Free Money? Not So Fast
Considerations for dealing with overpayments and credit balances
By Paul J. Welk, PT, JD
Free money. It sounds like something too good to be true. In private practice physical therapy, it may likely be too good to be true. Based on a variety of different circumstances, physical therapy private practices will find that they have received money to which they are not legally entitled.
Commonly, these funds are received as a result of overpayments by third-party payors for services provided (referred to herein as “overpayments”) or in form of credit balances when patients pay more to the practice than they are otherwise required to pay, and the practice is entitled to retain (referred to herein as “patient credit balances”). In general, an overpayment is defined as a payment made to a provider exceeding amounts due and payable under existing laws and regulations. Overpayments can occur for several reasons including as a result of insufficient documentation, claims processing and administrative errors, incorrect coding, documentation errors, duplicate payments, or failure to comply with required conditions of payment.1 This article will review legal concerns associated with overpayments and patient credit balances as well as ways to help mitigate risks related to the handling of such amounts.
In general, an overpayment received by a provider is required to be returned to the payor. As to a private payor overpayment, the obligation to return an overpayment is often contractual in nature and governed by the terms of the applicable payor contract. There may also be specific state laws that address the handling of overpayments in certain circumstances.2 For purposes of Medicare, a provider must report and return an overpayment identified by the provider to Medicare within 60 days of identifying the overpayment.1 This Centers for Medicare & Medicaid Services (CMS) requirement was implemented to support statutory compliance, promote high-quality healthcare services, and prevent improper payments reimbursed under Medicare.3
While outside the scope of this article, CMS provides fairly extensive guidance relative to when an overpayment is identified for purposes of starting the 60-day timeline, the applicable look-back period when an issue is identified, and other relevant details as to the handling of overpayments. CMS also provides guidance on how to return identified overpayments, which can include claims adjustments and self-reporting of refunds.4,5 From an enforcement standpoint, if an identified overpayment is not returned by a provider in compliance with the regulations the provider could be subject to liability under the False Claims Act or the Civil Monetary Penalties Law, each of which has substantial financial and other ramifications.
In considering any health care compliance issue, it is helpful to understand the perspective of those tasked to assure compliance. As to overpayments, the Department of Health and Human Services Office of Inspector General has analyzed outpatient physical therapy overpayment issues and published a report regarding substantial overpayments for outpatient physical therapy services that did not comply with Medicare requirements. The report also noted that CMS’ controls were ineffective in preventing improper payments for physical therapy services. The report highlighted the fact that of the claims reviewed, the majority did not comply with medical necessity requirements, coding, or documentation.6 When such issues are identified, the natural reaction of the applicable regulatory agency is to pay increased attention to the concerning areas identified.
In addition to obligations to return overpayments to private and governmental payors, providers also have legal obligations relative to the handling of patient credit balances. These patient credit balances often arise due to the complex billing and payment process for physical therapy services and the number of parties involved in the payment process. Regardless of the reason for a patient credit balance, once a patient credit balance is identified a practice must be aware of its obligations. These obligations commonly arise under state unclaimed property laws. Unclaimed property can be defined as property or financial assets owed to an individual or business that is held by an individual or entity that does not have a legal claim to it, in this case the physical therapy provider. The purpose of unclaimed property reporting requirements is to promote the return of property to its rightful owner. In general, state unclaimed property laws require the holder of property that has been unclaimed for a period of time (also known as a “dormancy” period) to report and remit the property to the appropriate state agency. In addition to unclaimed property laws, some states have specific laws and regulations governing the refunding of patient credit balances under a variety of circumstances.7
Given a physical therapy practice’s obligations to payors, patients, and others relative to overpayments and patient credit balances, it is important for practices to establish policies and procedures to address their obligations. Among other topics, these policies and procedures should cover how to identify and return overpayments and patient credit balances and provide for a specific process to timely return monies. For example, a practice may choose to perform regularly scheduled audits to identify improper payments. For practices that already have policies and procedures in place, it may be an appropriate time to review them, especially if the COVID pandemic has led to changes in billing and collection processes. Incorporating sound policies and procedures can help to mitigate the risk of an overpayment turning into an allegation of fraud or a patient credit balance resulting in liability under a state’s unclaimed property law.8 While every practice would love to receive free money, overpayments and credit balances don’t fall into that category and a failure to appropriately account for, and where required, return overpayments and patient credit balances can be very costly.
1Medicare Learning Network. Medicare Overpayments. Centers for Medicare and Medicaid Services. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/OverpaymentBrochure508-09.pdf. Published March 2021. Accessed December 25, 2021.
2The 2021 Florida Statutes. Title XXXVII, Section 627.6131 Payment of Claims (2021). Online Sunshine. http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0627/Sections/0627.6131.html.
3Centers for Medicare and Medicaid Services. Medicare Reporting and Returning of Self-Identified Overpayments. https://www.cms.gov/newsroom/fact-sheets/medicare-reporting-and-returning-self-identified-overpayments. Published February 11, 2016. Accessed December 25, 2021.
4Aetna. Refunding Overpayments. https://www.aetna.com/health-care-professionals/claims-payment-reimbursement/refunding-overpayments.html. Accessed December 25, 2021.
5Meridian Healthcare Solutions. Submit a Voluntary Refund. https://med.noridianmedicare.com/web/jeb/topics/overpayment-recoupment/voluntary-refunds. Accessed December 25, 2021.
6Medicare Learning Network. Many Medicare Claims for Outpatient Physical Therapy Services Did Not Comply With Medicare Requirements. Centers for Medicare and Medicaid Services. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/OutptRehabTherapy-Booklet-MLN905365.pdf. Published March 2018. Accessed December 25, 2021.
7Universal Citation. Justia. https://law.justia.com/citations.html. Accessed December 26, 2021.
8United States Attorney’s Office Middle District of Florida. Jacksonville Cardiovascular Practice Agrees To Pay More Than $440,000 To Resolve False Claims Act Allegations For Failing To Reimburse Government Health Care Programs. https://www.justice.gov/usao-mdfl/pr/jacksonville-cardiovascular-practice-agrees-pay-more-440000-resolve-false-claims-act. Published October 13, 2017. Accessed December 25, 2021.
Paul Welk, PT, JD, is a PPS member and an attorney with Tucker Arensberg, PC, where he frequently advises physical therapy private practices in the areas of corporate and healthcare law. Questions and comments can be directed to email@example.com or (412) 594-5536.