October 12, 2015

The third-party medical payment system is so complicated that incorrect payments are not uncommon.  Sometimes the error is in the provider’s favor.  The health insurer may ask the provider—in this instance, the anesthesia practice—to refund an alleged overpayment.  How should the practice handle such requests?  The American Medical Association (AMA) has published an excellent Overpayment Recovery Toolkit, which we summarize in this Alert while referring readers to the 14-page Toolkit for more detailed information.

When do payers request refunds of overpayments?

Managed care contracts typically permit the payer to recover alleged overpayments by reducing or “offsetting” overpaid amounts from pending or future claims payments.  The problem does not generally arise with non-contracted payers since they are apt to reimburse the patient instead of the practice. 

Payers request refunds—or offset overpaid amounts against other payments to the physicians—when any of the following occur:

• Duplicate payments
• Another insurer is responsible (coordination of benefits problem)
• Patient’s coverage has lapsed before the service is provided
• Services are not covered under the patient’s plan
• Lack of required authorization for the service
• Payment is inconsistent with the contract or with the applicable fee schedule
• Insurer considers the service not medically necessary

The above list is not exhaustive. 

Actions to take upon receiving notice of an overpayment

The first order of business is to make sure to respond within any time limits provided in managed care contract.  Simply responding quickly, i.e., within a week or two, may be easier than verifying the deadline, if this is not stated in the request or notice.

According to the AMA, the first step is to review the request from the payer, whether on paper or electronic to identify the reason(s) for the request.  If the request does not contain enough information to understand the alleged error or to determine the validity of the claim (a frequent occurrence), anesthesia practices should contact the payer for the necessary data, which would include applicable claim and subscriber numbers, the payer-specific alpha or numeric code to identify the overpayment recovery request; the specific amount of overpayment and how it was made to the physician, and “if the payer intends to initiate a retroactive denial on a previously paid claim to recover the overpayment, identif[ication of] the pending claims from which the payer intends to recoup or offset the overpayment or state that the recoupment or offset will be made from future claims,” and the address for payment or a telephone number, weblink or mailing address where the physician may file a dispute.

If the request for recovery of an overpayment is valid, the practice should send the payer a refund or approve recoupment from the next payment within the time limit on the notification.  The AMA recommends calling the payer to alert them to the remittance if the refund is being sent within 30 or 40 days of the deadline.

It may be worth the trouble of reworking overpaid claims if the patient is responsible for payment and can be billed, or if it appears that another insurer is responsible because of a coordination of benefits mistake.  In the latter case, the practice should send the claim to the secondary payer. 

The request may not be valid if it is made outside the timeframe established by statute in many states.  Because of the disruptive nature and effects of requests for overpayments made years ago, at least half of the states have adopted overpayment laws or regulations protecting providers by requiring that payers’ recoupment requests be made within 6, 12, 18, 24, or in one case (Florida), 30 months of the claim’s payment dates.  Most of these statutes or administrative rules also exempt overpayments based on provider fraud from the time limits.  It is important to be familiar with both the statutory/regulatory provisions and the timelines and other requirements spelled out in the practice’s managed care contracts.  AMA members have access to a database containing “all state laws and regulations governing overpayments, as well as an issue brief, which is designed to help physicians negotiate overpayment provisions in managed care contracts and analyze the legitimacy of overpayment demands.”  Non-AMA members should be able to obtain their state rules through their state medical associations or even their hospitals.

If the practice determines that the request for recovery of an overpayment is not valid, it should appeal, following the process described in the payer contract and using any prescribed forms.  The practice should also submit a letter with a full explanation of the grounds for the appeal and any supporting documentation, e.g., copy of patient’s eligibility verification with dates of coverage, clinical documentation, remittance advices and explanations of benefits from all payers involved, claim submission reports for timely filing, guidelines and/or policies from the payer, etc.  The AMA Toolkit suggests addressing the appeal letter to a specific person to facilitate tracking the progress of the appeal, and also inquiring about the expected time frame for processing the appeal.

In either case, whether the claim is valid and the refund is made or approved or whether it is not appropriate and is appealed, the practice should carefully notate the patient’s account and should track the information regarding the claim in order to follow up and to identify trends. 

Responding to requests for overpayment refunds can consume a great deal of time and effort in an anesthesia or pain practice.  In order to reduce the number of claims that result in such requests, the toolkit advises physicians “to identify the most common reasons for overpayment recovery requests and perform a deep dive into their internal processes to determine why each request occurred” and also “to perform a routine examination of your claims denial history or claims that have resulted in repeated overpayments and identify and correct the most frequent sources of those denials or overpayments.”

We hope that we have pointed readers toward a helpful reference and that fewer requests for overpayment refunds will be the result.

With best wishes,

Tony Mira
President and CEO