overpayment determination 
is reversed in whole or in part at the QIC reconsideration, the final 
determination for purposes of assessing interest is the date of the 
written determination to the provider or supplier of the amount 
Medicare owes. Interest accrues from the date of this written 
determination and is owed to the provider or supplier if the 
underpayment is not paid within 30 days.
    These proposed changes to the final determination definitions are 
intended to work in conjunction with the limitation on recoupment 
requirements in Sec.  405.379. Providers and suppliers can take 
advantage of the limitation on recoupment by not paying during the 
redetermination and reconsideration levels of appeal. However, interest 
will still continue to accrue during those periods. If a provider or 
supplier loses at either level of appeal, and they did not pay their 
overpayment during the appeal, they will owe both the overpayment 
amount and accrued interest.
    We proposed to revise paragraph (c)(2) by adding the cross 
references to paragraphs (i) and (j) of this section which states the 
exceptions to assessing interest based on the date of final 
determination.
    For purposes of clarity and to group the exceptions to the ``final 
determination'' rule in a logical sequence, we proposed to redesignate 
paragraph (h), respectively as paragraph (i) and paragraph (i) as 
paragraph (h). We note that the text of these redesignated paragraphs 
did not change.
    In addition, we proposed to add a new paragraph (j) to establish 
the basis for paying interest to a provider or supplier whose 
overpayment determination is reversed in whole or in part at the third 
level of administrative appeal (ALJ) or above. This new interest 
provision is required by section 1893(f)(2)(B) of the Act which states, 
``[i]nsofar as such determination against the provider of services or 
supplier is later reversed, the Secretary shall provide for repayment 
of the amount recouped plus interest at the same rate as would apply 
under the previous sentence for the period in which the amount was 
recouped.'' In paragraph (j), we explain how interest is assessed 
against the government at any administrative and judicial appeal level 
above the QIC reconsideration. This new method applies only to 
overpayments subject to the limitation on recoupment under Sec.  
405.379. It is predicated upon the recoupment and retention of funds by 
CMS or the Medicare contractor at the time the decision reversing the 
overpayment determination, in whole or in part, is rendered.
    In paragraph (j)(1), we state that the rate of interest is the same 
rate that CMS charges on overpayments and pays on underpayments to 
providers, suppliers and other health care entities. This rate, as 
specified in paragraph (d) of this section, is the higher of the 
private consumer rate or the current value of funds rate. We note that 
the interest rate established in paragraph (d) changes periodically.
    In paragraph (j)(2), we describe the point in time where the 
applicable interest rate is fixed. This is the date the decision 
reversing the overpayment is issued by the ALJ, Medicare Appeals 
Council, Federal District Court or other Federal reviewing court.
    In paragraph (j)(3), we explain how interest would be calculated. 
Interest will be paid on the total principal amount recouped. We will 
pay simple rather than compound interest, and will not pay interest on 
interest; this mirrors the manner in which we assess interest against 
providers. Monies we recoup and apply to interest will be refunded and 
not included in the ``amount recouped'' for purposes of calculating any 
interest due the provider. The periods of recoupment will be calculated 
in full 30-day periods; and interest will not be payable for any 
periods of less than 30 days in which we had possession of the recouped 
funds.
    In calculating the period in which the amount was recouped, we will 
deduct days in which either or both the ALJ's or the Medicare Appeals 
Council's adjudication time frames are tolled due to specific actions 
by the appellant over which the government has no control. Our rules on 
the procedures and time frames to request an ALJ hearing provide that 
if the appellant fails to copy the other parties or files the request 
with an entity other than that specified in the QIC's reconsideration, 
the ALJ's 90 day adjudication deadline is tolled.
    Similarly, our rules on the procedures and time frames to request a 
Medicare Appeals Council review provide that if the appellant fails to 
copy the other parties or files the request with an entity other than 
that specified in the notice of the ALJ's action, the Medicare Appeals 
Council's adjudication period to conduct a review is tolled. Therefore, 
in paragraph (j)(3)(iv) and (v), we state that in calculating how much 
interest we owe a provider or supplier, we account for these potential 
delays by deducting days attributable to actions by the provider or 
supplier which have the effect of extending the time in which we had 
possession of the recouped funds.
    We state in paragraph (j)(4) that, in the cases of a partial 
reversal of an overpayment determination, we would allocate the funds 
recouped first to that portion of the overpayment

[[Page 47462]]

determination affirmed by the ALJ, Medicare Appeals Council, or any 
Federal court. If after this allocation excess recouped funds remain, 
interest would be paid to the provider or supplier on this amount in 
accordance with the other provisions specified in paragraph (j).
    All comments and CMS's responses related to the proposed revisions 
of Sec.  405.378 are discussed below:
    Comment: Two commenters suggested that Sec.  405.378(j) be revised 
to state that Medicare must pay interest from the date of recoupment 
regardless of whether the reversal occurs at the redetermination, 
reconsideration, or ALJ level.
    Response: Section 1893 (f)(2)(B) of the Act clearly states that CMS 
must pay interest to a provider or supplier only when a reconsideration 
is ``later reversed.'' Therefore, we are not authorized by statute to 
pay interest from the date of recoupment if a decision at the 
redetermination or reconsideration level of appeal reverses a prior 
determination or decision. The statute only requires the payment of 
interest back to the date of recoupment when a finding by an ALJ, or 
other higher administrative or judicial entity, reverses a QIC 
reconsideration decision. CMS only pays interest when specifically 
obligated by statute. We believe the commenter's suggestion is contrary 
to the plain meaning of the statute.
    Comment: One commenter suggested that because interest charges 
continue to accrue against a provider or supplier even if they avail 
themselves of the limitation on recoupment, CMS will make itself whole 
by satisfying the overpayment through interest collections.
    Response: CMS must forward to the (Department of Treasury) General 
Fund any interest collected. CMS neither retains, nor is made whole by 
interest collected on behalf of the Treasury.
    Comment: One commenter stated that the proposed new definitions of 
when CMS pays interest on underpayments that result from a reversal, in 
whole or in part, at the redetermination level and at the 
reconsideration level (Sec.  405.378(c)(1)(ii)(C) and (c)(1)(ii)(D)), 
are not fair to providers or suppliers, and result in providers or 
suppliers giving interest-free loans to Medicare for the period of time 
between the decision and when Medicare effectuates the decision.
    Response: Medicare's longstanding policy is that a final 
determination occurs when the determination sets forth a specific 
amount that is due. Further, as explained in Sec.  405.378(e)(4), 
interest to a provider or supplier does not begin to accrue until the 
date of the written determination notifying the provider or supplier of 
the amount of the underpayment. Although it is possible that a decision 
at the QIC level could include the precise amount that is owed as an 
underpayment, more often, the decision requires that the Medicare 
contractor compute the amount due to the provider. For example, if the 
QIC decision is a partial reversal of an overpayment where 
extrapolation was used to determine the overpayment, it typically must 
be recalculated to account for the revisions made to the sample claims 
upon which the extrapolated overpayment is based. Only after the 
recalculation of the overpayment is completed will the contractor 
become aware of any potential underpayment. A written determination on 
appeal that Medicare owes an underpayment but without specific 
information as to what the amount is owed, does not permit sufficient 
information to determine the payment amount and subsequent interest. 
Interest is paid when a specific amount is known and is not paid within 
30 days. Similarly, providers have 30 days to repay an overpayment 
where the amount has been determined before interest is assessed.
    In considering the comment, we decided to remove Sec.  
405.378(c)(1)(ii)(C) and (c)(1)(ii)(D). These two provisions included 
in our proposed rule explained when a final determination of an 
underpayment occurred during the first two levels of administrative 
appeal. However, we believe the language in Sec.  405.378(c)(1)(ii)(B), 
which states that a written determination of an underpayment 
constitutes a final determination, adequately covers these two levels 
of appeal. Thus, we believe paragraphs (c)(1)(ii)(C) and (c)(1)(ii)(D) 
are unnecessary. After all levels of appeal, an underpayment will be 
determined when a sum certain is calculated and the provider or 
supplier is notified of the underpayment, regardless of whether a QIC 
or a contractor performs the recalculation.
    Comment: One commenter stated that interest should be prorated for 
periods less than 30 days.
    Response: CMS will continue to pay interest on underpayments it 
owes the provider or supplier, the same way it assesses interest on 
overpayments owed by the provider or supplier. Periods of less than 30 
days are not counted. Only full 30 day periods are used to calculate 
interest. This is based on Sec.  405.378(b)(2) where interest accrues 
and is paid for each full 30 day period that payment is delayed.
    Comment: Two commenters asked CMS to reconsider the proposal to 
deduct from the interest owed to the provider those days that are 
tolled during an ALJ or Appeals Council adjudication period.
    Response: The appeals regulations in Sec.  405.1014 and Sec.  
405.1106 provide extensions (or tolling) of the adjudication timeframe 
for issuance of ALJ decisions and Medicare Appeals Council review 
decisions when certain specific actions are taken by an appellant that 
are outside the government's control, (for example, the appellant fails 
to copy the other parties on their request for an ALJ hearing). We 
believe that our proposal to deduct the days that are associated with 
an appellant's actions aligns itself with the language in the appeals 
regulations. CMS should not be required to pay interest on days that 
the appellant is in control of, or is perfecting an appeal request, or 
takes action that delays the administrative proceedings.
    Accordingly, we are finalizing Sec.  405.378 as proposed with 
modifications, as noted above.

F. Sec.  405.379 Limitation on Recoupment of Provider and Supplier 
Overpayments.

    In the September 22, 2006 proposed rule, we proposed to add a new 
section Sec.  405.379 to subpart C of Part 405 to implement the 
statutory limitation on recoupment under section 1893(f)(2) of the Act.
    Specifically, in proposed paragraph (a) we explained that 
1893(f)(2)(B) of the Act is the statutory basis for this section. In 
addition, we stated that the basis and purpose of this section is to 
impose a limit on our recoupment of Medicare overpayments, if a 
provider or supplier appeals until a decision by a QIC is made.
    In paragraph (b), we delineated those types of overpayments that 
are expressly subject to the recoupment limitation: (1) those appealed 
by the provider or supplier under the Medicare claims appeal process; 
(2) post-pay denial of claims for benefits under Medicare Part A and 
Part B for which a demand for payment has been made; and (3) Medicare 
Secondary Payer (MSP) recoveries where the provider or supplier 
received a duplicate primary payment and MSP recoveries based on the 
provider's or supplier's failure to file a proper claim with the third 
party payer plan, program, or insurer for payment.
    Section 935(b) of the MMA specified that section 1893(f)(2) of the 
Act shall apply to ``actions'' taken after the date of enactment of the 
MMA; that is actions taken after December 8, 2003.

[[Page 47463]]

For these purposes, we defined these actions to be the date the 
contractor could have instituted recoupment action based on Part A 
debts determined on or after November 24, 2003, Part B debts determined 
on or after October 29, 2003, and a small group of MSP debts determined 
on or after October 10, 2003.
    In paragraph (b), we also provided the categories of overpayments 
to which the limitation does not apply, although this is not an 
exhaustive list of exclusions. The limitation would not apply to all 
MSP recoveries other than provider/supplier MSP duplicate primary 
payment recoveries or MSP recoveries attributable to the provider's or 
supplier's failure to file a proper claim. It would not apply to 
beneficiary overpayments nor overpayments that arise from a cost report 
determination and are appealed under the provider reimbursement 
process.
    In paragraph (c), we specified how two key actions that trigger the 
limitation on recoupment are to be construed. A provider must act 
decidedly to stop recoupment. Recoupment of an overpayment once 
initiated will be stopped at the first two levels of the appeals 
process (the redetermination and the reconsideration) upon receipt of a 
timely and valid appeal request applicable to that level. The provider 
or supplier does not have to take any affirmative action to invoke the 
limitation on recoupment beyond the act of appealing. What constitutes 
a valid and timely request for a redetermination and, subsequently what 
constitutes a valid and timely request for a reconsideration is already 
described in established Medicare appeal regulations and implementing 
policies. (See 42 CFR part 405 subpart I).
    In paragraph (d), we proposed the general framework for 
implementing the limitation on recoupment. Once an overpayment is 
determined and the substantive and procedural requirements to afford 
the provider or supplier an opportunity for rebuttal under Sec.  
405.374 and Sec.  405.375 are satisfied, recoupment can proceed unless 
and until a valid request for a redetermination is received. This means 
we can recoup during the period when a provider's or supplier's right 
to request a redetermination has not expired. This places the 
obligation on the provider or supplier who wishes to capitalize on the 
benefit afforded by the recoupment limitation to request a 
redetermination.
    Under the Benefits Improvement and Protection Act of 2000, the 
Medicare contractor is required to make a redetermination decision 
within 60 calendar days of the date the contractor receives a timely 
filed request for a redetermination. We proposed in paragraph (d)(2) 
that if the redetermination is an affirmation in whole or in part, we 
can proceed to recoup any outstanding principal and interest 30 days 
after notice unless a valid request for a reconsideration is received 
in the interim.
    In paragraph (d)(3), we specified that the Medicare contractor 
shall cease recoupment upon receipt of a timely and valid request for a 
reconsideration. If recoupment has not gone into effect, the contractor 
shall not initiate it. The contractor may initiate or resume recoupment 
upon final action by the QIC in accordance with paragraph (f) which is 
explained in detail below.
    The general rule we proposed in paragraphs (d)(4) and (d)(5) states 
that, unless the reconsideration results in a full reversal of the 
overpayment determination, recoupment of outstanding principal and 
interest may be initiated or resumed upon final action by the QIC 
whether or not the provider or supplier appeals to the ALJ, the 
Medicare Appeals Council, or Federal court. If the provider or supplier 
subsequently appeals, the contractor may continue recouping outstanding 
overpayments in accordance with Sec.  405.373(e).
    In paragraph (d)(6), we clarified that each overpayment 
determination and its appeal status is separate and distinct from other 
debts owed by the same provider or supplier. Therefore, we make 
explicit that if an overpayment determination is appealed and 
recoupment stopped, this would not preclude the Medicare contractor 
from recouping other overpayments owed by the provider or supplier.
    In paragraph (d)(7), we stated that amounts properly recouped 
before the imposition of the recoupment limitation, at either or both 
the first and second levels of appeal, may be retained until and unless 
there is an administrative or judicial reversal of the overpayment 
determination.
    In paragraph (d)(8), we stated that if an overpayment determination 
is reversed through the administrative or judicial process, appropriate 
adjustments in the debt and the amount of interest charged would be 
made to give effect to these decisions.
    In paragraph (d)(9), we made explicit that interest is payable on 
overpayments, subject to the recoupment limitation, in accordance with 
the provisions of Sec.  405.378.
    In paragraph (e), we stated the specific rules for initiating or 
resuming recoupment after the redetermination decision. The necessary 
conditions are that the debt (remaining unpaid principal balance and 
interest) has not been liquidated and the substantive and procedural 
rebuttal requirements have been satisfied. We proposed that recoupment 
can resume: (1) Immediately upon receipt of a request to withdraw the 
redetermination request; (2) on the 30th calendar day after the date of 
the notice of redetermination affirming the overpayment determination 
in whole; or (3) on the 30th calendar day after a written notice to the 
provider or supplier of the revised overpayment amount if the 
redetermination results in an affirmation in part. We proposed in 
paragraph (e)(2), that recoupment would be stopped again upon receipt 
of a timely and valid request for a reconsideration by the QIC.
    In paragraph (f), we set forth the specific rules for initiating or 
resuming recoupment after final action by the QIC. It also defines what 
constitutes final action by a QIC for purposes of this section. As is 
the case when recoupment is resumed after the redetermination decision, 
the conditions necessary for resumption are that the debt (remaining 
unpaid principal balance and interest) has not been liquidated and the 
substantive and procedural rebuttal requirements have been satisfied.
    Under the statute, once a provider or supplier has sought a 
reconsideration by the QIC, we may not take any action to recoup the 
overpayment until the date the decision on the reconsideration has been 
rendered. We believe it is consistent with this provision to interpret 
``the date the decision on the reconsideration is rendered'' as the 
date on which the QIC issues its final decision, dismissal order, or 
notice with respect to escalation.
    There are three possible actions that a QIC may take with respect 
to a request for reconsideration. First, it may complete its review and 
issue a reconsideration. Second, in appropriate circumstances, it may 
dismiss the request for reconsideration. Third, if the QIC is unable to 
complete its reconsideration within the mandated 60 day time frame, it 
may issue a notice to the parties that it will not be able to complete 
its reconsideration in the allotted time and advise them of their right 
to escalate their appeal to the ALJ level. The parties may then notify 
the QIC of their intent to escalate the appeal. Following the receipt 
of this notice, the QIC must either issue its reconsideration within 5 
days or issue a notice acknowledging the escalation

[[Page 47464]]

request and forward the case file to the ALJ hearing office.
    We proposed that the earliest to occur of these three actions (a 
reconsideration, a dismissal, or the written notification to the 
parties that the reconsideration has been escalated) or the receipt of 
a withdrawal request from the provider or supplier would constitute the 
final QIC action that would permit the initiation, or resumption, of 
the recoupment of an overpayment. The provider or supplier who elects 
to escalate the appeal from the QIC to the ALJ would thereby lose the 
benefit of the limitation on recoupment (recoupment could begin). 
However, we do not view this as a disadvantage to the provider or 
supplier who retains the ability to seek escalation or not to seek 
escalation. We also clarified that where the final action is the notice 
of the reconsideration, in order to institute or resume recoupment, the 
reconsideration decision must affirm the overpayment determination in 
whole or in part.
    In paragraph (g), we addressed a series of specific rules and 
situations on how recouped funds are to be applied. Funds recouped 
before receipt of a timely and valid redetermination request may be 
retained and applied first to accrued interest and then to the 
principal balance. If the overpayment in question is reversed at the 
first level of appeal, consistent with current policies, the amount 
held may be applied to any other debt owed by the provider or supplier; 
any excess would then be released to the provider or supplier.
    In the case of a partial reversal at the redetermination level in 
which the decision reduces the debt below the amount already recouped, 
the same policies would be followed with respect to the application of 
the recouped funds. In the case of an affirmation where the provider or 
supplier appeals to the next level, the Medicare contractor would 
retain the monies and apply them first to interest and then to the 
principal balance pending final action by the QIC on the 
reconsideration request.
    If funds are properly recouped between a redetermination decision 
and a provider's subsequent request for a reconsideration, these would 
be retained and applied first to interest, then to principal pending 
final action by the QIC. If the final QIC action is a dismissal, 
receipt of a withdrawal, notice of escalation, or a reconsideration 
decision affirming the overpayment in whole, funds recouped are applied 
to interest, then to principal; recoupment may be resumed as necessary 
to liquidate the debt. If the QIC reconsideration decision is a full 
reversal, the amount recouped may be applied to any other debt 
(including interest) owed by the provider or supplier before any excess 
is released. If the reconsideration decision is a partial reversal and 
reduces the debt below the amount already recouped, the same policies 
would be followed with respect to the application of the recouped 
funds.
    In paragraph (h), we specified how we would insulate a provider or 
supplier, invoking the limitation on recoupment under this section, 
from the operation of Sec.  401.607(c)(2)(iv). This latter rule 
provides that missing one payment under a 6-month extended repayment 
plan granted under the authority of Sec.  401.607(c)(2) constitutes a 
default allowing CMS to accelerate the debt.
    All comments and CMS's responses related to Sec.  405.379 are 
discussed below:
    Comment: Two commenters stated that in the proposed rule CMS 
explained that it would not recoup until after the requirement to 
afford the provider or supplier an opportunity for rebuttal was 
satisfied. In addition, the commenters asked if the rebuttal process 
conflicts with the proposed provisions.
    Response: The rebuttal process is a separate and independent right 
that is not affected by this regulation, and occurs independently of 
the appeals process set forth in part 405 subpart I. The statement in 
the proposed regulation regarding the rebuttal process was simply an 
acknowledgement that this process remains available to providers and 
suppliers. Sections 405.373 through 405.375 explain the process by 
which CMS gives notice of an overpayment and offers an opportunity for 
rebuttal before it takes an action to offset or recoup that 
overpayment. The provider may submit a rebuttal statement within 15 
days of the notice. The Medicare contractor has 15 days to review the 
statement and determine whether to proceed with the recoupment or not 
to proceed, based on the rebuttal statement. In contrast, the 
limitation on recoupment provision does not afford the contractor any 
discretion in proceeding or stopping recoupment of an overpayment. If a 
valid request for a first or second level appeal is filed, the 
contractor must stop recoupment. As a practical matter, providers who 
want to ensure that CMS stops recoupment will avail themselves of the 
limitation on recoupment process through a timely and valid appeal 
rather than the rebuttal process.
    Comment: Several commenters recommended that CMS provide the full 
120-day filing period for a redetermination and the 180-day period for 
a reconsideration before starting recoupment of the overpayment. The 
commenters indicated that the proposed rule forces providers to choose 
either to initiate a timely appeal to stop recoupment, or take full 
advantage of the timeframe for filing an appeal. In addition, the 
commenters stated that recouping before the filing periods have 
concluded was not in compliance with the statute.
    Response: The comment that recoupment should be delayed 120 days 
after the receipt of an overpayment determination or 180 days after the 
notice of a redetermination is inconsistent with the applicable 
statute. In order to trigger the statutory limitation on recoupment, 
the provider must seek a reconsideration. The statute is clear that 
recoupment is either stopped, or may not begin, when a valid request 
for a reconsideration is filed. However, the statute is silent with 
regard to actions CMS may take after an initial demand is issued and 
before a request for reconsideration is filed. CMS has a fiduciary 
responsibility to timely and aggressively collect Medicare debt or 
refer the debt to Treasury for collection as mandated by the Debt 
Collection Improvement Act. Unless a provider or supplier purposely 
avails themselves of the limitation on recoupment, CMS has a statutory 
obligation to collect these outstanding debts. Based on the statutory 
language CMS could recoup during the period the provider is actively 
pursuing a first level of appeal (redetermination). This approach would 
reduce the complexity of implementing this new statutory provision. 
Also, it would shorten the period of deferred recoupment under the Act, 
thereby minimizing risk to the Medicare Trust Fund. However, as we 
noted earlier, this approach would result in many instances where CMS 
would have recouped the overpayment before the provider could request a 
reconsideration and thereby invoke the limitation on recoupment. We 
suggested in our September 2006 proposed rule that this view, while 
permissible, would unfairly impact many providers and suppliers. Using 
our discretionary rulemaking authority, CMS is also limiting recoupment 
when the provider requests a redetermination (that is, the first level 
of appeal). Based on this comment, CMS is revising Sec.  405.379(a) to 
make clear that we are implementing the statutory requirement to limit 
recoupment during reconsideration, as well as limiting recoupment 
during redetermination, the first level of appeal.

[[Page 47465]]

    In both cases, the provider or supplier must take some decided 
affirmative action, (that is, requesting a redetermination or a 
reconsideration). Moreover, to wait until the expiration of the appeals 
filing periods would adversely impact providers and suppliers who do 
not wish to appeal, because they would be subject to several months of 
interest. To avoid this, these providers and suppliers would have to 
take some affirmative action to indicate that they do not want to 
appeal which unfairly places a burden on these providers and suppliers 
who want to pay their overpayments and do not want to appeal.
    Therefore, CMS has determined that the timeframes established for 
recoupment are both reasonable for allowing providers sufficient time 
to initiate a timely appeal and are also consistent with our fiduciary 
responsibility for collecting Medicare debt. Based on the foregoing 
discussion, CMS is in compliance with the statute. We are not adopting 
the commenters' suggestion.
    Comment: One commenter suggested that if CMS does not halt 
recoupment until the first and second level appeals periods expire, CMS 
should require a provider or supplier to inform the contractor of its 
intent to initiate an appeal. In addition, the commenter indicated that 
providers expressing their intent to appeal would not be subject to 
recoupment.
    Response: We believe the language of the statute that the provider 
must ``seek'' a reconsideration clearly intends for a process that 
actively engages both the provider or supplier and CMS. An intent to 
file has no time limits for a provider or supplier and has the effect 
of staying any collections indefinitely. Further, simply signaling an 
intent to file has no binding effect on a party, and does not 
necessarily mean that a provider or supplier will ultimately seek any 
appeal. Thus, we are not adopting the commenter's suggestion.
    Comment: One commenter suggested that CMS should ensure that 
language in the overpayment notices clearly advise the provider or 
supplier that if it files a request for a redetermination by a 
specified date that recoupment would be stayed and that these notices 
should also specify the time period in which recoupment would be 
stayed. Additionally, language in the notices should state that 
interest continues to accrue from the date of the original overpayment 
determination.
    Response: We agree with the commenter that language regarding when 
recoupment starts and stops and that interest continues to accrue from 
the date of the initial overpayment determination should be included in 
the overpayment determination letters. However, we view those 
procedures as part of the specific manual instructions to be issued to 
Medicare contractors. Manual instructions contain model letters and 
instructions to Medicare contractors on the preparation and content of 
demand letters. Thus, we do not believe it is necessary to revise the 
rule to include the commenter's suggestion.
    Comment: Two commenters stated that the limitation of recoupment 
should apply to those Part B debts determined on or after October 29, 
2003 and Part A debts determined on or after November 29, 2003. The 
commenters further explained that this means that CMS could begin 
recoupment on the 16th day or the 41st day after the notice of 
overpayment is issued and before a redetermination is filed depending 
on whether the notice came from the Medicare intermediary or the 
Medicare carrier. The commenter expressed that this is disparate 
treatment and asked CMS to explain the rationale for the policy.
    Response: Medicare contractors' internal shared systems largely 
determined when those contractors instituted recoupment. Recoupment 
began approximately 16 days after the notice of overpayment, if the 
notice was issued by a Medicare intermediary, and 41 days after the 
notice of overpayment if the notice was issued by a Medicare carrier 
unless in both cases, the contractor received information from the 
provider about how it intended to repay the overpayment.
    The limitation on recoupment provision required us to consider more 
consistent system rules for when recoupment could begin or resume. For 
consistent application of the limitation on recoupment and before a 
request for a redetermination is received, we modified our Part A 
systems to be consistent with our Part B systems and both will begin 
recoupment at day 41 following the notice of overpayment for those 
overpayments subject to the limitation on recoupment. This aligns 
itself with interest regulations at Sec.  405.378, that states interest 
is not due if the debt is liquidated within 30 days. If a provider or 
supplier pays the overpayment or requests a redetermination by the 30th 
day following the notice of overpayment, Medicare contractors have an 
additional 10 days to ensure posting of payments or receipt of a valid 
request for a redetermination. Medicare overpayment demand letters will 
include clear language about when recoupment can begin. We are also 
amending the regulation at Sec.  405.379(d)(1) to reflect the 41 day 
system modification.
    Comment: Two commenters stated that providers who fail to introduce 
all relevant evidence before the QIC are precluded from presenting new 
evidence to an ALJ, absent good cause. Thus, an appellant may need more 
than 30 days to prepare a request for reconsideration that contains all 
relevant evidence.
    Response: The requirement in Sec.  405.966 for the early 
presentation of evidence by providers and suppliers is based on the 
statutory requirement contained in section 1869(b)(3) of the Act, as 
added by section 933(a) of the MMA, which states that a provider or 
supplier may not, in any subsequent level of appeal, introduce evidence 
that was not presented at the reconsideration conducted by the QIC, 
unless there is good cause that precluded the introduction of that 
evidence at or before the reconsideration. While it is in the interest 
of both the Medicare provider and supplier community and CMS that 
appellants have the opportunity to submit a complete appeal request 
with all relevant evidence, we believe it is necessary to strike a 
balance between the need to timely recoup Medicare overpayments and the 
need to give providers and suppliers a reasonable time to prepare an 
appeal.
    Therefore, after carefully considering all comments received, we 
have decided to extend the period before contractors may initiate 
recoupment following a redetermination to the 60th calendar day rather 
than the 30th calendar day. Providers or suppliers may take the full 
180 days to appeal. However, to avoid recoupment starting or resuming 
following a redetermination, a valid request for reconsideration must 
be filed with the appropriate QIC by the 60th day following the date of 
the redetermination. This change is reflected at Sec.  
405.379(e)(1)(ii) and (e)(1)(iii).
    Comment: One commenter indicated that there is no provision to 
notify the provider or supplier that recoupment has stopped once the 
provider or supplier submits a request for reconsideration to the QIC. 
The commenter recommended that the QIC issue to the provider or 
supplier a written notification that recoupment efforts have ceased 
once they file a request for reconsideration to the QIC.
    Response: As part of the QICs' current standard operating 
procedures, QICs send an acknowledgement notice within 14 days of 
receipt of a request for reconsideration to the provider or

[[Page 47466]]

supplier. However, the Medicare contractor, not the QIC, is responsible 
for all overpayment recoupment activities, including the cessation of 
recoupments. The provider or supplier is notified by the Medicare 
contractor via a payment remittance advice that claims are continuing 
to be paid and are not being recouped or offset. We will consider 
whether any additional notice is necessary and, if so, we will include 
additional guidance in our manual instructions rather than through a 
regulatory issuance.
    Comment: One commenter stated that recoupment should cease upon a 
request for reconsideration and should not be initiated or resumed 
until after an ALJ or judicial decision was rendered.
    Response: When a valid request for a reconsideration is received, 
recoupment ceases. Section 1893(f)(2) of the Act only requires CMS to 
stop recoupment when a valid request for reconsideration is received. 
It does not limit CMS' authority to resume recoupment following the 
reconsideration decision issued by the QIC. Thus, as stated in Sec.  
405.379(d)(4) and (d)(5), recoupment can resume following a decision by 
the QIC, whether or not the QIC decision is further appealed. 
Therefore, we are not adopting the commenter's suggestion, as we 
believe the suggestion is contrary to section 1893(f)(2) of the Act. 
However, we are making technical changes to Sec.  405.379(d), (f), and 
(g) of this section to remove the word ``final'' preceding ``action.'' 
We believe that use of the word ``final'' in these provisions is 
confusing because ``final action'' could be incorrectly construed as 
meaning a final administrative action of the Secretary which can be 
appealed directly to Federal district court. The intent of this 
regulatory provision is to explain the types of actions by the QIC that 
are binding on the parties and would enable recoupment to be initiated 
or resumed. As was stated in the proposed rule and this final rule, 
these actions are a decision, dismissal order, or notice that it cannot 
complete its reconsideration in a timely manner. Because the underlying 
QIC actions that will allow CMS to initiate or resume recoupment have 
remained unchanged, we are making only a non-substantive, technical 
change to clarify the ambiguity discussed above by deleting the word 
``final.''
    We also note one further technical change we are making to Sec.  
405.379(c). In this paragraph, we revised incorrect cross-references to 
Sec.  405.940 and Sec.  405.958, and cross references to Sec.  405.974 
through Sec.  405.978. Specifically, we revised the regulatory text of 
(c)(1) to refer to Sec.  405.940 through Sec.  405.958 and we revised 
the regulatory text of (c)(2) to refer to Sec.  405.960 through Sec.  
405.978.
    Comment: One commenter suggested that a provider's choice to 
escalate the appeal to the ALJ because of a delay at the QIC should 
toll recoupment.
    Response: Notice by the QIC that it is unable to meet the mandated 
response timeframe for issuing a decision immediately gives the 
provider or supplier control to request an ALJ appeal. Practically, 
this result is no different than a decision issued by the QIC that 
affirms the prior decision and the provider or supplier requests an 
appeal. In both instances the appeal has passed out of the 
reconsideration level and the statutory requirement to limit recoupment 
no longer applies. We note that we are not adopting the commenter's 
suggestion.
    Comment: One commenter stated that CMS has not addressed how 
extended repayment plans work in conjunction with the limitation on 
recoupment. The commenter stated that a provider might want to repay 
the overpayment by seeking an extended repayment plan at some point in 
the appeals process. For example, the provider might not have a 
favorable decision at the first level of appeal and chooses not to 
appeal to the second level. Also, the commenter recommended that CMS 
revise the rule to include language that recoupment may not occur for 
30 days after the redetermination and/or reconsideration to give the 
provider time to request and CMS to review and approve an extended 
repayment plan.
    Response: In paragraph (h) of Sec.  405.379, we state that a 
provider or supplier who timely files a redetermination of an 
overpayment but such overpayment is under an extended repayment plan, a 
missed payment under the plan does not put the provider in default of 
the extended repayment plan. This permits the provider or supplier to 
invoke the limitation on recoupment provisions to stop recoupment when 
a valid request for redetermination is filed. We are revising paragraph 
(h) of Sec.  405.379 to permit the provider or supplier to similarly 
invoke the limitation on recoupment if a timely and valid request for 
reconsideration is received. Additionally, in this final rule, we do 
not prohibit the provider or supplier from requesting a repayment plan 
at any time or at any stage of an appeal. Payments made by a provider 
or supplier who requested to repay in installments under an extended 
repayment plan are not recoupments for purposes of this rule. If a 
provider or supplier does not make timely payments under its schedule, 
the provider or supplier would be placed on recoupment but can invoke 
the benefit of the limitation as stated above.
    Providers or suppliers who wish to make repayment arrangements 
following a redetermination can do so during the 60 days the provider 
or supplier is also deciding whether to appeal to a reconsideration. 
Providers or suppliers who wish to make repayment arrangements 
following a reconsideration have the opportunity to do that during the 
rebuttal period required under Sec.  405.374.
    We note that we have revised paragraph (h) of Sec.  405.379 for 
clarity. Yet these revisions do not make substantive changes to the 
policy. Further we corrected an incorrect cross reference to Sec.  
401.607(c)(2)(iv). Specifically we revised the regulations text to 
refer to Sec.  401.607(c)(2)(v).
    Comment: One commenter suggested that CMS give the provider the 
option of repaying the overpayment immediately, even if the provider 
appeals the overpayment determination. The commenter also stated that 
paying the debt immediately allows the provider to exercise their 
appeal rights without incurring substantial interest charges. The 
commenter also stated that the statute does not preclude the provider 
from voluntarily returning funds during the administrative appeals 
process.
    Response: We appreciate the observations and the suggestion 
submitted by the commenter. Currently, providers or suppliers have 
several options at the time of the notice of overpayment. For example, 
they may pay the overpayment and not pursue an appeal, pay the 
overpayment and proceed with an appeal, or not pay the overpayment and 
proceed with a timely appeal. Providers or suppliers who choose to pay 
immediately, as the commenter suggests, avoid paying interest. Also, as 
the commenter suggested, providers or suppliers can voluntarily repay 
any time during the appeal, thereby limiting their interest exposure. 
Because payments made as a lump sum or through an extended repayment 
plan are not recoupments subject to the limitation, no modifications 
are necessary.
    Accordingly, we are finalizing Sec.  405.379 with modifications as 
noted above.

III. Provisions of the Final Rule

     In this final rule, we are adopting the provisions as set 
forth in the September 22, 2006 proposed rule with the following 
revisions:

[[Page 47467]]

     In Sec.  405.370(b), we revised the definition of Medicare 
contractor to include a recovery audit contractor.
     In Sec.  405.378(c), we removed paragraphs (c)(1)(ii)(C) 
and (c)(1)(ii)(D) regarding the definition of a final determination.
     In Sec.  405.379(a) we made revisions to make clear that 
we are implementing the statutory requirement to limit recoupment 
during reconsideration, as well as limiting recoupment during 
redetermination, and the first level of appeal.
     In Sec.  405.379(c) we revised incorrect cross-references 
to Sec.  405.940 and Sec.  405.958, and cross references to Sec.  
405.974 through Sec.  405.978. Specifically, we revised the regulatory 
text of (c)(1) to refer to Sec.  405.940 through Sec.  405.958 and we 
revised the regulatory text of (c)(2) to refer to Sec.  405.960 through 
Sec.  405.978.
     In Sec.  405.379(d), we added language to paragraph (d)(1) 
to provide that recoupment may begin no earlier than 41 days following 
the date of the initial notice of overpayment.
     In Sec.  405.379(d), we made a technical change to 
paragraph (d)(4) by removing the word ``final'' to clarify that actions 
of a QIC are not necessarily considered final administrative actions of 
the Secretary which can be appealed directly to Federal district court.
     In Sec.  405.379(e), we revised paragraphs (e)(1)(ii) and 
(e)(1)(iii) to extend the timeframe for limiting recoupment before 
reconsideration is filed from 30 calendar days to 60 calendar days.
     In Sec.  405.379(f) and (g), we made technical changes. 
Specifically, we revised the heading of paragraph (f) by removing the 
word ``final''. In paragraphs (f)(1) and (2), and (g)(1) and (2), we 
removed the word ``final''. We made these technical changes to clarify 
that actions of a QIC are not necessarily considered final actions of 
the Secretary which can be directly appealed to Federal district court.
     In Sec.  405.379(h), we added language that permits the 
provider or supplier who might otherwise be found to be in default on 
their extended repayment schedule, but submits a valid and timely 
reconsideration not be deemed in default. We also revised paragraph (h) 
for clarity. These revisions do not make substantive changes to the 
policy. Further we corrected an incorrect cross reference to Sec.  
401.607(c)(2)(iv). Specifically we revised the regulatory text to refer 
to Sec.  401.607(c)(2)(v).

IV. Collection of Information Requirements

    This document does contain information collection requirements; 
however, the Paperwork Reduction Act of 1995 exempts the information 
collection activities referenced in this Final Rule. In particular, 5 
CFR 1320.4 excludes collection activities during the conduct of 
administrative actions such as redeterminations, reconsiderations, and/
or appeals. Specifically, these actions are taken after the initial 
determination or a denial of payment. See also, 44 USC 3518(c).

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. 
L. 96-354), section 1102(b) of the Social Security Act, section 202 of 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999), and the Congressional 
Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). We do not 
expect this final rule to have a substantial financial impact on 
beneficiaries, providers, or suppliers. Additionally, we anticipate 
that Federal costs to implement this final rule will be approximately 
$1 to $10 million per year in additional interest payments, which is 
well under the threshold of $100 million in any 1 year.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small businesses or other small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and government agencies. The great majority of hospitals and most other 
providers and suppliers are small entities, either by being nonprofit 
organizations or by meeting the Small Business Administration 
definition of a small business (having revenues of less than 7 million 
to 34.5 million in any 1 year). For purposes of the RFA, all providers 
and suppliers affected by this regulation are considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical Area and has fewer than 100 beds.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act. We are uncertain how many small entities would be affected 
by this final rule as this would depend in part upon voluntary actions 
on the part of the provider or supplier. The purpose of this rule is to 
limit our ability to recoup against providers or suppliers who appeal 
an overpayment determination. In order to impact a provider or 
supplier, the provider or supplier must have received an erroneous 
payment; an overpayment must be determined and demanded; the provider 
or supplier must elect to appeal; and the provider or supplier may not 
satisfy the overpayment by making either a lump sum payment or 
requesting to repay the debt in installments. The only possible adverse 
impact upon a provider or supplier is that by deferring repayment of 
the overpayment until final action by the QIC, the provider would owe 
additional interest. However, the provider or supplier can avoid the 
additional interest exposure by electing to satisfy the debt by a lump 
sum payment or an installment payment while still pursuing the appeal. 
In addition, should the overpayment determination be reversed at a 
level above the QIC, the provider or supplier potentially will receive 
additional interest beyond what CMS would be obligated to pay under 
current regulations. Therefore, we expect the impact of this final rule 
to be positive although the extent to which it would benefit any one 
provider or supplier would depend upon specific facts and circumstances 
and voluntary choices made by that provider or supplier. The impact on 
small rural hospitals is expected to be similarly positive but 
unpredictable. Therefore, we are certifying that this final rule will 
not have a significant impact on a substantial number of small rural 
hospitals.

[[Page 47468]]

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2009, that 
threshold is $133 million. This rule will not have this effect on 
State, local, or tribal governments, or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has federalism 
implications. This final rule will not have a substantial effect on 
State or local governments.
    A comment and the CMS response to the impact analysis section are 
discussed below:
    Comment: One commenter states that CMS should have performed an 
impact analysis because the commenter believes that the CMS proposal to 
recoup before the 120 day time period for filing a request for 
redetermination has expired may not afford protections from recoupment 
and may have an impact on small business. Additionally, the commenter 
believes CMS can determine negative impact by looking at overpayment 
data.
    Response: As previously stated CMS plans to adopt a process that 
will give providers and suppliers an opportunity to stop recoupment if 
they act decidedly by submitting a request for redetermination within 
30 days of the initial notice of overpayment. CMS will not begin 
recoupment until the 41st day allowing Medicare contractors time to act 
on information it receives from the provider. Also, after reviewing 
public comments concerning the timeframe to limit recoupment before 
reconsideration is filed; CMS is expanding the 30 day time limit to 60 
days. We believe that these timeframes afford providers or suppliers 
ample protections to stop recoupment. Thus, we are not adopting the 
commenter's suggestion.

B. Conclusion

    For these reasons, we did not prepare analyses for either the RFA 
or section 1102(b) of the Act because we have determined that this 
final rule would not have a significant economic impact on a 
substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 405

    Administrative practice and procedure; Health facilities; Health 
professions; Kidney diseases; Medical devices; Medicare; Reporting and 
recordkeeping requirements; Rural areas; X-rays.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as follows:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

Subpart C--Suspension of Payment, Recovery of Overpayments, and 
Repayment of Scholarships and Loans

0
1. The authority citation for subpart C is revised to read as follows:

    Authority:  Secs. 1102, 1815, 1833, 1842, 1866, 1870, 1871, 
1879, 1892 and 1893 of the Social Security Act (42 U.S.C. 1302, 
1395g, 1395l, 1395u, 1395cc, 1395gg, 1395hh, 1395pp, 1395ccc and 
1395ddd) and 31 U.S.C. 3711.

0
2. Section 405.370 is amended by designating the existing text as 
paragraph (a), and adding a new paragraph (b) to read as follows:

Sec.  405.370  Definitions.

* * * * *
    (b) For purposes of Sec. Sec.  405.378 and 405.379, the following 
terms apply:
    Appellant means the beneficiary, assignee or other person or entity 
that has filed and pursued an appeal concerning a particular initial 
determination. Designation as an appellant does not in itself convey 
standing to appeal the determination in question.
    Fiscal intermediary means an organization that has entered into a 
contract with CMS in accordance with section 1816 of the Act and is 
authorized to make determinations and payments for Part A of title 
XVIII of the Act, and Part B provider services as specified in Sec.  
421.5(c) of this chapter.
    Medicare Appeals Council means the council within the Departmental 
Appeals Board of the U.S. Department of Health and Human Services.
    Medicare contractor, unless the context otherwise requires, 
includes, but is not limited to, a fiscal intermediary, carrier, 
recovery audit contractor, and Medicare administrative contractor.
    Party means an individual or entity listed in Sec.  405.906 that 
has standing to appeal an initial determination and/or a subsequent 
administrative appeal determination.
    Qualified Independent Contractor (QIC) Qualified Independent 
Contractor (QIC) means an entity which contracts with the Secretary in 
accordance with section 1869 of the Act to perform reconsiderations 
under Sec.  405.960 through Sec.  405.978.
    Remand means to vacate a lower level appeal decision, or a portion 
of the decision, and return the case, or a portion of the case, to that 
level for a new decision.
    Vacate means to set aside a previous action.

0
3. In Sec.  405.373, paragraph (e) introductory text is revised to read 
as follows:

Sec.  405.373  Proceeding for offset or recoupment.

* * * * *
    (e) Duration of recoupment or offset. Except as provided in Sec.  
405.379, if a recoupment or offset is put into effect, it remains in 
effect until the earliest of the following:
* * * * *

0
4. Section 405.378 is amended by--
0
A. Revising paragraph (a);
0
B. Revising paragraph (b)(2);
0
C. Republishing paragraph (c)(1) introductory text;
0
D. Revising paragraph (c)(1)(ii);
0
E. Revising paragraph (c)(2);
0
F. Redesignating paragraphs (h) and (i) as paragraphs (i) and (h) 
respectively;
0
G. Adding paragraph (j).

Sec.  405.378  Interest charges on overpayment and underpayments to 
providers, suppliers and other entities.

    (a) Basis and purpose. This section, which implements sections 
1815(d), 1833(j) and 1893(f)(2)(B) of the Act and common law, and 
authority granted under the Federal Claims Collection Act, provides for 
the charging and payment of interest on overpayments and underpayments 
to Medicare providers, suppliers, HMOs, competitive medical plans 
(CMPs), and health care prepayment plans (HCPPs).
    (b) * * *
    (2) Except as provided in paragraph (j) of this section, interest 
accrues from the date of the final determination as defined in 
paragraph (c) of this section, and either is charged on the overpayment 
balance or paid on the underpayment balance for each full 30-day period 
that payment is delayed.
    (c) * * * (1) For purposes of this section, any of the following 
constitutes a final determination:
* * * * *
    (ii) In cases in which an NPR is not used as a notice of 
determination (that

[[Page 47469]]

is, primarily under part B), one of the following constitutes a final 
determination -
    (A) A written determination that an overpayment exists and a 
written demand for payment; or
    (B) A written determination of an underpayment.
* * * * *
    (2) Except as required by any subsequent administrative or judicial 
reversal and specifically as provided in paragraphs (i) and (j) of this 
section, interest accrues from the date of final determination as 
specified in this section.
* * * * *
    (j) Special rule for provider or supplier overpayments subject to 
Sec.  405.379. If an overpayment determination subject to the 
limitation on recoupment under Sec.  405.379 is reversed in whole or in 
part by an Administrative Law Judge (ALJ) or at subsequent 
administrative or judicial levels of appeal and if funds have been 
recouped and retained by the Medicare contractor, interest will be paid 
to the provider or supplier as follows:
    (1) The applicable rate of interest is that provided in paragraph 
(d) of this section.
    (2) The interest rate in effect on the date the ALJ, the Medicare 
Appeals Council, the Federal district court or subsequent appellate 
court issues a decision reversing the overpayment determination in 
whole or in part is the rate used to calculate the interest due the 
provider or supplier.
    (3) Interest will be calculated as follows:
    (i) Interest will be paid on the principal amount recouped only.
    (ii) Interest will be calculated on a simple rather than a compound 
basis.
    (iii) Interest will be calculated in full 30-day periods and will 
not be payable on amounts recouped for any periods of less than 30 days 
in which the Medicare contractor had possession of the funds.
    (iv) In calculating the period in which the amount was recouped, 
days in which the ALJ's adjudication period to conduct a hearing are 
tolled under 42 CFR 405.1014 shall not be counted.
    (v) In calculating the period in which the amount was recouped, 
days in which the Medicare Appeals Council's adjudication period to 
conduct a review are tolled under 42 CFR 405.1106 shall not be counted.
    (4) If the decision by the ALJ, Medicare Appeals Council, Federal 
district court or a subsequent Federal reviewing court, reverses the 
overpayment determination, as modified by prior levels of 
administrative or judicial review, in part, the Medicare contractor in 
effectuating the decision may allocate recouped monies to that part of 
the overpayment determination affirmed by the decision. Interest will 
be paid to the provider or supplier on recouped amounts that remain 
after this allocation in accordance with this paragraph (j) of this 
section.

0
5. Section 405.379 is added to read as follows:

Sec.  405.379  Limitation on recoupment of provider and supplier 
overpayments.

    (a) Basis and purpose. This section implements section 
1893(f)(2)(A) of the Act which limits recoupment of Medicare 
overpayments if a provider of services or supplier seeks a 
reconsideration until a decision is rendered by a Qualified Independent 
Contractor (QIC). This section also limits recoupment of Medicare 
overpayments when a provider or supplier seeks a redetermination until 
a redetermination decision is rendered.
    (b) Overpayments subject to limitation. (1) This section applies to 
overpayments that meet the following criteria:
    (i) Is one of the following types of overpayments:
    (A) Post-pay denial of claims for benefits under Medicare Part A 
which is determined and for which a written demand for payment has been 
made on or after November 24, 2003; or
    (B) Post-pay denial of claims for benefits under Medicare Part B 
which is determined and for which a written demand for payment has been 
made on or after October 29, 2003; or
    (C) Medicare Secondary Payer (MSP) recovery where the provider or 
supplier received a duplicate primary payment and for which a written 
demand for payment was issued on or after October 10, 2003; or
    (D) Medicare Secondary Payer (MSP) recovery based on the provider's 
or supplier's failure to file a proper claim with the third party payer 
plan, program, or insurer for payment and, if Part A, demanded on or 
after November 24, 2003, or, if Part B, demanded on or after October 
29, 2003; and
    (ii) The provider or supplier can appeal the overpayment as a 
revised initial determination under the Medicare claims appeal process 
at 42 CFR parts 401 and 405 or as an initial determination for 
provider/supplier MSP duplicate primary payment recoveries.
    (2) This section does not apply to all other overpayments 
including, but not limited to, the following:
    (i) All Medicare Secondary Payer recoveries except those expressly 
identified in paragraphs (b)(1)(i)(C) and (D) of this section;
    (ii) Beneficiary overpayments; and
    (iii) Overpayments that arise from a cost report determination and 
are appealed under the provider reimbursement process of 42 CFR part 
405 Subpart R--Provider Reimbursement Determinations and Appeals.
    (c) Rules of construction. (1) For purposes of this section, what 
constitutes a valid and timely request for a redetermination is to be 
determined in accordance with Sec.  405.940 through Sec.  405.958.
    (2) For purposes of this section, what constitutes a valid and 
timely request for a reconsideration is to be determined in accordance 
with Sec.  405.960 through Sec.  405.978.
    (d) General rules. (1) Medicare contractors can begin recoupment no 
earlier than 41 days from the date of the initial overpayment demand 
but shall cease recoupment of the overpayment in question, upon receipt 
of a timely and valid request for a redetermination of an overpayment. 
If the recoupment has not yet gone into effect, the contractor shall 
not initiate recoupment.
    (2) If the redetermination decision is an affirmation in whole or 
in part of the overpayment determination, recoupment may be initiated 
or resumed in accordance with paragraph (e) of this section.
    (3) Upon receipt of a timely and valid request for a 
reconsideration of an overpayment, the Medicare contractor shall cease 
recoupment of the overpayment in question. If the recoupment has not 
yet gone into effect, the contractor must not initiate recoupment.
    (4) The contractor may initiate or resume recoupment following 
action by the QIC in accordance with paragraph (f) of this section.
    (5) If the provider or supplier subsequently appeals the 
overpayment to the ALJ, the Medicare Appeals Council, or Federal court, 
recoupment remains in effect as provided in Sec.  405.373(e).
    (6) If an overpayment determination is appealed and recoupment 
stopped, the contractor may continue to recoup other overpayments owed 
by the provider or supplier in accordance with this section.
    (7) Amounts recouped prior to a reconsideration decision may be 
retained by the Medicare contractor in accordance with paragraph (g) of 
this section.

[[Page 47470]]

    (8) If either the redetermination or reconsideration decision is a 
full reversal of the overpayment determination or if the overpayment 
determination is reversed in whole or in part at subsequent levels of 
administrative or judicial appeal, adjustments shall be made with 
respect to the overpayment and the amount of interest charged.
    (9) Interest accrues and is payable in accordance with the 
provisions of Sec.  405.378.
    (e) Initiating or resuming recoupment after redetermination 
decision. (1) Recoupment that has been deferred or stopped may be 
initiated or resumed if the debt (remaining unpaid principal balance 
and interest) has not been satisfied in full and the provider or 
supplier has been afforded the opportunity for rebuttal in accordance 
with the requirements of Sec.  405.373 through Sec.  405.375. 
Recoupment may be resumed under any of the following circumstances:
    (i) Immediately upon receipt by the Medicare contractor of the 
provider's or supplier's request for a withdrawal of a request for a 
redetermination in accordance with Sec.  405.952(a).
    (ii) On the 60th calendar day after the date of the notice of 
redetermination issued under Sec.  405.956 if the redetermination 
decision is an affirmation in whole of the overpayment determination in 
question.
    (iii) On the 60th calendar day after the date of the written notice 
to the provider or supplier of the revised overpayment amount, if the 
redetermination decision is an affirmation in part, which has the 
effect of reducing the amount of the overpayment.
    (2) Notwithstanding paragraphs (e)(i), (ii) and (iii) of this 
section, recoupment must not be resumed, or if resumed, must cease upon 
receipt of a timely and valid request for a reconsideration by the QIC.
    (f) Initiating or resuming recoupment following action by the QIC 
on the reconsideration request. (1) Recoupment may be initiated or 
resumed upon action by the QIC subject to the following limitations:
    (i) The provider or supplier has been afforded the opportunity for 
rebuttal in accordance with the requirements of Sec.  405.373 through 
Sec.  405.375; and
    (ii) The debt (remaining unpaid principal balance and interest) has 
not been satisfied in full; and
    (iii) If the action by the QIC is the notice of the 
reconsideration, the reconsideration decision either affirms in whole 
or in part the overpayment determination, including the 
redetermination, in question.
    (2) For purposes of this paragraph (f), the action by the QIC on 
the reconsideration request is the earliest to occur of the following:
    (i) The QIC mails or otherwise transmits written notice of the 
dismissal of the reconsideration request in its entirety in accordance 
with Sec.  405.972; or
    (ii) The QIC receives a timely and valid request to withdraw the 
request for the reconsideration in accordance with Sec.  405.972; or
    (iii) The QIC transmits written notice of the reconsideration in 
accordance with Sec.  405.976; or
    (iv) The QIC notifies the parties in writing that the 
reconsideration is being escalated to an ALJ in accordance with Sec.  
405.970.
    (g) Disposition of funds recouped. (1) If the Medicare contractor 
recouped funds before a timely and valid request for a redetermination 
was received, the amount recouped may be retained and applied first to 
accrued interest and then to reduce or eliminate the principal balance 
of the overpayment subject to the following:
    (i) If the redetermination results in a reversal, the amount 
recouped may be applied to any other debt, including interest, owed by 
the provider or supplier before any excess is released to the provider.
    (ii) If the redetermination results in a partial reversal and the 
decision reduces the overpayment plus assessed interest below the 
amount already recouped, the excess may be applied to any other debt, 
including interest, owed by the provider or supplier before any excess 
is released to the provider or supplier.
    (iii) If the redetermination results in an affirmation and the 
provider or supplier subsequently requests a reconsideration, the 
Medicare contractor may retain the amount recouped and apply the funds 
first to accrued interest and then to outstanding principal pending 
action by the QIC on the reconsideration request.
    (2) If the Medicare contractor also recouped funds in accordance 
with paragraph (e) of this section, the amount recouped may be retained 
by the Medicare contractor and applied first to accrued interest and 
then to reduce or eliminate the outstanding principal balance pending 
action by the QIC on the reconsideration request.
    (3) If the action by the QIC is a dismissal, receipt of a 
withdrawal, a notice that the reconsideration is being escalated to an 
ALJ, or a reconsideration which affirms in whole the overpayment 
determination, including the redetermination, in question, the amount 
recouped is applied to interest first, then to reduce the outstanding 
principal balance and recoupment may be resumed as provided under 
paragraph (f) of this section.
    (4) If the action by the QIC is a reconsideration, which reverses 
in whole the overpayment determination, including the redetermination, 
in question, the amount recouped may be applied to any other debt, 
including interest, owed by the provider or supplier to CMS or to HHS 
before any excess is released to the provider or supplier.
    (5) If the action by the QIC is a reconsideration which results in 
a partial reversal and the decision reduces the overpayment plus 
assessed interest below the amount already recouped, the excess may be 
applied to any other debt, including interest, owed by the provider or 
supplier to CMS or to HHS before any excess is released to the provider 
or supplier.
    (h) Relationship to Extended Repayment Schedules. Notwithstanding 
Sec.  401.607 (c)(2)(v) of this chapter regarding an extended repayment 
schedule (ERS), a provider or supplier will not be deemed in default if 
recoupment of an overpayment is not effectuated or stopped in 
accordance with this section, and the following conditions are met:
    (1) The provider or supplier has been granted an ERS under Sec.  
401.607(c) of this chapter.
    (2) The ERS has been granted for an overpayment that is listed in 
paragraph (b) of this section.
    (3) The provider or supplier has submitted a valid and timely 
request to the Medicare contractor for a redetermination of the 
overpayment in accordance with Sec. Sec.  405.940 through 405.958 or 
reconsideration of the overpayment in accordance with Sec. Sec.  
405.960 through 405.978.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: April 29, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: June 17, 2009.
Kathleen Sebelius,
Secretary.
[FR Doc. E9-22166 Filed 9-15-09; 8:45 am]
BILLING CODE 4120-01-P
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