[Federal Register Volume 71, Number 184 (Friday, September 22, 2006)]
[Proposed Rules]
[Pages 55404-55415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-8009]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 405

[CMS-6025-P]
RIN 0938-AN42


Medicare Program; Limitation on Recoupment of Provider and 
Supplier Overpayments

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement a new provision of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
that prohibits recouping Medicare overpayments when an appeal is 
received from a provider or supplier until a decision is rendered by a 
Qualified Independent Contractor (QIC). The QIC is the second level of 
appeal in the Medicare claims appeal process. 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 proposed 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: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 21, 
2006.

ADDRESSES: In commenting, please refer to file code CMS-6025-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues

[[Page 55405]]

in this regulation to http://www.cms.hhs.gov/regulations/ecomments. 
(Attachments should be in Microsoft Word, WordPerfect, or Excel; 
however, we prefer Microsoft Word.)
    2. By mail. You may mail written comments (one original and two 
copies) to the following address only: Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Attention: CMS-6025-
P, P.O. Box 8017, Baltimore, MD 21244.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-9994 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.

FOR FURTHER INFORMATION CONTACT: Nancy Braymer, (410) 786-4323.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-6025-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. CMS posts all electronic 
comments received before the close of the comment period on its public 
Web site as soon as possible after they have been received. Hard copy 
comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 
p.m. To schedule an appointment to view public comments, phone 1-800-
743-3951.

I. Background

    [If you choose to comment on issues in this section, please 
include the caption ``Background'' at the beginning of your 
comments.]

    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 proposed rule would implement the second of these 
provisions--the limitation on recoupment.
    The statute requires CMS 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 Qualified 
Independent Contractor (QIC). Since these changes to recoupment and 
interest are tied to the Medicare fee-for-service claims appeal process 
and structure, we will start with a general discussion of the appeal 
process. Then we will explain the changes to CMS's overpayment 
recoupment policy, and how CMS will now pay interest on reversals of 
overpayment determinations at certain levels of the appeal process.

Medicare Claims Appeals Process

    The Medicare, Medicaid and SCHIP Benefits and Improvement and 
Protection Act of 2000 (BIPA) (Pub. L. 106-554) amended section 1869 of 
the Act to require a major restructuring of the Medicare claims appeals 
process. CMS incorporated these changes in federal regulations found at 
42 CFR Part 405, Subpart I. The appeals process was changed to make one 
unified structure for both Parts A and B of Medicare. Further, QICs 
were created as new independent review entities that conduct second 
level appeals after Medicare contractors conduct a redetermination of 
initial determinations. An overpayment determination is considered a 
revised initial determination.
    The chart below outlines the levels of appeal and decision-making 
time frames under this restructured process:

BILLING CODE 4120-01-P

[[Page 55406]]

[GRAPHIC] [TIFF OMITTED] TP22SE06.009

BILLING CODE 4120-01-C

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. The new MMA

[[Page 55407]]

provision and this implementing rule do not alter the rebuttal process.
    An appeal is an examination of the validity of the overpayment. 
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 were 
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) was enacted, our recoupment process was 
changed. The relevant statutory text is as follows:

    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.

    To the extent that the statutory language affords any discretion in 
implementation, we have exercised that flexibility to strike a balance 
among the following three objectives:

    (1) To give effect to Congressional intent that providers and 
suppliers be given expedited access to an objective party 
(independent from the originating contractor) to review the 
overpayment determination, prior to recouping, in the interest of 
fairness;
    (2) To carry out our fiduciary responsibility to recover 
erroneous payments to providers or suppliers; to allow them to 
retain program funds to which they are not entitled under the 
Medicare statute would be unfair to the intended beneficiaries of 
Medicare and to the taxpayers who contribute to the trust funds; and
    (3) To ensure that providers' and suppliers' procedural due 
process rights to challenge an overpayment determination through the 
appeal process are not adversely affected.

    Under the statutory language of section 1893(f)(2), if a provider 
or supplier seeks a reconsideration by a QIC on an overpayment 
determination, CMS and its Medicare contractors may not recoup the 
overpayment until the date the decision on the reconsideration has been 
rendered. Yet before reaching the QIC, a provider or supplier must 
initially go through the first level of appeal by requesting a 
redetermination by the Medicare contractor.
    Based on the statutory language, we could recoup during the period 
in which the provider is actively pursuing an appeal at this first 
level. This approach would reduce the administrative 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 funds. However, this approach would mean, in many 
instances, we would have recouped the overpayment before a provider 
could request a reconsideration and thereby invoke the benefit of the 
limitation on recoupment. Although legally permissible, we believe this 
is inconsistent with Congressional intent.
    Instead, we propose in this rule to cease recoupment when a valid 
first level appeal is received. If the provider loses at the first 
level, we would then proceed to recoup 30 days after giving notice to 
the provider unless the provider appeals to the QIC in the interim. A 
provider who acts in a timely fashion can preclude any recoupment until 
the QIC decision is rendered as contemplated under the MMA.

Assessment of Interest

    In addition to tying the recoupment process to the appeals 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. An ``underpayment'' would usually result when we had 
recovered, through recoupment or otherwise, an overpayment; the 
decision was reversed at some point in the appeal process; and after 
appropriate adjustments, we owed the balance to the provider or 
supplier. Interest accrues from the date of the ``final determination'' 
and is owed if the underpayment is not paid within 30 days. Following 
an appeal decision favorable to a provider, the Medicare contractor 
must effectuate the decision and make a written determination of the 
amount Medicare owes. This is considered a new final determination, and 
interest accrues from that date.
    The new interest provision found in section 1893(f)(2)(B) of the 
Act amends 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). The statutory text is as follows:

    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.

    This language did not specifically amend sections 1815(d) and 
1833(j) of the Act. Nor did the MMA conference report reference these 
sections. The statute and the conference report are both silent on the 
relationship between paying or collecting interest (a) based on the 
final determination concept embodied in sections 1815(d) and 1833(j) of 
the Act; and (b) 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.
    There has been no change in the obligation of the provider or 
supplier to pay interest if the overpayment determination is affirmed 
at any level of administrative or judicial appeal. Interest continues 
to accrue from the final determination in accordance with sections 
1815(d) and 1833(j) of the Act. 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, the first final determination is the date of 
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, there has been no change in 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. At these 
levels of appeal, interest would continue to be payable by Medicare if 
the underpayment is not paid within 30 days 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.
    We determine the rate of interest in accordance with 42 CFR 405.378 
by

[[Page 55408]]

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. The current interest rate for Medicare 
overpayments and underpayments is 12.625 percent (the private consumer 
rate). Since February, 2001 to the present time, it has ranged from a 
low of 10.75 percent to a high of 14.125 percent. By regulation 42 CFR 
411.24(m)(2), interest is calculated on Medicare Secondary Payer (MSP) 
debts in the same manner as for Medicare overpayments and 
underpayments, and 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.

Suspension

    We note that this new MMA provision does not affect how CMS 
recovers overpayments from providers or suppliers that have been placed 
on payment suspension. Under our authority at 42 CFR 405.371, CMS, an 
intermediary, or carrier 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 pursuant to 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. In addition, we do not interpret the Act to 
require that we return the suspended payments to a provider or supplier 
once an overpayment is determined. Section 1893(f)(2) of the Act 
prevents the Secretary from taking any ``action * * * to recoup the 
overpayment.'' Yet, the disposition of suspended funds as explained in 
42 CFR 405.372(e) is not a ``recoupment'' as that term is defined in 
Sec.  405.370. When the Congress chose to limit CMS's ability to recoup 
funds to satisfy an overpayment, it specifically used the word 
``recoup'' which has been a long-standing defined term by CMS. There is 
no evidence that the Congress intended to broaden or alter CMS's 
definition of recoupment to also apply to 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.
    If the suspended payments are insufficient to fully eliminate any 
overpayment, and the provider or supplier meets the requirements of 
this proposed rule, the limitation on recoupment provision under 
section 1893(f)(2) of the Act would 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. Providers and suppliers may continue to appeal the full 
amount of an overpayment determination at the conclusion of a 
suspension as they could prior to the enactment of the MMA.

II. Provisions of the Proposed Regulations

    [If you choose to comment on issues in this section, please 
include the caption ``Provisions'' at the beginning of your 
comments.]

A. Proposed Change to 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. We propose to revise the authority citation to 
explicitly add section 1893 of the Act which was amended by section 935 
of the MMA to add the limitation on recoupment as well as other 
provisions addressing the recovery of overpayments.

B. Proposed Change to Sec.  405.370 Definitions

    Section 405.370 defines key terms that apply to subpart C of part 
405. We are proposing to revise Sec.  405.378 and add a new Sec.  
405.379 to implement the statutory limitation on recoupment. We propose 
to add definitions for terms used in Sec.  405.378 and the new Sec.  
405.379. The limitation on recoupment is tied to the Medicare claims 
appeals process and structure (the regulations for which appear in 42 
CFR Part 405). We propose that selected terms used in the proposed 
revisions to Sec.  405.378 and the new Sec.  405.379 be given the same 
meaning as in the appeals context. Therefore, these terms are defined 
by reference to the definitions set forth in Sec.  405.902.

C. Proposed Change to 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. Paragraph (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. We propose to revise the introductory text of 
paragraph (e) to explicitly refer to the new Sec.  405.379, 
implementing the statutory limitation on recoupment, as a separate 
basis to stop recoupments that have been put into effect.

D. Proposed Revisions to 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 whether we pay interest on an underpayment or collect 
interest on an overpayment. Paragraph (c) of this section defines what 
constitutes a final determination both for overpayments and 
underpayments arising from a cost report determination as well as those 
that are claims based. Paragraph (d) establishes 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 (see 42 CFR 411.24(m) which references Sec.  
405.378(d)).
    We propose to amend 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. The proposed revisions 
in Sec.  405.378 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 continues 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

[[Page 55409]]

methodologies depending upon the appeal level at which the reversal 
occurs. If the 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 if 
the underpayment is not paid within 30 days of the final determination. 
It is only where the reversal occurs at the ALJ level or subsequent 
levels of 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.
    We propose to amend Sec.  405.378 paragraph (a) by adding the 
section reference 1893(f)(2)(B) as one of the enumerated provisions of 
the Act that this regulatory section is designed to implement.
    We propose 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.
    We propose 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 removed 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, these levels of appeal are now 
discussed in proposed paragraph (j).
    Second, we propose 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 is 
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 propose 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 
is 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 the contractor 
effectuates the QIC reconsideration decision and make a written 
determination 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 changes to the final determination definitions are intended 
to work in conjunction with the limitation on recoupment requirements 
in the new proposed 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, yet 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. Therefore, they receive a benefit during 
the first two levels of appeal by retaining their funds, but by doing 
so, they run the risk that they will owe interest on the unpaid 
overpayment amounts.
    We propose to amend 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 propose to redesignate 
paragraph (h) as paragraph (i). We propose to redesignate paragraph (i) 
as paragraph (h). The text of these redesignated paragraphs is not 
changed.
    We propose to add a new paragraph (j). This paragraph would 
establish the new 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 
provides ``[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.'' This new paragraph (j) would 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.
    Proposed paragraph (j)(1) states 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 
provided in the existing and unchanged paragraph (d) of this section, 
is the higher of the private consumer rate or the current value of 
funds rate.
    The interest rate established in accordance with paragraph (d) 
changes periodically. The proposed paragraph (j)(2) describes 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.
    The proposed paragraph (j)(3) explains how interest will be 
calculated. We propose that interest will be paid on the total 
principal amount recouped. We propose to pay simple rather than 
compound interest, and we will not pay interest on interest; this 
mirrors the manner in which we assess interest against providers. 
Monies we recouped and applied to interest would 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 
propose to 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 the 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

[[Page 55410]]

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 propose 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 propose 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 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 of this new paragraph (j).

E. Proposed New Sec.  405.379 Limitation on Recoupment of Provider and 
Supplier Overpayments

    We propose to add a new section to subpart C of Part 405 to 
implement the statutory limitation on recoupment under section 
1893(f)(2) of the Act.
    Proposed paragraph (a) cites section 1893(f)(2) of the Act as the 
statutory basis for this section and briefly summarizes the underlying 
purpose. This is to impose a limit on our recoupment of Medicare 
overpayments if a provider of services or supplier appeals until a 
decision by a QIC is made.
    Proposed paragraph (b) delineates those types of overpayments that 
are expressly subject to the recoupment limitation. We propose that the 
limitation on recoupment applies to (1) overpayments that may be 
appealed by the provider or supplier under the Medicare claims appeal 
process; and (2) post-pay denial of claims for benefits under Medicare 
Part A and Part B for which a demand for payment has been made. We 
propose that this provision also apply to a small subset of Medicare 
Secondary Payer (MSP) recoveries; these would be 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) shall 
apply to ``actions'' taken after the date of enactment of the MMA; that 
is, ``actions'' taken after December 8, 2003. For purposes of 
delineating those provider and supplier overpayments subject to this 
provision and those that are not, we interpret ``actions'' to refer to 
those instances where the initial recoupment occurred or will occur on 
or after December 9, 2003. For ease of administration and to establish 
a clear rule, we are defining the initial recoupment to be the date 
that the Medicare contactor could have instituted recoupment in 
compliance with established Medicare policies whether or not a 
recoupment occurred in fact. Therefore, for Part A overpayments, 
including a MSP recovery based on the provider's failure to file a 
proper claim for Part A benefits, the limitation applies to debts 
determined on or after November 24, 2003. For Part B overpayments, 
including a MSP recovery based on the supplier's failure to file a 
proper claim for Part B benefits, the limitation applies to debts 
determined on or after October 29, 2003. In addition, this section 
applies to that small group of MSP recoveries in which 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.
    For purposes of clarity, we propose that paragraph (b) also 
identify categories of overpayments to which the limitation does not 
apply, although this is not framed as 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.
    Proposed paragraph (c) specifies how two key actions that trigger 
the limitation on recoupment are to be construed. The limitation on 
recoupment is tied to the Medicare claims appeals process. 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 must be determined in 
accordance with established Medicare appeal regulations and 
implementing policies. Therefore, in this paragraph, we make the 
interplay between recoupment and appeals explicit by referencing the 
requirements for a redetermination request as those contained in Sec.  
405.940 through Sec.  405.958 and the requirements for a 
reconsideration request as those contained in Sec.  405.974 through 
Sec.  405.978.
    Proposed paragraph (d) lays out 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. (The redetermination is the first level 
of appeal, and a provider or supplier has 120 days to file a request 
for a redetermination of the overpayment determination.) This means we 
can recoup during the period when a provider's or supplier's right to 
request a redetermination has yet to expire. This places the obligation 
on the provider or supplier who wishes to capitalize on the benefit 
afforded by the recoupment limitation to act on a timely basis to 
request a redetermination.
    Under BIPA, 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 
propose 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.
    A provider or supplier that wishes to appeal an adverse 
redetermination decision (an affirmation or partial affirmation of the 
overpayment determination) has 180 calendar days to file a request from 
the date of receipt of the notice of the redetermination. Once the 30 
day notice period is over and in the absence of the receipt of a valid 
request for a reconsideration, we propose to initiate or resume 
recoupment. As with the first level of appeal, this approach places the 
onus on the provider or supplier who wishes to take advantage of the 
benefit offered by the limitation on recoupment to act on a timely 
basis in requesting a QIC reconsideration.
    We propose in paragraph (d)(3) that the Medicare contractor shall 
cease recoupment upon receipt of a timely

[[Page 55411]]

and valid request for a reconsideration. If recoupment has not yet 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 propose in paragraph (d)(4) and (5) is 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).
    We also propose in paragraph (d)(6) to clarify 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.
    We propose in paragraph (d)(7) to make explicit that amounts 
properly recouped prior to 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.
    We propose in paragraph (d)(8) that if an overpayment determination 
is reversed through the administrative or judicial process, appropriate 
adjustments in the debt and the amount of interest charged will be made 
to give effect to these decisions.
    Proposed paragraph (d)(9) makes explicit that interest is payable 
on overpayments, subject to the recoupment limitation, in accordance 
with the provisions of Sec.  405.378.
    Proposed paragraph (e) states 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. Recoupment can resume: (i) 
Immediately upon receipt of a request to withdraw the redetermination 
request; (ii) on the 30th calendar day after the date of the notice of 
redetermination affirming the overpayment determination in whole; or 
(iii) 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 propose in paragraph (e)(2) that 
recoupment would be stopped again upon receipt of a timely and valid 
request for a reconsideration by the QIC.
    Proposed paragraph (f) sets 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 an appropriate balancing of interests and in 
keeping with the intent of this provision to interpret ``the date the 
decision on the reconsideration is rendered'' as the date on which the 
QIC issues its final action with respect to a reconsideration.
    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 sixty (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 request and forward the case file to the ALJ hearing office.
    We propose that the earliest to occur of these three actions (a 
reconsideration, a dismissal, and 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 decision for purposes of ending the prohibition on our 
recouping 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. The 
proposed language also clarifies 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.
    Proposed paragraph (g) addresses through a series of specific rules 
and situations how recouped funds are to be applied. Funds recouped 
prior to 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.
    Proposed paragraph (h) 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

[[Page 55412]]

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.

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

    [If you choose to comment on issues in this section, please 
include the caption ``Impact'' at the beginning of your comments.]

A. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
reassigns responsibility of duties) 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 proposed rule to have a substantial financial 
impact on beneficiaries, providers, or suppliers. We do anticipate that 
Federal costs to implement this proposed rule may be substantial, but 
we do not expect them to exceed the $100 million threshold in any 1 
year.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 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 603 (proposed 
documents)/604 (Final documents) 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 proposed rule as this would depend in part upon voluntary 
actions on the part of the provider or supplier. The purpose of this 
proposed 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 proposed 
rule to be positive although the extent to which it would benefit any 
one provider would depend upon specific facts and circumstances and 
voluntary choices made by that provider. The impact on small rural 
hospitals is expected to be similarly positive but unpredictable. 
Therefore, we are certifying that this proposed rule would not have a 
significant impact on a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $110 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 proposed rule would not have a substantial effect on 
State or local governments.

B. Conclusion

    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined that this 
proposed 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.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 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

    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,

[[Page 55413]]

1395l, 1395u, 1395cc, 1395gg, 1395hh, 1395pp, 1395ccc and 1395ddd) 
and 31 U.S.C. 3711.

    2. Section 405.370 is amended by:
    A. Designating the existing text as paragraph (a);
    B. Adding a new paragraph (b);
    The additions read as follows:


Sec.  405.370  Definitions.

    (a) * * *
    (b) For purposes of sections 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 a fiscal intermediary, carrier, 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) 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.
    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:
* * * * *
    4. Section 405.378 is amended by--
    A. Revising paragraph (a);
    B. Revising paragraph (b)(2);
    C. Republishing paragraph (c)(1) introductory text;
    D. Revising paragraph (c)(1)(ii) introductory text;
    E. Removing ``or'' from (c)(1)(ii)(B);
    F. Revising paragraph (c)(1)(ii)(C);
    G. Adding paragraph (c)(1)(ii)(D);
    H. Revising paragraph (c)(2);
    I. Redesignating existing paragraph (h) as paragraph (i) and 
existing paragraph (i) as paragraph (h) respectively;
    J. 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) Basic rules. * * *
    (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) Definition of final determination. (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 is, primarily under part B), one of the following 
constitutes a final determination--
* * * * *
    (C) A written determination by a Medicare contractor that 
effectuates a redetermination which reversed in full or in part an 
overpayment determination and the written determination reduces the 
amount of the overpayment below the amount that CMS has already 
recovered by recoupment or otherwise; or
    (D) A written determination by a Medicare contractor that 
effectuates a reconsideration by a Qualified Independent Contractor 
which reversed in full or in part an overpayment determination and the 
written determination reduces the amount of the overpayment below the 
amount that CMS has already recovered by recoupment or otherwise.
* * * * *
    (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

[[Page 55414]]

provider or supplier on recouped amounts that remain after this 
allocation in accordance with this paragraph (j) of this section.
    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 appeals until a 
decision is rendered by a Qualified Independent Contractor (QIC).
    (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 this paragraph (b)(1)(i)(C) and (D);
    (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 and 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.  405.974 through Sec.  405.978.
    (d) General rules.
    (1) Upon receipt of a timely and valid request for a 
redetermination 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 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) Following final action by the QIC on the reconsideration, the 
contractor may initiate or resume recoupment 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.
    (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 30th 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 30th 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 after final action by the QIC 
on the reconsideration request.
    (1) Recoupment may be initiated or resumed upon final 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 final 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), final 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

[[Page 55415]]

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 
final 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 
final action by the QIC on the reconsideration request.
    (3) If the final 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 final 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 final 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.
    If (1) a provider or supplier has been granted an extended 
repayment schedule (ERS) under Sec.  401.607(c); (2) the overpayment 
for which the ERS has been granted is one to which this section is 
applicable; and (3) a valid and timely request for a redetermination 
has been received by the Medicare contractor, then notwithstanding the 
language of Sec.  401.607(c)(2)(iv), the provider or supplier will not 
be deemed in default if recoupment is not put into effect or stopped in 
accordance with this section.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: April 15, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 12, 2006.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received in the Office of the 
Federal Register on September 18, 2006.

[FR Doc. 06-8009 Filed 9-21-06; 8:45 am]
BILLING CODE 4120-01-P