Section 638 of the Fiscal Deal: Extension of Recovery Time For Non-Fraudulent Medicare Overpayments

March 8, 2013 | Health Services

An obscure provision in the American Taxpayer Relief Act of 2012 (“ATRA”) extends the time period to recover non-fraudulent Medicare overpayments from three to five years.  However, its impact on healthcare providers remains uncertain. 

Previously, the Centers for Medicare & Medicaid Services (“CMS”) was limited to recovering non-fraudulent overpayments by a three year limitation period from the year in which notice of the original payment was made to the provider. 

In May 2012, Inspector General Daniel R. Levinson issued a report entitled “Obstacles of Collection of Millions in Medicare Overpayments.”  According to the report, the three year limitation had prevented CMS from recovering approximately $332 million in overpayments.[1]  Because of this situation, Inspector General Levinson encouraged the extension of the three year limitation to five years.  

By enacting Section 638 to ATRA, entitled “Removing Obstacles to Collection of Overpayments,” Inspector General Levinson’s recommendation was ratified.[2]  Section 638 amends subsections (b) and (c) of Section 1870 of the Social Security Act by replacing the three year recovery period with a five year period after which a provider will be “without fault” for non-fraudulent overpayment.  

It is estimated that the impact of Section 638 will add up to $500 million to the federal treasury.  Yet, on January 3rd CMS issued a summary of applicable law provisions that failed to reference the extension.  

Section 638’s impact remains unclear because it is not the only statute that addresses non-fraudulent Medicare overpayments.  While Section 638 amends the recovery period, there has been no change to the reopening period of an overpayment.  Section 1869(b)(1)(G) of the Social Security Act authorizes the Secretary of Health and Human Services (“Secretary”) to establish reopening periods for overpayments.  Currently, the reopening periods are four years from the date of claim determinations[3] and three years from the date of the final determination for cost report determinations.[4] 

Prior to the enactment of ATRA, a Medicare contractor could reopen a non-fraudulent overpayment claim within four years but recovery was limited to three years from the notice of the amount paid.  Under Section 638, the recovery period is extended from three to five years.  However, the Secretary’s established reopening period remains at four years for claim determinations and three years for cost report determinations, thereby limiting the impact Section 638 extension will have on providers.  

As statutory authority currently stands, conflict between the recovery period and the reopening period of non-fraudulent Medicare payments has created uncertainty concerning Section’s 638’s impact.  If the Secretary extends the reopening period in light of Section 638, providers will face an increased financial burden of liability and monitoring costs.  But without that amendment, Section 638’s extended recovery period appears to be limited by the Secretary’s established reopening period under Section 1869(b)(1)(G).

[1] For the Inspector General’s report please visit

[2] For the full statutory language of Section 638 please visit

[3] 42 C.F.R. § 405.980(b)(2).

[4] 42 C.F.R. § 405.1885.

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