Medicare Program; ``Without Fault'' and Waiver of Recovery from an Individual as it Applies to Medicare Overpayment Liability

SUMMARY: This rule would amend the Medicare regulations governing

liability for overpayments to eliminate application of certain

regulations of the Social Security Administration and to replace them

with HCFA regulations more specific to circumstances involving Medicare

overpayments. The following specific changes are included in this rule.

Explicit criteria and the circumstances under which a provider or

supplier can be relieved of liability for an overpayment on the basis

of being ``without fault'' with respect to the overpayment.

Specific criteria and circumstances of the conditions under which a

waiver of recovery for Medicare overpayments would apply to

individuals.

A provision to ordinarily consider it inequitable to recover an

overpayment from a without-fault individual when an overpayment is made

to a without-fault provider.

Specific provisions that enable Medicare intermediaries and

carriers to determine without fault in Medicare overpayments resulting

from Medicare secondary payer conditional payments.

Provisions that grant Peer Review Organizations the authority to

make without-fault determinations.

Provisions for an administrative appeals process for providers and

suppliers with regard to a ``not-without-fault'' determination.

We expect this rule would prevent some providers and suppliers from

claiming without-fault status. This could reduce the number of

overpayment liabilities passed on to individuals and result in a slight

increase in the amount of money recovered.

DATES: To ensure consideration, comments must be mailed or delivered to

the appropriate address, as provided below, and be received by 5 p.m.

on May 26, 1998.

ADDRESSES: Mail written comments (1 original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1719-P, P.O. Box 26676,

Baltimore, MD 21207.

If you prefer, you may deliver your written comments (1 original

and 3 copies) to one of the following addresses: Room 309-G, Hubert H.

Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201,

or Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code HCFA-1719-P. Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of this document, in Room 309-G

of the Department's offices at 200 Independence Avenue, SW.,

Washington, DC, on Monday through Friday of each week from 8:30 a.m. to

5 p.m. (phone: (202) 690-7890).

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 512-1800 or by faxing to (202) 512-

2250. The cost for each copy is $8. As an alternative, you may view and

photocopy the Federal Register document at most libraries designated as

Federal Depository Libraries and at many other public and academic

libraries throughout the country that receive the Federal Register.

FOR FURTHER INFORMATION CONTACT: David Walczak (410) 786-4475.

SUPPLEMENTARY INFORMATION:

I. Background

In any large organization that makes payments to a substantial

number of individuals, providers, and suppliers, excesses in payment

amounts may occur. Medicare overpayments are Medicare funds an

individual, provider, or supplier has received that exceed amounts due

and payable under the Medicare statute and regulations. (The Medicare

rules at Sec. 400.202 define a ``supplier'' as ``a physician or other

practitioner, or an entity other than a provider, that furnishes health

care services under Medicare.'' Therefore, in this preamble, we have

used the term ``supplier'' to include a physician.)

Overpayments generally result when payment is made by Medicare for

noncovered items or services, when payment is made that exceeds the

amount allowed by Medicare for an item or service, or when payment is

made for items or services that should have been paid by another

insurer (Medicare secondary payer obligations). Once a determination

and any necessary adjustments in the amount of the overpayment have

been made, the remaining amount is a debt owed to the United States

Government.

Section 1870 of the Social Security Act (the Act) provides a

framework within which liability for Medicare overpayments is

determined and recoupment of overpayments is pursued. This framework

prescribes a certain flow of events (that is, a decisionmaking process)

that must be followed when pursuing the recoupment of Medicare

overpayments.

Specifically, section 1870(a) of the Act provides that a payment to

a provider or a supplier is considered to be a payment to the

individual who received the items or services. Therefore, all

overpayments (with the exception of certain aggregate overpayments

described later in this preamble) are considered to be an individual's

overpayments. However, under section 1870(b) of the Act, if payment was

made to a provider or supplier, Medicare looks first to recover any

associated overpayment from the provider or supplier unless: (1) The

provider or supplier is ``without fault'' with respect to the

overpayment, or (2) the Secretary determines that the overpayment

cannot be recouped from the provider or supplier. Section 1870(b) of

the Act also specifies that, in the absence of evidence to the

contrary, without fault is administratively presumed for a provider or

supplier when an overpayment is discovered after the third calendar

year following the year in which notice of the payment was sent to the

provider or supplier.

In accordance with section 1870(b) of the Act, if an overpaid

provider or supplier is determined to be without fault or the

overpayment cannot be recouped from the provider or supplier or the

individual was paid directly by the Medicare program, the individual is

liable for the overpayment, and Medicare seeks recovery from the

individual. In the case of an individual who is liable for an

overpayment, section 1870(b) of the Act provides for recovery by

adjusting cash benefits by

[[Page 14507]]

decreasing subsequent title II payments (social security retirement,

survivors, and disability cash benefits) or railroad retirement

benefits to which the individual (or other person if the individual

dies before the adjustment has been completed) is entitled.

Under section 1870(c) of the Act, adjustment (or any other type of

recovery of an overpayment against the individual) is waived if the

individual is without fault with respect to the overpayment and if the

adjustment or recovery would ``defeat the purposes of title II or title

XVIII'' (Medicare Part A and Part B benefits) of the Act or would be

``against equity and good conscience.'' Section 1870(c) of the Act also

specifies that adjustment or recovery is deemed to be against equity

and good conscience if the overpayment resulted from expenses incurred

for items or services for which payment may not be made under Medicare

by reason of the provisions of section 1862(a)(1) or (a)(9) of the Act

(not reasonable and necessary or custodial care), and if the

Secretary's determination that the payment was incorrect was made after

the third year following the year in which notice of that payment was

sent to the individual.

II. Current Regulations and Instructions Dealing with Overpayments

The provisions of section 1870(a) through (d) of the Act are

incorporated in our regulations in Secs. 405.350 to 405.359

(``Liability for Payments to Providers or Suppliers and Handling of

Incorrect Payments''). Specifically, Sec. 405.350 (``Individual's

liability for payments made to providers and other persons for services

furnished the individual'') provides that an individual is liable for

an overpayment if the overpayment cannot be recouped from the provider

or supplier or if the provider or supplier is without fault with

respect to the overpayment. Section 405.350(c) further specifies that,

in the absence of evidence to the contrary, a provider or supplier is

deemed to be without fault if the overpayment determination was made

after the third year following the year in which a payment notice was

sent to the provider or supplier.

In accordance with Sec. 405.350, we look first to recoup an

overpayment from the provider or supplier unless: (1) We determine that

the overpayment cannot be recouped from the provider or supplier, or

(2) the provider or supplier is without fault with respect to the

overpayment. Currently, there are no criteria in our regulations

pertaining to when a provider or supplier is without fault, nor do our

regulations make reference to Social Security Administration (SSA)

regulations with respect to provider or supplier fault. However,

criteria are listed in section 3708 of the Medicare Intermediary Manual

and in section 7103 of the Medicare Carrier Manual that incorporate the

principles employed in the SSA regulations.

Under these manual instructions, a provider or supplier is without

fault if it exercised reasonable care in billing for and accepting

payment. Exercising reasonable care means that the provider or supplier

disclosed all material facts and, based on available information,

including but not limited to, the Medicare regulations and

instructions, had a reasonable basis for assuming that the payment was

correct. However, if the provider or supplier had reason to question

the payment, it must have promptly brought the question to the

attention of the appropriate Medicare contractor (intermediary or

carrier).

If the intermediary or carrier, acting on behalf of HCFA,

determines that the provider or supplier is liable for the overpayment

according to Sec. 405.350 and the applicable manual instructions, we

recoup the overpayment from the provider or supplier. If the

intermediary or carrier, acting on behalf of HCFA, determines that the

provider or supplier is not liable for the overpayment, liability rests

with the individual, regardless of whether the individual was without

fault. Whether an individual was without fault is not relevant to his

or her liability for the overpayment, but is considered in deciding

whether to waive adjustment or recovery of the overpayment.

Under Sec. 405.355 (``Waiver of adjustment or recovery''),

adjustment or recovery against the individual is waived if the

individual is without fault with respect to the overpayment and if

recovery would cause substantial financial hardship so that the

purposes of title II or title XVIII of the Act would be defeated or if

recovery would be against equity and good conscience. Section 405.356

(``Principles applied in waiver of adjustment or recovery'') specifies

that the principles applied in determining waiver of adjustment or

recovery are the applicable principles found in SSA regulations at 20

CFR 404.506 through 404.509, 20 CFR 404.510(a), and 20 CFR 404.512.

These regulations, in part, define ``fault'' (as used in without fault)

and explain the conditions for waiver of the adjustment or recovery if

an incorrect payment has been made under title II or title XVIII of the

Act. (Before we were established as a separate agency, SSA was

responsible for both the social security cash benefit program and the

Medicare program. Consequently, the two programs have many identical

regulations that embody SSA's understanding of the terms used in the

overpayment recoupment process.)

Under Sec. 405.356 of our regulations, intermediaries and carriers,

acting on behalf of HCFA, currently determine if an individual is

without fault, based on SSA regulations at 20 CFR 404.507 (``Fault'').

Under 20 CFR 404.507, the following three elements are considered in

determining fault:

Whether the overpayment resulted from an incorrect

statement made by the individual that he or she knew or should have

known to be incorrect.

Whether the overpayment resulted from the individual's

failure to furnish information that he or she knew or should have known

to be material.

Whether the overpayment resulted from acceptance of a

payment that he or she either knew or could have been expected to know

was incorrect. These criteria provide the foundation for making

individual waiver of adjustment or recovery decisions.

Under Sec. 405.355, we may waive all or part of a recovery against

an individual who is found to be without fault if recovery would defeat

the purposes of title II or title XVIII of the Act or would be against

equity and good conscience. We currently use as a basis for making

these determinations the definitions for these terms found in SSA

regulations at 20 CFR 404.508 (``Defeat the purpose of title II'') and

20 CFR 404.509 (``Against equity and good conscience; defined'').

Under 20 CFR 404.508, ``defeat the purpose of title II'' means to

deprive a person of income required for ordinary and necessary living

expenses. Ordinary and necessary expenses, as specified in 20 CFR

404.508, include the following:

Living expenses, such as food and clothing, rent, mortgage

payments, utilities, maintenance, insurance (for example, life,

accident, and health insurance including premiums for supplementary

medical insurance benefits under title XVIII), taxes, and installment

payments.

Medical, hospitalization, and other similar expenses.

Expenses for the support of others for whom the individual

is legally responsible.

Other miscellaneous expenses that may reasonably be

considered as part of the individual's standard of living.

Using these criteria, 20 CFR 404.508(b) specifies that adjustment

or recovery will defeat the purpose of title II, for example, if the

person from whom recovery is sought needs substantially all of his or

her current income

[[Page 14508]]

(including social security monthly benefits) to meet current ordinary

and necessary living expenses.

Under 20 CFR 404.509, recovery of an overpayment is against equity

and good conscience in the following circumstances:

Because the individual relied on a notice that payment

would be made, or actually received the erroneous payment, the

individual--

* Changed his or her position for the worse; or

* Relinquished a valuable right.

The individual was living in a separate household from the

overpaid person at the time of the overpayment and did not receive the

overpayment. That section further specifies that the individual's

financial circumstances are not material to a finding of against equity

and good conscience.

HCFA, through its intermediaries and carriers, currently makes

determinations of without fault with regard to providers and suppliers.

Intermediaries and carriers also coordinate the waiver process if the

individual is liable for the overpayment. When an overpayment consists

of both Medicare Part A and Part B claims, the lead intermediary or

carrier, that is, the one that has paid the most in benefits, is

responsible for coordinating the without-fault determinations and the

waiver request process. The lead intermediary or carrier coordinates

Medicare's activities with all parties, including the intermediary or

carrier, the individual or his or her representative(s), the liability

insurer or tort-feasor (in Medicare secondary payer cases), and the

HCFA regional office, to ensure that the overpayment situation is

resolved in accordance with our guidelines.

III. Problem Areas Within the Framework of the Current Regulations

and Our Proposed Revisions to the Regulations

A. Without Fault

1. Differences Between the Social Security and Medicare Programs

The proposed regulations regarding without fault will clarify

circumstances unique to the Medicare context because the social

security regulations do not consider the different roles played by the

individual within the social security and Medicare programs. These

roles that an individual plays in obtaining benefits from each of the

programs are significantly diverse. As a social security claimant, the

individual (or his or her representative) receives a cash benefit

directly from SSA, generally with no third party involved. As a result,

the individual has a very proactive role in providing accurate

information to obtain this benefit and has a direct degree of

responsibility in accepting the SSA payment each month.

The individual entitled to Medicare, on the other hand, generally

receives items or services from a provider or supplier that, in turn,

directly bills and accepts payment from the Medicare contractor on

behalf of the individual. (There are exceptions to this arrangement, as

described later in this preamble.) The information furnished by the

individual with respect to the Medicare claim is minimal; most claim-

related information is furnished by the provider or supplier.

Therefore, the individual entitled to Medicare, in obtaining and

accepting Medicare benefits, does not have the same role as a social

security claimant.

Because of these role distinctions, the SSA regulations are not

always clearly transferable to Medicare overpayment situations. For

example, the term ``fault,'' as described in the SSA regulations,

focuses on the individual's disclosure of accurate information. This

element is emphasized because a social security claimant is in control

of all of his or her financial information (for example, receipt of

benefit checks and employment information) that often determines the

outcome of the claim. SSA relies primarily on the claimant's own self-

reporting and disclosure. A social security claimant receives a benefit

payment directly and is in a position to know if he or she received

more than the correct payment due under title II of the Act.

In contrast, Medicare relies largely on information received from

providers and suppliers to determine payment amounts. The individual

entitled to Medicare does not have the same control that a social

security claimant has in the outcome of a claim. Under most

circumstances (with the exception of cases involving unassigned Part B

claims and certain Medicare secondary payer situations), the individual

entitled to Medicare receives no actual payment and does not know if

the payment made under Medicare is correct. Generally, the information

generated by a provider or supplier, not information provided by the

individual, causes the overpayment to be made. The SSA regulations do

not take into account the significant difference between the role an

individual plays in receiving social security cash benefits and in

receiving Medicare benefits and, therefore, the social security

regulations are not always transferable to Medicare overpayment

situations.

2. Differences Resulting From Provider and Supplier Involvement

In addition, the SSA regulations do not take into consideration the

role that a provider or supplier plays in administering Medicare

benefits. While 20 CFR 404.507 describes what constitutes fault (as it

relates to without fault) on the part of an overpaid individual, it

makes no specific reference to without fault as it pertains to a

provider or supplier and does not adequately provide for situations

when a determination regarding without fault must be made for providers

or suppliers.

While the criteria in 20 CFR 404.507 can generally be applied to

all recipients of payments, they do not specifically consider

substantive differences between an individual and a provider or

supplier billing for and accepting Medicare payment. (Generally, the

recipient of a Medicare payment is a provider or supplier. However, in

the case of unassigned claims, the recipient is the individual.)

Because of Medicare provisions that require all providers and suppliers

to submit claims on behalf of individuals, the individual entitled to

Medicare does not participate in the actual claim filing process in a

significant way. Also, in most instances, it is the provider or

supplier, not the individual, that actually receives the Medicare

payment. This is because most providers and suppliers agree to bill

Medicare directly and to accept the payment amount as determined under

the applicable payment system (prospective payment, reasonable cost

method, fee schedule, or reasonable charge method) as total payment for

covered services. For providers, this is accomplished by entering into

a Medicare provider agreement. Suppliers accomplish this either by

agreeing to accept assignment on an individual claims basis or by

entering into a Medicare participation agreement. Under these

circumstances, the individual is responsible for providing the entity

with the correct insurance information and authorizing the claim by

signing the claim form; however, he or she plays no direct role in the

claim filing process and receives no direct payment.

In the case of a supplier that does not accept Medicare assignment,

the individual pays the supplier directly. The claim is submitted to

the Medicare contractor by the supplier, and the Medicare contractor

pays the individual directly. Although in these situations the

individual receives payment directly, he or she normally has no way of

knowing if the Medicare payment

[[Page 14509]]

amount for the item or service he or she received is correct.

These differences raise questions as to whether the same criteria

should be applied both to the individual and to the provider or

supplier when determining without fault with regard to an overpayment.

In particular, determining if the recipient of the payment knew, or

could reasonably be expected to know, that the payment amount was

incorrect depends on determining the level of information available to

the recipient.

The information available to a provider or supplier is more

extensive than that available to an individual. We furnish instruction

manuals to providers, and intermediaries and carriers send detailed

instructions, such as newsletters, to suppliers. This direct access to

Medicare payment information should impart a degree of knowledge and

responsibility to both providers and suppliers that does not apply to

individuals.

For example, a provider or supplier that receives an unusual

payment amount for a routinely billed service should be in a better

position than the individual to question and determine whether the

payment amount is correct. This is because of the information available

to a provider or a supplier (for example, a physician should know the

Medicare physician fee schedule payment amount for a particular

service). Although the individual may directly receive a Medicare

payment, an Explanation of Medicare Benefits or a Notice of Utilization

showing that Medicare payment has been made, the individual normally

has no way of knowing if the Medicare payment amount for a particular

covered service or item is correct.

Thus, we propose revisions to the regulations that consider the

substantive differences between an individual accepting a Medicare

payment and a provider or supplier billing for and accepting a Medicare

payment.

3. Revisions Proposed to Reflect Circumstances Unique to Medicare

a. Without Fault as it Applies to Individuals Entitled to Medicare.

In this rule, we propose to add regulations that are specifically

applicable to individuals entitled to Medicare for determining without

fault in Medicare overpayment situations. We propose that an individual

be considered to be without fault with respect to a Medicare

overpayment if he or she exercises reasonable care in requesting

Medicare payment and in accepting Medicare payment.

Under these proposed regulations, an individual exercised

reasonable care if he or she accepted a payment that he or she did not

know, or could not reasonably have been expected to know, was

incorrect; accepted a payment that, on the basis of information

available, he or she could reasonably assume was correct; or accepted

payment because of reliance on erroneous written information on the

interpretation of a pertinent provision of the Act or implementing

regulations from an official source within HCFA, SSA, or a Medicare

contractor.

Conversely, we propose that an individual is not without fault when

the individual: (1) Receives prior written notice that a particular

item or service was not covered by Medicare; (2) makes an incorrect

statement or withheld information to obtain benefits that were not due

him or her; (3) accepts a payment that he or she knew or should have

known was not due; or (4) receives a prior determination of liability

under the limitation on liability provisions in section 1879 of the Act

for the specific items or services for which a without-fault

determination is being made.

Criteria to be considered in deciding whether an individual was

without fault would include the cause of the overpayment, the

individual's ability to realize that the payment was incorrect (based

on his or her age, education, and physical or mental state), and

whether the individual could reasonably be expected to have taken

action to prevent the overpayment from occurring.

b. Without Fault as it Applies to Providers and Suppliers. We

propose to incorporate in regulations criteria that currently exist in

the Medicare Intermediary Manual, the Medicare Carrier Manual, and 20

CFR 404.506.

Under these proposed regulations, providers or suppliers are ``not

without fault'' unless they exercise reasonable care in billing for and

accepting Medicare payments and either: (1) Did not know, and could not

reasonably have been expected to know, that Medicare payment exceeded

amounts payable under the Medicare statute and regulations and,

therefore, accepted payment based on a reasonable assumption that the

payment was correct; or (2) did know, or could reasonably have been

expected to know, that Medicare payment exceeded amounts payable under

the Medicare statute and regulations but questioned the appropriate

intermediary or carrier in writing, within 60 days of receipt of the

excess payment. If, after questioning the appropriate intermediary or

carrier, the provider or supplier relied on a written response from the

intermediary or carrier that stated that the Medicare payment was

correct, or failed to receive a response from the intermediary or

carrier within 120 days of the intermediary's or carrier's receipt of

the written inquiry, the provider or supplier is without fault.

We propose that the exercise of reasonable care in billing includes

making full disclosure of all material facts and complying with each

applicable provision specified in subpart C (``Claims for Payment'') of

part 424, including the supplying of all the necessary information on

the billing form, to ensure correct payment by the intermediary or

carrier. We further propose criteria for determining that a provider or

supplier knew, or could reasonably have been expected to know, that

Medicare payment exceeded amounts payable under the Medicare statute

and regulations. Under these proposed criteria, a provider or supplier

is considered to have known that Medicare payment exceeded amounts

payable under the Medicare statute and regulations if any one of the

following conditions is met:

It had knowledge that payment exceeded amounts payable

under the statute and regulations based on experience, actual notice,

or constructive notice, including (except in very limited circumstances

described later in this preamble) final publication of payment amounts

in official source documents; receipt of HCFA notices including manual

issuances, bulletins, or other written guides or directives from

intermediaries, carriers, or Peer Review Organizations; or experience

with Medicare payment amounts for similar or reasonably comparable

items or services. Under this criterion, final publication of payment

amounts in official source documents includes correction notices that

are published after the initial publication.

It received prior notice from the peer review

organization, intermediary, or carrier of the correct Medicare payment

for the items or services furnished or for similar or reasonably

comparable items or services.

It gave the individual prior notice of the correct

Medicare payment for the items or services furnished or for similar or

reasonably comparable items or services.

These proposed criteria are similar to those contained in

Sec. 411.406 (``Criteria for determining that a provider, practitioner,

or supplier knew that services were excluded from coverage as custodial

care or as not reasonable and necessary''). Those criteria are used to

determine if a provider or supplier is liable for payment of an item or

service

[[Page 14510]]

under the limitation on liability provisions in section 1879 of the Act

because of knowledge that Medicare payment for the item or service

would be denied.

Because the criteria we propose in the without fault regulations is

based, in part, on the limitation on liability provisions, we propose

that a provider or supplier that has already been determined liable

under the limitation on liability provisions in section 1879 of the Act

for a specific item or service cannot be found without fault with

regard to the overpayment for that specific item or service.

c. Without Fault as it Applies to Peer Review Organization

Responsibilities. Because this proposed rule would furnish providers

and suppliers with appeal rights for determinations that the provider

or supplier must repay an overpayment because the provider or supplier

is not-without-fault (discussed later), we are considering expanding

the responsibility for making without-fault determinations to peer

review organizations. Although our final decision may be that

intermediaries and carriers make the without-fault determinations for

overpayments resulting from peer review organization determinations, we

want to provide as much flexibility as possible in exploring this

issue. Therefore, we propose revising our regulations to provide peer

review organizations with the authority to make without-fault

determinations. However, it should be noted that intermediaries,

carriers, and peer review organizations that make determinations are

acting on behalf of HCFA.

d. Without Fault as it Applies to the Prospective Payment System.

Under section 1886(d) of the Act, effective with hospital cost

reporting periods beginning on or after October 1, 1983, we established

a system of payment for acute inpatient hospital stays under Medicare

Part A (Hospital Insurance), based on prospectively-set rates. Under

this prospectively-set rate system (the prospective payment system),

Medicare payment is made at a predetermined, specific rate for each

hospital discharge. All discharges are classified according to a list

of diagnosis-related groups. The regulations governing the inpatient

hospital prospective payment system are located at 42 CFR part 412.

Regarding payments under the prospective payment system, we are

required, under section 1886(e)(5)(B) of the Act, to publish by

September 1 of each year a list of diagnosis-related group categories

and provide instructions on calculating proper Medicare payment

amounts. Thus, hospitals paid under the prospective payment system

generally have a way to determine whether a payment is correct or

incorrect. Accordingly, these hospitals are generally liable for

refunding Medicare overpayments they receive under the prospective

payment system because, under most circumstances, they cannot be found

to be without fault since they have an independent means of

conclusively determining whether the prospective payment system payment

they accept is correct.

However, under our proposed rule, a provider may be found to be

without fault for payments under the prospective payment system in the

event of an error in our prospective payment system publication in the

Federal Register, relating to the diagnosis-related group for which the

hospital was overpaid. In these circumstances, a hospital that can

show, based on criteria specified in these proposed regulations, that

it did not know and could not reasonably have been expected to know

that a Medicare payment based on an erroneous published schedule of

payment amounts exceeded amounts payable under the Medicare statute and

regulations is considered to be without fault for the overpayment that

resulted from the erroneous published schedule of payment amounts. We

note, however, that this rule would not apply if a correction notice

containing the correct schedule of payment amounts has been published

in the Federal Register after the initial publication of the erroneous

schedule of payment amounts. In this instance, the correction notice

imputes the same responsibility for knowledge of the overpayment as a

correct published schedule of payment amounts.

If the hospital is without fault, liability shifts to the

individual under section 1870(b) of the Act. However, under these

circumstances, an individual will also be without fault because there

is nothing to indicate that the overpayment resulted from the

individual not exercising reasonable care in requesting and accepting

Medicare payment, as specified in our regulations. In addition,

recovery from the individual may be waived on the basis of ``equity and

good conscience'' with respect to Medicare overpayments of this type.

The same rules would also apply for Medicare payment for inpatient

hospital capital-related costs. In a final rule published on August 30,

1991 (56 FR 43358), a new subpart M was added to 42 CFR part 412 to

provide for a prospective payment system for hospital inpatient

capital-related costs. Previously, hospital inpatient operating costs

were the only costs covered under the prospective payment system.

However, section 1886(g)(1) of the Act now requires that capital-

related costs be paid under the prospective payment system effective

with cost reporting periods beginning after September 30, 1991, for

hospitals paid under the prospective payment system. Implementing

regulations are found at Sec. 412.300.

e. Without Fault and Aggregate Overpayment Issues. Under section

1870 of the Act, if a provider is found to be without fault for an

overpayment, the individual who received the service for which payment

was made is liable for the overpayment. Therefore, application of the

without fault provision in section 1870 of the Act is limited to

overpayments for individual claims for which lability can ultimately be

shifted to a specific individual.

Consequently, the without fault provisions under section 1870 of

the Act do not extend to aggregate overpayment issues, such as Medicare

cost report errors, because liability for an individual claim cannot be

shifted to a specific individual. For certain providers, aggregate

overpayments result from payments under a reasonable cost payment

methodology in which payment is made on an interim basis throughout the

year, with appropriate adjustments made upon settlement of annual cost

reports. Because Medicare cost report errors are not directly

associated with specific services, liability cannot be shifted from a

specific provider to a specific individual.

Thus, the without fault provisions of this proposed rule would not

apply to overpayments resulting from aggregate payment issues, such as

cost report errors. These overpayments are addressed in section 1878 of

the Act, which contains provisions relating to the Provider

Reimbursement Review Board and the circumstances under which a provider

may obtain a hearing with the Board.

f. Without Fault as it Applies to Payment Under the Medicare

Physician Fee Schedule. A major change in Medicare physician payment

rules was enacted as part of the Omnibus Budget Reconciliation Act of

1989, (OBRA 1989), Public Law 101-239. Section 6102 of OBRA 1989 added

to the Act a new section 1848, ``Payment for Physicians' Services.''

The new section contains three major elements: (1) A new fee schedule

for physicians' services based on a Resource-Based Relative Value Scale

to replace the reasonable charge payment mechanism; (2) a Medicare

volume performance

[[Page 14511]]

standard for the rates of increase in Medicare expenditures for

physicians' services; and (3) limits on the amounts that

nonparticipating physicians submitting unassigned claims can charge

individuals for covered services.

We issued a final rule on November 25, 1991, (56 FR 59502) to

implement section 1848 of the Act. (The physician fee schedule

regulations are set forth at 42 CFR part 414, subpart A.) Section 1848

requires that the fee schedule include national uniform relative values

for all physicians' services. The fee schedule is being phased in over

4 years, beginning in 1992, with the new rules fully effective in 1996.

During 1992 through 1995, transition provisions generally blend the old

payment amount with the fee schedule amount.

At the end of each calendar year, we send each physician and other

supplier a schedule of the next year's physician fee schedule amounts.

In addition, the fee schedule is published in the Federal Register each

year. Therefore, all physicians and other suppliers paid under the

physician fee schedule are generally in a position to determine whether

a payment is correct. Accordingly, physicians and other suppliers are

generally liable for refunding Medicare overpayments they receive under

this payment system because, under most circumstances, they cannot be

found to be without fault since they have an independent way of

conclusively determining whether the payment they accept is correct.

However, under our proposed rule, a physician or other supplier may

be found to be without fault if an error in the annual fee schedule for

the services for which the physician or supplier was overpaid is

published in the Federal Register. In these circumstances, a physician

or other supplier is considered to be without fault for an overpayment

resulting from the erroneous schedule if the physician or supplier can

show, based on criteria specified in these proposed regulations, that

he or she did not know and could not reasonably have been expected to

know that a Medicare payment based on an erroneous schedule of payment

amounts exceeded amounts payable under the Medicare statute and

regulations. We note, however, that this would not be the case if a

notice correcting the erroneous schedule has been published.

If the physician or other supplier is found to be without fault,

liability shifts to the individual under section 1870(b) of the Act.

However, under these circumstances, the individual will also be without

fault under our proposed regulations because there is nothing to

indicate that the overpayment resulted from the individual not

exercising reasonable care in requesting and accepting Medicare

payment. In addition, recovery from the individual may be waived on the

basis of equity and good conscience with respect to Medicare

overpayments of this type.

g. Without Fault As It Applies to Medicare Secondary Payer

Obligations. A large proportion of Medicare overpayments results from

Medicare secondary payer situations. Because the nature of Medicare

secondary payer obligations is somewhat different from other types of

Medicare overpayments, in that Medicare secondary payer situations

involve a conditional payment and a third party payer, the current

regulations addressing without fault pose particular problems for the

recovery of Medicare secondary payer obligations.

For example, if a conditional Medicare payment becomes a de facto

overpayment (that is, a primary payer pays after Medicare payment) as a

result of an individual's action that is unrelated to the filing of a

Medicare claim, direct application of the SSA regulations can be

difficult. The SSA regulations predate the Medicare secondary payer

provisions and, therefore, do not provide for them. Under the current

regulations, when an Medicare secondary payer obligation results from a

conditional Medicare payment for an individual who is injured in an

automobile or other accident, and who subsequently receives a

settlement or damage award, the individual is generally considered to

be without fault. This is because, within the framework of the SSA

regulations, the obligation does not result from failure to supply

information because even if the individual informs us of a pending suit

we frequently make a conditional payment for the claim.

Thus, when applying the SSA regulations, few circumstances will

ever arise when the individual could be found to be at fault in causing

an overpayment of this type. This de facto without-fault finding, when

coupled with financial or equity considerations, could result in

waiving recovery from the individual in the majority of cases, even

though the individual may have been instrumental in causing the

overpayment.

We do not believe this to be an appropriate outcome in Medicare

secondary payer contexts because, under our current operating

procedures, all individuals entitled to Medicare receive a Notice of

Utilization or an Explanation of Medicare Benefits showing that

Medicare has paid for services. Therefore, individuals are informed

that Medicare has made a conditional payment. We believe that, because

this information is available, a degree of responsibility should be

imputed to the individual or the individual's representative. We

believe that the individual who elects to pursue subsequent settlement

or damage awards for injuries from liability or no-fault insurers or,

in some cases, tort-feasors, should be responsible for notifying us of

this intent and protecting the proceeds until the Medicare claim is

satisfied. If the individual does not take this responsibility, he or

she should be found not without fault once a liability insurance

payment is made and we seek to recover our conditional payment.

All too often, we are not aware of an individual's liability suit

until a liability insurance payment is about to be made, or thereafter.

At that point, it is more difficult to assert Medicare's interest,

despite the fact that under the Medicare secondary payer statute,

Medicare has a priority right of recovery. The Congress intended that

Medicare payment would be available to individuals to pay for their

covered medical expenses to avoid their having to pay for their medical

expenses out-of-pocket. Since Medicare conditionally paid for these

medical expenses, Medicare is entitled, under the statute, to

reimbursement, as opposed to the individual collecting twice for the

same loss--first in the form of a benefit payment and then in the form

of a cash settlement.

We propose adding regulations that are specifically applicable to

determining without fault for Medicare overpayments resulting from

Medicare secondary payer conditional payments. We propose that a

provider or supplier will generally be not-without-fault with respect

to a Medicare payment in a Medicare secondary payer situation unless

the provider or supplier complied with all of the claims filing

requirements specified in 42 CFR part 411 and, in the case of

providers, the provider agreement provisions in 42 CFR part 489. In

addition, we are specifying in these regulations that the without fault

provisions do not apply to third party payers or other non-Medicare

entities involved in a Medicare secondary payer case.

With regard to individuals in Medicare secondary payer cases, we

propose that an individual would not be considered to be without fault

if the facts show that the individual failed to notify Medicare within

30 days of the receipt of a payment from an entity that is primary to

Medicare or the overpayment resulted because the

[[Page 14512]]

individual failed to file a proper claim, as required in regulations,

with an entity that is primary to Medicare; made an incorrect statement

or withheld information to obtain benefits that were not due him or

her; or accepted a payment that he or she should have known was not

due.

In some cases we seek recovery of Medicare secondary payer

obligations from group health plans as a result of the data match in

section 1862(B)(5) of the Act and other procedures. In those

situations, it would ordinarily be considered inequitable to recover

from the individual, and we will not recover the incorrect Medicare

payment from the individual unless the Medicare payment was made to the

individual.

In the past, we have required written notification when an

individual requests a waiver of recovery of an overpayment. However, on

July 10, 1995, we published a proposed rule (60 FR 35544) offering the

option of requesting by telephone a review of Part B initial claim

determinations. Consequently, we are also proposing in this document

that an individual may request to be found without fault and may

request waiver by telephoning the contact listed in the notice from the

carrier, intermediary, or HCFA.

We also propose to require that, if the individual or the

individual's representative received an Explanation of Medicare

Benefits or a Notice of Utilization that Medicare made a payment, and

the individual subsequently elects to pursue a liability settlement or

damage award for an illness or for injuries sustained in an accident,

he or she must notify the Medicare contractor within 60 days of filing

a suit or a claim with the insurer. Otherwise, he or she cannot be

considered to be without fault. Thus, when Medicare is billed for

services furnished to an individual, and the individual (or his or her

estate) pursues a liability or damage award or payment from another

source, he or she must notify the Medicare contractor both when a suit

or claim is filed and when payment is received from any source other

than Medicare. This notice requirement does not apply in MSP group

health plan situations. Failure to furnish the Medicare contractor with

both notices will result in the individual (or his or her estate) being

``at fault'' with respect to any resulting Medicare secondary payer

obligation.

To ensure that beneficiaries realize their obligation to notify the

Medicare contractor as proposed above, we would include these

requirements in general program information furnished to Medicare

beneficiaries, as well as in material (such as, pamphlets) that are

targeted to Medicare secondary payer situations. Also, we would include

these new requirements in any notice or communication we send to

beneficiaries in connection with potential liability situations.

B. Not-Without-Fault Determinations and the Appeals Process

Under current regulations (405.704(b)(14)), determinations

concerning the waiver of adjustment or recovery of overpayments are

considered initial determinations, for purposes of the Medicare appeals

process, under Medicare Part A and Part B with respect to individuals.

These determinations are often based on not-without-fault findings.

However, we do not have regulations that address not-without-fault

determinations made for providers or suppliers. We believe that our

regulations need to be revised to afford providers and suppliers an

explicit right to appeal determinations made under section 1870(b) of

the Act that they are not without fault and, therefore, that they must

repay an overpayment.

Although the Medicare statute does not specifically provide for

appeal rights for providers and suppliers regarding a not-without-fault

determination, we believe that the administrative appeals process

should include that issue. This process will ensure that, when a not-

without-fault determination is made, the adversely-affected party has a

due process right of appeal that is expressly recognized by regulation.

Therefore, we propose to revise the Medicare appeals regulations to

state that, if a provider or supplier that is not without fault

receives an initial determination that an overpayment must be refunded,

the issue of without fault would also be appealable.

C. Defeats the Purposes of Title II or Title XVIII of the Act and

Equity and Good Conscience

If it is determined that an individual entitled to Medicare is

without fault, we may waive all or part of a recovery against that

individual according to SSA regulations at 20 CFR 404.508 (``Defeat the

purpose of title II'') or 20 CFR 404.509 (``Against equity and good

conscience; defined''). SSA's definitions of these terms and the

examples cited in which they arise reflect SSA's assessment of how this

principle applies to recovery from a social security claimant when the

claimant has received more than the correct payment due under title II

of the Act. There are no illustrations that explain how to apply this

principle to a Medicare overpayment situation. As previously noted, an

individual entitled to Medicare and a social security claimant are in

distinguishable positions with respect to overpayments. For example,

the social security claimant is actually receiving a cash benefit.

However, the individual entitled to Medicare, in most cases, receives

no direct payment. Consequently, the SSA rules are not always directly

transferable to a Medicare overpayment situation and provide no clear

guidelines for their application to Medicare situations.

In particular, in the case of a Medicare secondary payer

overpayment, transferring the SSA regulations for granting a waiver

based on financial hardship or equity and good conscience poses a

specific problem. Because the SSA regulations predate the existence of

the Medicare secondary payer provisions, they were not written with

Medicare secondary payer situations in mind and contain no specific

illustrations applying to Medicare secondary payer recoveries. In

principle, in the Medicare secondary payer context, there is no basis

for the existence of financial hardship because the individual either

knows or may reasonably be expected to know from the inception of a

claim that Medicare has a priority right of recovery (that is, that we

can recover our conditional payments directly from the primary payer or

from any entity that received payment, directly or indirectly, from the

primary payer).

The facts of a particular circumstance, however, do not always

support this position. For example, suppose an individual entitled to

Medicare has received a cash settlement as a result of a liability suit

after receiving Medicare payment. Subsequently, the individual spends

the settlement proceeds without repaying Medicare. Within the framework

of the SSA regulations, the overpayment does not result from failure to

supply information since Medicare pays even if the individual makes us

aware of a pending suit. Therefore, the individual passes the first

test of being without fault.

The final settlement payment received by the individual as a result

of this liability suit could be small enough that an individual could

contend that reimbursing Medicare would cause economic hardship or

would be inequitable. Thus, it is possible that the individual would

not be required to repay Medicare for this type of overpayment because

of the application of the SSA regulations addressing without fault

coupled with the SSA definitions of ``defeats the purposes of title II

or title XVIII'' and ``against equity

[[Page 14513]]

and good conscience.'' We believe that the current Medicare overpayment

regulations should be revised to not preclude recovery of an

overpayment in Medicare secondary payer situations, but be written in a

way that does not unfairly disadvantage the individual or the Medicare

program.

Additionally, a 1990 Court of Appeals decision indicates that SSA's

definition of against equity and good conscience may be too narrow for

SSA or Medicare issues. In the court case, a social security claimant

challenged SSA's waiver denial determination that, although he was

without fault in causing the overpayment, recovery would not defeat the

purpose of title II or be against equity and good conscience. In an

unreported decision, the District Court for the Western District of

Washington upheld the waiver denial. However, the Court of Appeals for

the Ninth Circuit reversed the decision, holding that requiring the

plaintiff to repay the overpayment would be against equity and good

conscience. (Quinlivan v. Sullivan, 916 F.2d 524 (9th Cir. 1990)).

The Court indicated that, although the Act does not define the

phrase against equity and good conscience, the Secretary has

interpreted it, in 20 CFR 404.509, to be narrowly limited to situations

when (1) the claimant changed his or her position for the worse, (2)

relinquished a valuable right, or (3) lived in a separate household

from the overpaid person at the time of the overpayment and did not

receive the overpayment.

The Court was of the opinion that the Congress intended to broaden

the availability of the waiver (id. at 526). Accordingly, the Court

concluded that ``the meaning of the phrase, `against equity and good

conscience,' cannot be limited to the three narrow definitions set

forth in the Secretary's regulations. The Congress intended a broad

concept of fairness to apply to waiver requests, one that reflects the

ordinary meaning of the statutory language and considers the facts and

circumstances of each case'' (id. at 527). The Court favored the

against equity and good conscience interpretation used by the

Department of Veterans Affairs (VA) in its regulations at 38 CFR 1.965

(July 1, 1988 edition), published on July 19, 1974 (39 FR 26400) (id.

at 526 and 527, n.2).

The cited VA regulation indicates that the application of the

standard, ``equity and good conscience,'' will be applied when the

facts and circumstances in a particular case indicate a need for

reasonableness and moderation in the exercise of the Government's

rights. Under the VA regulations, equity and good conscience means

arriving at a fair decision between the obligor and the Government that

is not unduly favorable or adverse to either side.

In making a determination of equity and good conscience, the VA

regulation specified that consideration should be given, but should not

be limited, to the following elements: (1) Fault of the debtor; (2)

balance of faults; (3) undue hardship; (4) defeats the purpose for

which benefits were intended; (5) unjust enrichment; and (6) changed

position to one's detriment. In applying this single standard for all

areas of indebtedness, the VA regulation further indicates that

consideration should be given to the elements of (1) fraud or

misrepresentation of a material fact, (2) material fault, and (3) lack

of good faith; any one of which, if found, would preclude the granting

of a waiver.

Because the Quinlivan case related to a social security claimant,

we are not bound to follow that decision. However, a 1993 District

Court decision found that we were not using broad concepts of fairness

in reviewing waivers in Medicare secondary payer liability cases, nor

had we told our decision makers to ``base the waiver determination on

the totality of the circumstances.'' We submitted substantial materials

to the court to reflect our actual policies (contrasted with the

policies reflected in the SSA regulations) with regard to waiver of

recovery in Medicare secondary payer liability cases. However, despite

those representations, the court ordered us to formalize these policies

by way of written guidelines to ensure their application, instead of

the SSA policies, when reviewing whether waiver should be granted under

equity and good conscience in Medicare secondary payer liability

situations. The court, making reference to the Quinlivan case, further

ordered that the guidelines incorporate broad concepts of fairness and

not limit waivers to the three factual situations listed in 20 CFR

404.509. (Zinman v. Shalala, Civ. No. 90-20674 (N.D. Cal. September 24,

1993 and November 29, 1993)). The September ruling is reported at 835

F. Supp. 1135 (N.D. Cal. 1993).

As a result of that court ruling, we issued guidelines to all of

our regional offices on November 17, 1994. In those guidelines, we

incorporated our longstanding interpretation of against equity and good

conscience as that principle relates to Medicare overpayments. While

the guidelines were issued to apply to Medicare secondary payer

liability overpayment situations, we advised that they could also be

used as guidance in overpayment situations other than those involving

Medicare secondary payer liability cases.

We have always taken the broader view of equity and good conscience

that the Quinlivan and Zinman Courts endorsed. Not only do we find the

Courts' reasoning in those cases to be persuasive, we also find the

language of the VA regulation to be a useful guide. Accordingly, in

formulating standards for applying equity and good conscience to

Medicare situations for the guidelines issued in November 1994, we have

not only expressed our long-held expansive view of this concept, we

have also incorporated, to the extent possible, the VA approach in

expressing that policy.

We propose to incorporate into our regulations our current policies

regarding when recovery of an overpayment may be waived based on

financial hardship. Our current policies are in accordance with SSA's

definition of defeat the purposes of title II or title XVIII. Under

this proposed regulation, recovery of an overpayment would defeat the

purposes of title II or title XVIII when the individual needs

substantially all current income and assets to meet ordinary and

necessary living expenses.

We propose to consider the individual's current assets and ordinary

and necessary living expenses when evaluating requests for waiver based

on financial hardship. Ordinary and necessary living expenses would

include the following:

Current living expenses, such as food and clothing, rent,

mortgage payments, utilities, maintenance, insurance (for example,

life, accident, and health insurance including premiums for Part B

Medicare), taxes, and installment payments.

Current medical, hospitalization, and other related

expenses not covered by Medicare or another insurer.

Expenses for the support of others for whom the individual

is legally responsible.

Other miscellaneous expenses that may reasonably be

considered necessary to maintain the individual's current standard of

living.

In addition, we propose to include in the regulations examples that

demonstrate how the principles of defeat the purposes of title II or

title XVIII would be applied in Medicare overpayment situations.

We propose to add regulations that incorporate criteria to be used

when determining whether recovery of an overpayment may be waived based

on equity and good conscience. Our proposed regulations require that

the standard of equity and good conscience would be applied to Medicare

[[Page 14514]]

overpayment recoveries using broad concepts of fairness and reviewing

the totality of the circumstances in each particular case. We have used

as the basis for our proposed regulations both language from the VA

regulation on equity and good conscience found at 38 CFR 1.965, which

the U.S. Court of Appeals for the Ninth Circuit believes reflects the

intent of the Congress, and guidelines that were issued as a result of

the Zinman court case (as discussed earlier in this preamble).

Under the proposed regulations, factors to be considered when

applying the standard of equity and good conscience include, but are

not limited to, the following:

The amount of the overpayment.

The size of a liability settlement and the amount the

individual would retain if Medicare recovered.

The degree to which recovery would cause undue hardship

for the individual.

The degree to which Medicare and/or its contractors

contributed to causing the overpayment.

The degree to which the individual contributed to causing

the overpayment (even if determined to be without fault in accordance

with Sec. 401.355).

The impact of an accident on the individual, both

physically and financially.

Whether the individual would be unjustly enriched by a

waiver of recovery.

Whether it would be equitable for us to reduce the

recovery if the individual is responsible for noncovered accident-

related out-of-pocket expenses and/or future accident-related expenses.

Whether the individual made a personal financial decision

based on his or her reliance on erroneous information supplied to the

individual by Medicare or SSA, and recovery would change the

individual's position to his or her material detriment.

Also, we would provide several Medicare overpayment examples in

which waiver of recovery is being sought based on the concepts involved

with equity and good conscience to illustrate how those concepts are to

be applied.

In some cases an overpayment is made to a without-fault provider or

supplier on behalf of a without-fault individual who did not receive

the payment. In those situations, we ordinarily would consider recovery

from the individual to be inequitable, and would, therefore, waive

recovery.

In accordance with section 1870(c) of the Act, we would specify

that recovery is deemed to be against equity and good conscience if the

overpayment resulted from expenses incurred for items or services for

which payment may not be made under Medicare by reason of the

provisions of 1862(a)(1) or (a)(9) of the Act (reasonable and necessary

or custodial care), and if the Secretary's determination that the

payment was incorrect was made after the third year following the year

in which notice of that payment was sent to the individual.

The basic concepts embodied in the principle of waiver based on

equity and good conscience assume that an individual did not

intentionally cause an overpayment. Therefore, we propose that applying

the equity and good conscience standard for waiving recovery does not

apply if we determine that the individual committed fraud,

misrepresentation, or some other action or omission that indicates the

individual's lack of good faith in causing an overpayment.

D. Waiver Policy With Regard to Liability Settlement Agreements and

Stipulations

In general, Medicare policy requires recovering payments from

liability awards or settlements, whether a settlement arises from a

personal injury action or a survivor action, without regard to how a

settlement agreement stipulates disbursement should be made. This

requirement also applies to situations in which the settlements do not

expressly address damages for medical expenses. Since liability

payments are usually based on the injured or deceased person's medical

expenses, liability payments are considered to have been made ``with

respect to'' medical services related to the injury even when the

settlement does not expressly include an amount for medical expenses.

To the extent that Medicare has paid for these services, the law

obligates us to seek recovery of Medicare payments.

The only situation in which we recognize allocations of liability

payments to nonmedical losses is when the payment is based on a court

order on the merits, that is, the court makes a substantive decision on

the amounts to be awarded. If the court specifically designates amounts

that are for the reimbursement of pain and suffering or other amounts

not related to medical services, we will accept the court's designation

and not seek recovery from portions of court awards that are designated

as payment for losses other than medical services.

Conversely, we do not generally grant waivers if an individual

obtains a settlement that is expressly awarded for medical expenses.

However, we believe there are circumstances in which waiver could be

justified. For example, a situation could arise in which an

individual's injury was great but the award of damages was small, or in

which the individual incurred bona fide medical expenses (other than

deductibles, premiums, and coinsurance) that were not reimbursed by

Medicare; that is, out-of-pocket medical expenses. We believe the

criteria we propose for equity and good conscience are broad enough

that these situations will be taken into consideration when determining

whether waiver of recovery should be granted.

E. Waiver Policy With Regard to Estates

Under current law, a deceased individual's estate may request a

waiver of adjustment or recovery of an overpayment when the estate (or

the now-deceased individual) has effected a liability recovery.

Although in these situations an estate (or the now-deceased individual)

may be found to have been without fault with respect to notifying us of

the third party recovery, it is generally difficult to satisfy the

second test for waiver--that recovery from the estate would defeat the

purposes of title II or title XVIII or be against equity and good

conscience. Because the individual is deceased, he or she does not need

the monies to meet ordinary and necessary living expenses or medical

expenses. In addition, it is unlikely that the estate would warrant the

money based on an argument of detrimental reliance. Therefore, waiver

is generally not applied in these situations.

However, when a title II dependent survives a deceased individual

(who is without fault), and Medicare's recovery or adjustment of an

overpayment from the estate would be made by decreasing payments to the

title II dependent, situations could arise in which waiver of

adjustment or recovery of the overpayment would be appropriate.

Therefore, we propose adding a provision to the regulations that would

permit a waiver for an estate if the estate (and the individual) were

without fault and the individual had a surviving title II dependent. A

waiver would be granted in these situations if recovery from the estate

would be made by decreasing payments to the title II dependent and the

recovery would defeat the purposes of title II or title XVIII or would

be against equity and good conscience.

IV. Provisions of the Proposed Regulations

The existing regulations at Secs. 405.301 through 405.359 would be

removed.

[[Page 14515]]

With the exception of Sec. 405.356, these sections would be replaced by

proposed Secs. 401.301 through 401.370. The remaining sections of

subpart C of part 405 (Secs. 405.370 through 405.380) would be

redesignated and moved into subpart D of part 401 as Secs. 401.375

through 401.396.

These proposed regulations would supersede SSA criteria for

Medicare purposes. SSA criteria would no longer have any application to

recovering Medicare overpayments.

Generally, this proposed rule clarifies the explicit criteria and

circumstances under which a provider, supplier, or individual will be

relieved of liability for a Medicare overpayment. Thus, we are

proposing no changes to current carrier and intermediary liability in

instances when an overpayment results from a carrier or intermediary

error. We are aware, however, of the perception that carriers and

intermediaries may not be held accountable in instances when an

overpayment results from their error. Therefore, we are requesting

comments on proposed changes to our current carrier and intermediary

standards that might introduce a higher level of accountability when

overpayments are the result of carrier or intermediary errors,

regardless of whether a provider or supplier was without fault.

As part of the proposed changes to the regulations, we would

describe ``recovery'' to include ``adjustment'' as one type of

recovery, rather than listing it separately, as in section 1870 of the

Act. Under Medicare operations, adjustment is one way we can recover an

overpayment from an individual who is found liable for that

overpayment. However, we have alternative ways of recovering an

overpayment that we often use before adjusting title II or railroad

retirement benefits. Therefore, we would include adjustment as one of

several ways we may recover from an individual (or his or her estate).

In addition, we would make certain technical changes to the

regulations.

Once these proposed regulations are published as final, conforming

changes will be made to the appropriate regulations in 20 CFR part 404

to remove references to title XVIII as they relate to without fault.

V. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 requires that we solicit comment on the following issues:

The need for the information collection and its usefulness

in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection

burden.

The quality, utility, and clarity of the information to be

collected.

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

However, we believe the information collection requirements

referenced in this proposed rule, as summarized below, are exempt from

the Paperwork Reduction Act of 1995 for the following reasons:

The requirements in this proposed rule are either facts or opinions

obtained or solicited through non-standardized follow-up questions

designed to clarify responses to approved collections of information,

initiated on an individual basis, and/or are performed in the conduct

of an administrative action, investigation, or audit involving an

agency against specific individuals or organizations (see title 5

Sec. 1320.3(c), 1320.3(h)(9), and/or 1320.4(a)(2)).

Section 401.352 Waiver of Recovery of Overpayment From Individuals

Section 401.352 requires an individual desiring a waiver of

recovery of an overpayment to request the waiver within 60 days from

the date on the written notification from HCFA that he or she is liable

for the overpayment.

Section 401.364 Without Fault and Medicare Secondary Payer (MSP)

Obligations

Section 401.364 requires an individual to give notice of receipt of

a payment from an entity that is primary to Medicare and requires an

individual desiring a waiver of recovery of an MSP obligation to

request the waiver within 60 days from receipt of written notification

from HCFA that he or she is liable for the obligation.

Section 411.23 Individual's Cooperation

When HCFA makes conditional payments, Sec. 411.23 requires an

individual to notify HCFA of the progress and final outcome of the

liability claim. The individual must notify the intermediary or carrier

within 60 days of filing a claim with an entity that is primary to

Medicare and notify HCFA within 30 days of receipt of payment from an

entity primary to Medicare.

Organizations and individuals desiring to submit comments should

send them to both the following addresses:

Health Care Financing Administration, Office of Information Services,

Information Technology Investment Management Group, Division of HCFA

Enterprise Standards, Room C2-26-17, 7500 Security Boulevard,

Baltimore, MD 21244-1850, Attn: HCFA-1719-P.

Office of Information and Regulatory Affairs, Office of Management and

Budget, Room 10235, New Executive Office Building, Washington, DC

20503, Attn: Allison Herron Eydt, HCFA Desk Officer.

VI. Regulatory Impact Statement

A. Introduction

This proposed rule clarifies our right and responsibility to

recover overpayments, and the conditions under which recovery of

overpayments may be waived. Under the Medicare statute, when a Medicare

overpayment occurs, and a provider or supplier is found to be without

fault, the liability is passed on to the individual. Medicare then

seeks recovery from the individual or waives the recovery.

Our present regulations do not clearly differentiate an

individual's responsibilities from provider and supplier

responsibilities with regard to overpayment liability and recovery.

This proposed rule describes the conditions for determining who is at

fault for the overpayment; specifies criteria for determining the

liability of providers, suppliers, and individuals; and describes the

circumstances under which recoveries from individuals can be waived.

In addition, this proposed rule would provide for the

administrative appeals process to include determinations when a

provider or supplier is found to be at fault in causing an overpayment.

Also, this proposed rule more specifically defines without fault with

respect to Medicare secondary payer situations as well as the

conditions for waiver of adjustment or recovery of Medicare

overpayments in Medicare secondary payer situations.

We expect the main effect of this proposal would be to prevent some

providers and suppliers from claiming without-fault status. This could

reduce the number of overpayment liabilities passed on to individuals

and result in a slight increase in the amount of money recovered. We

estimate that this proposed rule would result in

[[Page 14516]]

additional overpayment recoveries for 5 fiscal years as follows:

Estimated Additional Recoveries From the Medicare Program Parts A and B

[In Millions]

------------------------------------------------------------------------

1996 1997 1998 1999 2000

------------------------------------------------------------------------

$7........... $13 $15 $16 $18

------------------------------------------------------------------------

B. Regulatory Flexibility Act

Consistent with the Regulatory Flexibility Act (5 U.S.C. 601

through 612) we generally prepare a regulatory flexibility analysis

unless the Secretary certifies that a proposed rule would not have a

significant economic impact on a substantial number of small entities.

For purposes of the Regulatory Flexibility Act, all providers and

suppliers are considered to be small entities. Individuals and Medicare

contractors are not included in the definition of a small entity.

In addition, section 1102(b) of the Act requires the Secretary to

prepare a regulatory impact analysis if a proposed 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 of the Regulatory Flexibility Act. 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 50 beds.

This proposed rule would add regulations that are specifically

applicable for determining without fault in general Medicare

overpayment situations, as well as for obligations resulting from

Medicare secondary payer conditional payments.

Under this proposed rule, a provider or supplier would be required

to notify the Medicare contractor in writing within 60 days if any

payment exceeds the usual compensation for an item or service under

Medicare. A Medicare contractor would be required to respond to a

provider or supplier within 120 days of receipt of a written inquiry

from the provider or supplier questioning the correctness of a Medicare

payment amount.

For Medicare secondary payer situations, an individual pursuing a

claim for a liability settlement or damage award for illness or

injuries sustained in an accident would be required to notify the

Medicare contractor within 60 days of filing a suit or a claim with an

insurer. In addition, an individual would be required to notify the

Medicare contractor within 30 days of receiving a payment from a

liability insurer or, in certain circumstances, direct payment for a

tort-feasor.

This proposed rule would not place an unreasonable burden on

individuals, providers, suppliers, or Medicare contractors. We believe

that the time required for individuals, providers, suppliers, or

Medicare contractors to comply with the provisions of this proposed

rule would be minimal. As in the past, providers and suppliers would be

required to exercise reasonable care in billing for and accepting

payment from Medicare.

For these reasons, we have determined that this proposed rule would

not result in a significant economic impact on a substantial number of

small entities and would not have a significant economic impact on the

operations of a substantial number of small rural hospitals. Therefore,

we are not preparing an analysis for either the Regulatory Flexibility

Act or section 1102(b) of the Act.

In accordance with the provisions of Executive Order 12866, this

proposed rule was reviewed by the Office of Management and Budget.

VI. Other Information

A. Response to Comments

Because of the large number of items of correspondence we normally

receive on Federal Register documents published for comment, we are not

able to acknowledge or respond to them individually. However, we will

consider all comments that are received by the date and time specified

in the DATES section of this preamble, and, if we proceed with a

subsequent document, we will respond to the comments in the preamble to

that document.

List of Subjects

42 CFR Part 401

Claims, Freedom of information, Health facilities, Medicare,

Privacy.

42 CFR Part 403

Health insurance, Hospitals, Intergovernmental relations, Medicare,

Reporting and recordkeeping requirements.

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health

professions, Kidney diseases, Medicare, Reporting and recordkeeping

requirements, Rural areas, X-rays.

42 CFR Part 410

Health facilities, Health professions, Kidney diseases,

Laboratories, Medicare, Rural areas, X-rays.

42 CFR Part 411

Kidney diseases, Medicare, Reporting and recordkeeping

requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,

Reporting and recordkeeping requirements.

42 CFR Part 447

Accounting, Administrative practice and procedure, Drugs, Grant

programs-health, Health facilities, Health professions, Medicaid,

Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 466

Grant programs-health, Health care, Health facilities, Health

professions, Peer Review Organizations (PRO), Reporting and

recordkeeping requirements.

42 CFR Part 473

Administrative practice and procedure, Health care, Health

professions, Peer Review Organizations (PRO), Reporting and

recordkeeping requirements.

42 CFR Part 493

Grant programs-health, Health facilities, Laboratories, Medicaid,

Medicare, Reporting and recordkeeping requirements.

42 CFR chapter IV would be amended, under the authority of sections

1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh),

as follows.

PART 401--GENERAL ADMINISTRATIVE REQUIREMENTS

A. Part 401 is amended by adding a new subpart D to read as

follows:

Subpart D--Recovery of Overpayments, Suspension of Payment, and

Repayment of Scholarships and Loans

General Provisions

401.301 Basis and scope.

401.303 Definitions.

Liability for Payments to Providers and Suppliers and Handling of

Incorrect Payments

401.305 Individual's liability for incorrect payments.

Medicare Debts Arising from an Overpayment to a Provider or to a

Supplier that Received Payment on Behalf of an Individual

401.310 Overpayments.

[[Page 14517]]

401.320 Liability of a provider or a supplier.

401.323 Determining without fault for a provider or a supplier.

401.326 When a provider or a supplier is relieved of liability.

401.329 Recovery of overpayment from providers or suppliers:

General rule.

Medicare Debts Arising from an Overpayment to an Individual

401.340 Liability of an individual.

401.343 Overpayment limitation for the individual.

401.346 Recovery of overpayment from the individual.

401.349 Adjustment against an individual's title II or railroad

retirement benefits.

401.352 Waiver of recovery of overpayment from individuals.

401.355 Determining without fault for an individual.

401.358 Defeat the purposes of title II or title XVIII of the Act.

401.361 Equity and good conscience.

401.364 Without fault and Medicare Secondary Payer (MSP)

obligations.

401.367 Initial determination.

401.370 Liability of certifying or disbursing officer.

Suspension of Payment to Providers and Suppliers and Collection and

Compromise of Overpayments

401.375--401.390 [Reserved]

Interest

401.393 [Reserved]

Repayment of Scholarships and Loans

401.396 [Reserved]

Subpart D--Recovery of Overpayments, Suspension of Payment, and

Repayment of Scholarships and Loans

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

General Provisions

Sec. 401.301 Basis and scope.

(a) Statutory basis. This subpart is based on the indicated

provisions of the following sections of the Act:

1815--Payment to providers of services (Part A).

1833--Payment of benefits (Part B).

1842--Use of carriers for administration of benefits.

1848--Payment for physicians' services.

1866--Agreements with providers of services.

1870--Overpayment on behalf of individuals and settlement of claims

for benefits on behalf of deceased individuals.

1879--Limitation on liability of individual if Medicare claims are

disallowed.

1886--Payment to hospitals for inpatient hospital services.

1892--Offset of payments to individuals to collect past-due

obligations arising from breach of scholarship and loan contracts.

(b) Scope. (1) This subpart sets forth the policies and procedures

for processing incorrect payments and recovering overpayments under the

Medicare program and for offsetting payments to collect past-due

obligations arising from breach of scholarship and loan contracts.

(2) When the term ``HCFA'' is used in reference to making

determinations, it includes intermediaries, carriers, or PROs, as

appropriate.

Sec. 401.303 Definitions.

(a) Person (for purposes of this subpart) means an individual, a

trust or estate, a partnership, or a corporation.

(b) Supplier has the meaning given in Sec. 400.202 of this chapter.

Liability for Payments to Providers and Suppliers and Handling of

Incorrect Payments

Sec. 401.305 Individual's liability for incorrect payments.

(a) In accordance with section 1870(a) of the Act, any payment made

under title XVIII of the Act to any provider or supplier with respect

to any item or service furnished an individual is regarded as a payment

to the individual, and recovery is made in accordance with

Secs. 401.346 through 401.352 if any of the following conditions

exists:

(1) More than the correct amount is paid to a provider or supplier

and the intermediary, the carrier, or HCFA determines that--

(i) Within a reasonable period of time, the excess over the correct

amount cannot be recouped from the provider or supplier, or

(ii) The provider or supplier was without fault with respect to the

payment of the excess.

(2) A payment has been made to a provider for inpatient hospital

services furnished to a noneligible individual before notification of

noneligibility, in accordance with the provisions described in section

1814(e) of the Act.

(b) For purposes of paragraph (a)(1)(ii) of this section, a

provider or supplier is, in the absence of evidence to the contrary,

deemed to be without fault if the determination by HCFA, that more than

the correct amount was paid, was made after the third year following

the year in which notice was sent to the individual that the amount had

been paid.

Medicare Debts Arising From an Overpayment to a Provider or to a

Supplier That Received Payment on Behalf of an Individual

Sec. 401.310 Overpayments.

(a) Definition. An overpayment consists of Medicare funds a

provider, a supplier, or an individual has received in excess of

amounts payable under the Medicare statute and regulations.

(b) Types of overpayments. Overpayments are of the following types:

(1) Overpayment to a provider that received payment on behalf of an

individual (including an overpayment resulting from payment for

inpatient hospital services furnished to a noneligible individual

before notification of noneligibility in accordance with section

1814(e) of the Act and an overpayment to a provider determined from a

cost report under part 413 of this chapter or under the prospective

payment systems (PPS) included in part 412 of this chapter).

(2) Overpayment to a supplier that received payment on behalf of an

individual.

(3) Direct overpayment to an individual or to a person acting on

behalf of an individual.

(c) Examples of causes of Medicare overpayments. Examples of how

Medicare overpayments occur include, but are not limited to, the

following:

(1) Payments made by Medicare for noncovered services.

(2) Medicare payment in excess of the allowable amount for an

identified covered service.

(3) Errors and nonreimbursable expenditures in cost reports.

(4) Duplicate payments.

(5) Medicare payment when another entity had the primary

responsibility for payment.

(d) When an overpayment is considered a debt. (1) General

Overpayments. Once a determination and any adjustments in the amount of

the overpayment have been made, the remaining amount is a debt owed to

the United States Government.

(2) Medicare Secondary Payer (MSP) obligations. Potential debts

arise under the MSP provisions when an individual recovers payment from

an entity that had the primary responsibility for payment. Obligations

to refund Medicare under the MSP provisions are addressed in part 411,

subparts B through F of this chapter and Sec. 401.364.

Sec. 401.320 Liability of a provider or a supplier.

(a) In accordance with section 1870(b), unless found to be without

[[Page 14518]]

fault, as described in this subpart, a provider or a supplier that

receives Medicare payment with respect to items or services furnished

to an individual is liable for any overpayment resulting from that

payment.

(b) HCFA makes determinations whether providers or suppliers are

without fault with respect to overpayments.

Sec. 401.323 Determining without fault for a provider or a supplier.

(a) General rule. In accordance with section 1870(b) of the Act, a

provider or a supplier is without fault if--

(1) Based on the criteria specified in paragraph (b) of this

section, the facts show that the provider or the supplier exercised

reasonable care in billing for and accepting Medicare payment; and

(2) Based on the criteria specified in paragraph (c) of this

section, the facts show that the provider or the supplier either--

(i) Did not know, and could not reasonably have been expected to

know, that Medicare payment was in excess of amounts payable under the

Medicare statute and regulations and, therefore, accepted payment based

on a reasonable assumption that the payment was correct; or

(ii) Did know, or could reasonably have been expected to know, that

Medicare payment was in excess of amounts payable under the Medicare

statute and regulations but questioned the appropriate intermediary or

carrier in writing, at the correct address, within 60 days of receipt

of the excess payment, and--

(A) Relied on a written response from the intermediary or carrier

that stated that the Medicare payment was correct; or

(B) Failed to receive a response from the intermediary or carrier

within 120 days of the intermediary's or carrier's receipt of the

inquiry.

(b) Exercising reasonable care in billing. Exercising reasonable

care in billing includes--

(1) Making full disclosure of all material facts; and

(2) Complying with each applicable provision specified in subpart C

of part 424 of this chapter, including supplying all necessary

information on the billing form (or through electronic media), to

ensure correct payment by the intermediary or carrier.

(c) Criteria for determining that a provider or a supplier knew

that the payment was an excess payment. A provider or a supplier is

considered to have known that the Medicare payment was in excess of

amounts payable under the Medicare statute and regulations if any one

of the conditions specified in paragraphs (c)(1) through (c)(3) of this

section is met.

(1) Knowledge based on experience, actual notice, or constructive

notice. It is clear that the provider or the supplier knew, or could

have been expected to know, that Medicare payment was in excess of

amounts payable under the Medicare statute and regulations on the basis

of--

(i) Final publication (including any published correction notice)

of payment amounts in official source documents, for example, the

Federal Register (except in very limited circumstances, as provided for

in paragraph (h)(1) of this section);

(ii) Receipt of HCFA notices, either written or electronic,

including manual issuances, bulletins or other written guides, or

directives from intermediaries, carriers, or PROs; or

(iii) Experience with Medicare payment amounts for similar or

reasonably comparable items or services.

(2) Notice from the PRO, intermediary, or carrier. Before the items

or services were furnished, the PRO, intermediary, or carrier had

informed the provider or supplier of the correct Medicare payment for

the items or services furnished or for similar or reasonably comparable

items or services.

(3) Notice from the provider or supplier to the individual. Before

the items or services were furnished, the provider or the supplier

informed the individual of the correct Medicare payment for the items

or services furnished, or for similar or reasonably comparable items or

services.

(d) Intermediary or carrier fault. Determination of without fault,

as specified in paragraph (a) of this section, pertains solely to the

liability of the provider or the supplier. Even when HCFA's or an

intermediary's or carrier's actions cause or contribute to the

overpayment, that fact does not relieve the provider or the supplier

from liability for repayment if the provider or the supplier is not

without fault.

(e) Intermediary and carrier action. (1) The Medicare intermediary

or carrier, as appropriate, must provide a written response within 120

days of receipt of a correctly addressed written inquiry regarding the

correctness of a Medicare payment amount. If the intermediary or

carrier informs the provider or the supplier that the payment amount is

correct, or fails to reply within 120 days, the provider or the

supplier is without fault even if the intermediary or carrier should

later discover that the questioned payment amount was an overpayment.

(2) The 120-day limitation for the response applies only to an

evaluation of the correctness of the payment amount. If the evaluation

indicates that the payment amount is incorrect, the intermediary or

carrier must send a notice to that effect to the provider or supplier

within the 120-day period. Once a timely notice has been sent, the

intermediary or carrier may determine the precise amount of the

overpayment and initiate recovery procedures without regard to the 120-

day limitation.

(f) When a provider or a supplier is considered to be not without

fault. There are some circumstances when a provider or a supplier will

never be without fault. A provider or a supplier is not without fault

if any of the following conditions exist:

(1) It did not exercise reasonable care in billing for and

accepting payment, in accordance with criteria specified in paragraph

(b) of this section.

(2) It accepted a Medicare payment that it knew, or could

reasonably have been expected to know, was in excess of amounts payable

under the Medicare statute and regulations, as determined by criteria

specified in paragraph (c) of this section.

(3) It has already been determined, in accordance with the

limitation on liability provisions of section 1879 of the Act and

Sec. 411.406 of this chapter, that the provider or the supplier knew,

or could reasonably have been expected to know, that the specific items

or services (for which a without fault determination is being made)

would not be paid for by Medicare.

(4) The overpayment resulted from a payment that did not conform to

the applicable published schedule payment amount, as explained in

paragraph (h)(2) of this section.

(5) The overpayments resulted from payment for noncovered services

that were a part of a pattern of billing for similar services that the

provider or the supplier knew or should have known were noncovered.

(6) The overpayment resulted from the failure of the provider or

the supplier, in making a claim for payment, to comply with a provision

of subpart C of part 424 of this chapter.

(7) The overpayment resulted from a payment by a workers'

compensation plan, a liability or no-fault insurer, or group health

plan for the same service paid for by Medicare.

(8) Fraud or similar fault has been determined. Similar fault

includes situations when a provider or supplier obtains a provider

number from a carrier

[[Page 14519]]

or intermediary while excluded from the Medicare program and when a

provider or supplier hires and seeks reimbursement for services

performed by excluded individuals.

(g) Overpayments that result from Medicare provider cost report

errors. The without fault provisions in this section do not apply to

overpayments that result from aggregate payment issues, such as

Medicare provider cost report errors.

(h) Special rule for physician fee schedule and prospective payment

system (PPS) diagnosis-related group (DRG) schedule and Medicare fee or

rate schedule amounts. HCFA publishes fee schedules that establish

payment amounts for physician services and rates of payment for

services furnished under the hospital PPS as indicated by a specific

DRG. Other fee schedules or rates of payment may be established from

time to time. Except as provided in paragraph (h)(1) of this section,

the final publication of these payment amounts in official source

documents is evidence that a provider or a supplier could have been

expected to know that the payment amount was in excess of amounts

payable under the Medicare statute and regulations, as specified in

paragraph (c)(1)(i) of this section.

(1) In the case of an error in a schedule of payment amounts

published in the Federal Register (for which no correction notice has

been published), a provider or a supplier that can show, based on

criteria specified in paragraphs (c)(1)(ii) or (c)(1)(iii), (c)(2), and

(c)(3) of this section, that it did not know, and could not have been

expected to know, that a Medicare payment based on the erroneous

published schedule of payment amounts was in excess of amounts payable

under the Medicare statute and regulations, is without fault with

respect to the resulting overpayment.

(2) When an overpayment occurs because a payment does not conform

to the applicable published schedule, a provider or a supplier is not

without fault.

(i) Without fault presumption: Three-year rule. In accordance with

section 1870(b) of the Act, if HCFA determines that more than the

correct amount was paid to a provider or supplier, and this

determination was made after the third calendar year following the year

in which the notice was sent to the provider or supplier that payment

had been made (or, in the case of Part A benefits, approved), the

overpaid provider or supplier is considered without fault unless one of

the following conditions exist:

(1) The overpayment resulted from a payment that did not conform to

the applicable published schedule payment amount, as explained in

paragraph (h)(2) of this section.

(2) The overpayment resulted from payment for noncovered services

that were a part of a pattern of billing for similar services that the

provider or the supplier knew, or should have known, were noncovered.

(3) The overpayment resulted from the failure of the provider or

the supplier, in making a claim for payment, to comply with a provision

of subpart C of part 424 of this chapter.

(4) The overpayment resulted from a payment by a workers'

compensation plan, a liability or no-fault insurer, or group health

plan for the same service paid for by Medicare.

(5) The overpayment resulted from fraud or similar fault. Similar

fault includes situations when a provider or supplier obtains a

provider number from a carrier or intermediary while excluded from the

Medicare program and when a provider or supplier hires and seeks

reimbursement for services performed by excluded individuals.

Sec. 401.326 When a provider or a supplier is relieved of liability.

A provider or a supplier is relieved of liability for refunding an

overpayment when it is found to be without fault under the criteria in

this subpart. When a provider or a supplier is determined to be without

fault, liability for the overpayment shifts to the individual. See

Sec. 401.340 (concerning the liability of an individual).

Sec. 401.329 Recovery of overpayment from providers or suppliers:

General rule.

When it is determined that a provider or a supplier is liable for

an overpayment, HCFA uses the following methods to recover the

overpayment:

(a) Direct collection.

(b) Recoupment or offset against any monies that HCFA owes the

provider or supplier.

(c) Offset against a Federal tax refund under authority of 31

U.S.C. 3720A.

Medicare Debts Arising From an Overpayment to an Individual

Sec. 401.340 Liability of an individual.

(a) Direct payment imputed. In accordance with section 1870(a) of

the Act, a Medicare payment made to a provider or a supplier with

respect to any item or service furnished to an individual is considered

as if it were a payment to the individual.

(b) Scope of individual's potential liability. In accordance with

section 1870(b) of the Act, subject to the provisions in Secs. 401.346

through 401.352, an individual is liable for an overpayment if any of

the following situations occur:

(1) An amount is paid to an individual that is more than the amount

payable under the Medicare statute and regulations.

(2) An amount is paid to a provider or a supplier for items or

services furnished to the individual that is more than the amount

payable under the Medicare statute and regulations, and HCFA determines

that--

(i) The overpayment cannot be recouped from the provider or the

supplier within a reasonable period of time; or

(ii) The provider or the supplier was without fault, as described

in Sec. 401.323, with respect to the overpayment.

(3) Payment was made to a provider for items and services furnished

to an individual under the provisions described in section 1814(e) of

the Act (``Payment for Inpatient Hospital Services Prior to

Notification of Noneligibility'').

Sec. 401.343 Overpayment limitation for the individual.

If an overpayment has been made to a provider or a supplier, the

individual is liable only to the extent that he or she has benefited

from that payment, for example, when the Medicare payment exceeds the

charges for which the individual was legally responsible.

Sec. 401.346 Recovery of overpayment from the individual.

If an individual is liable for an overpayment (that is, a payment

described in Sec. 401.340(b)), recovery, to the extent of the

liability, is made in one of the following ways:

(a) By direct collection against the individual (or his or her

estate if the individual has died).

(b) By adjustment of title II or railroad retirement benefits, in

accordance with section 1870(b)(3) and 1870(b)(4) of the Act, in one of

the following ways:

(1) By decreasing any payment under title II of the Act or under

the Railroad Retirement Act of 1974 (45 U.S.C. 231) to which the

individual is entitled.

(2) By decreasing, if the individual has died before recovery is

completed, any payment under title II of the Act or under the Railroad

Retirement Act of 1974 that is based on the individual's earnings

record (or compensation) and payable to the individual's estate or to

any other person.

(c) By offset against a Federal tax refund under authority of 31

U.S.C. 3720A.

(d) By applying the requirements and procedures that implement the

Federal

[[Page 14520]]

Claims Collection Act (FCCA) (31 U.S.C. 3711) with respect to Medicare

payments and the general FCCA regulations set forth at Sec. 401.387 and

subpart F of this part. If HCFA's regulations fail to address a

particular issue, refer to 45 CFR part 30.

Sec. 401.349 Adjustment against an individual's title II or railroad

retirement benefits.

(a) Certification of amount that will be adjusted. In accordance

with section 1870(b) of the Act, as soon as practicable after any

adjustment against an individual's title II or railroad retirement

benefits is determined to be necessary, HCFA certifies to SSA the

amount of the overpayment or payment with respect to which the

adjustment is to be made. If the adjustment is to be made by decreasing

subsequent payments under the railroad retirement benefits, the

certification is made to the Railroad Retirement Board.

(b) Procedures for recovery by adjustment of benefits.

(1) The procedures applied in making an adjustment to title II

benefits are the applicable procedures of 20 CFR 404.502.

(2) The procedures applied in making an adjustment to railroad

retirement benefits are the applicable procedures of 20 CFR part 367.

Sec. 401.352 Waiver of recovery of overpayment from individuals.

(a) The provisions of Sec. 401.346 are not applied and there is no

recovery of an overpayment made under Sec. 401.340(b) if--

(1) The overpayment has been made with respect to an individual who

is without fault, as specified in Sec. 401.355, or the recovery would

be made by decreasing payment to which another person who is without

fault is entitled, as provided in section 1870(c) of the Act; and (2)

The recovery would either--

(i) Defeat the purposes of title II or title XVIII of the Act, as

specified in Sec. 401.358; or

(ii) Would be against equity and good conscience, as specified in

Sec. 401.361.

(b) An individual desiring a waiver of recovery of an overpayment

must request the waiver within 60 days from the date on the written

notification from HCFA that he or she is liable for the overpayment.

(c) A waiver granted in accordance with Sec. 401.358 or

Sec. 401.361 may be granted partially or in full.

(d) HCFA determines whether waiver of recovery of an overpayment

for which an individual is liable under this subpart will be granted.

(e) A waiver of recovery of an overpayment may be granted to a

deceased individual's estate if all of the following conditions exist:

(1) The estate and the deceased individual are without fault.

(2) The deceased individual is survived by a title II dependent.

(3) Recovery of the overpayment from the estate would be made by

decreasing payments to the title II-dependent. (4) The recovery would

defeat the purposes of title II or title XVIII, as defined in

Sec. 401.358, or would be against equity and good conscience, as

defined in Sec. 401.361.

Sec. 401.355 Determining without fault for an individual.

(a) General. In accordance with section 1870(c) of the Act, a

determination of without fault pertains to the liability of the

individual. Even when HCFA's actions cause or contribute to the

overpayment, that fact does not relieve the individual from liability

for repayment if the individual is not without fault. In determining

whether a individual is without fault, HCFA considers all pertinent

circumstances, including the individual's age, intelligence, education,

and physical and mental condition. (See Sec. 401.364(d) for application

of without fault for an individual with respect to a Medicare payment

in an MSP situation.)

(b) Reasonable care standard. An individual is considered without

fault with respect to an overpayment made to him or her, or to a

provider or a supplier on his or her behalf, if the individual has

exercised reasonable care in requesting and accepting Medicare payment.

The individual, or other person acting on behalf of the individual, has

exercised reasonable care when he or she has--

(1) Accepted a payment that the individual, or other person acting

on behalf of the individual, did not know, or could not reasonably have

been expected to know, was incorrect;

(2) Accepted a payment because of reliance on erroneous written

information from an official source within HCFA, SSA, or a Medicare

intermediary or carrier with respect to the interpretation of a

pertinent provision of the Act or implementing regulations; or

(3) Made a reasonable assumption, based on available information

including, but not limited to, Medicare instructions and regulations,

that the payment was correct.

(c) When an individual is considered to be not without fault. There

are some circumstances in which an individual will never be without

fault. An individual is considered to be not without fault for an

overpayment when the individual, or other person acting on behalf of

the individual, has--

(1) Received prior written notice that a particular item or service

was not covered or paid for by Medicare;

(2) Made an incorrect statement or withheld information to obtain

benefits that were not due the individual;

(3) Accepted a payment that he or she knew or should have known was

not due; or

(4) Received a prior determination, in accordance with the

limitation on liability provisions in section 1879 of the Act and

Sec. 411.404 of this chapter, that he or she knew, or could reasonably

have been expected to know, that the specific items or services (for

which a without fault determination is being made) would not be paid

for by Medicare.

Sec. 401.358 Defeat the purposes of title II or title XVIII of the

Act.

(a) General. The standard of defeat the purposes of title II or

title XVIII, contained in section 1870(c) of the Act, means that

recovery of all or part of the overpayment frustrates the purposes of

benefits under these titles by depriving an individual (or surviving

title II dependent) of income required for ordinary and necessary

living expenses.

(b) Ordinary and necessary living expenses. For purposes of this

subpart, an individual's ordinary and necessary living expenses include

the following expenses:

(1) Current living expenses, such as food and clothing, rent,

mortgage payments, utilities, maintenance, insurance (for example,

life, accident, and health insurance, including premiums for

Supplementary Medical Insurance benefits under title XVIII and premiums

for Medigap insurance), taxes, and installment payments.

(2) Current medical, hospitalization, and other related expenses

not covered by Medicare or another insurer.

(3) Expenses for the support of others for whom the individual is

legally responsible.

(4) Other miscellaneous expenses that may reasonably be considered

necessary to maintain the individual's current standard of living.

(c) Example. An individual entitled to Medicare, who was also

receiving title II benefits, was injured in a slip and fall accident.

He pursued a liability suit and received a settlement. However, after a

pro rata share of procurement costs were deducted, he was left with an

amount that was smaller than, or close to, Medicare's claim amount. As

a result of expenses related to the accident, he has a monthly

budgetary shortfall and does not have savings. In

[[Page 14521]]

addition, the individual has out-of-pocket medical expenses. If

Medicare were to recover the overpayment by adjusting the individual's

title II benefit, he would be deprived of income necessary for ordinary

and necessary living expenses. Assuming that the individual is without

fault, his liability for the overpayment may be waived partially or in

full based on financial hardship. (The fact that the individual is left

with a settlement amount that is smaller, or close to, what Medicare

would recover does not automatically permit waiver of the recovery

under this regulation. The final determination would depend on the

total amount of the individual's settlement and his other financial

circumstances.)

Sec. 401.361 Equity and good conscience.

(a) General rule. The standard of equity and good conscience,

contained in section 1870(c) of the Act, is applied to title XVIII

overpayment recoveries using broad concepts of fairness and reviewing

the totality of an individual's circumstances in each particular case.

(b) Factors to be considered. In applying the standard of equity

and good conscience, factors to consider include, but are not limited

to, the following:

(1) The amount of the overpayment.

(2) The size of a liability settlement and the amount the

individual would retain if Medicare recovered.

(3) The degree to which recovery would cause undue hardship on the

individual.

(4) The degree to which Medicare and/or its contractors contributed

to causing the overpayment.

(5) The degree to which the individual contributed to causing the

overpayment (even if determined to be without fault in accordance with

Sec. 401.355.

(6) The impact of an accident on the individual both physically and

financially.

(7) Whether the individual would be unjustly enriched by a waiver

of recovery.

(8) If the individual is responsible for noncovered accident-

related out-of-pocket expenses and/or future accident-related expenses,

whether it would be equitable for Medicare to reduce its recovery.

(9) Whether the individual made a personal financial decision based

on his or her reliance on erroneous information supplied to the

individual by Medicare or SSA, and recovery would change the

individual's position to his or her material detriment.

(c) Examples in which waiver of recovery is being sought based on

the concepts involved with equity and good conscience. Assuming that

the individual is without fault in accordance with Sec. 401.355, the

following examples illustrate situations in which waiver of recovery is

sought based on the concepts involved with equity and good conscience

and how those concepts are to be applied. The purpose of these examples

is to illustrate both the application of the basic principles of the

equity and good conscience standard and that each individual case must

be evaluated on the basis of its particular facts and circumstances.

Example 1

Facts: As a result of an accident, an individual's leg was

amputated below the knee, and he was confined to a nursing home. He

filed suit for the injuries and damages he suffered as a result of the

accident. The settlement he received was just a few hundred dollars

more than Medicare's claim amount (after a pro rata share of

procurement costs were deducted). The individual has substantial

outstanding medical bills that will not be reimbursed by Medicare or

another insurer.

Analysis: In determining whether waiver may be granted on the basis

of equity and good conscience, HCFA may take into consideration that

the accident has had a significant impact on the individual, both

physically and financially, in that he must not only deal with the

physical trauma of the leg amputation, but also with being confined to

the nursing home with its resultant increased nursing care costs. In

addition, the individual will retain only a few hundred dollars of his

settlement if Medicare seeks full recovery, and will still have

substantial remaining medical bills he will be responsible to pay. This

situation could cause undue hardship for the individual.

Action: Given the significant impact that the accident has had on

the individual, both physically and financially, HCFA may find that it

is against equity and good conscience to recover and may grant a full

waiver.

Example 2

Facts: As a result of an accident, a 26-year-old individual is

rendered a ventilator-dependent quadriplegic. (The individual was

eligible for Medicare prior to the accident because of a disabling

condition that occurred several years ago; however, he had been able to

care for himself without outside assistance.) The individual pursued a

liability claim after the accident and received a settlement that was

twice the amount of Medicare's potential claim (after a pro rata share

of procurement costs were deducted). The individual needs all of his

income and settlement proceeds to finance 24-hour nursing care, upon

which he will be totally dependent for the remainder of his lifetime,

and to enable him to live independently (outside of an institution). In

addition, the individual will have future unavoidable accident-related

expenses that will not be reimbursed by Medicare or another insurer.

Analysis: In determining whether waiver may be granted on the basis

of equity and good conscience, several factors involved in this case

should be considered. The individual's young age should be considered

as it relates to the expense of being totally dependent on 24-hour

nursing care for the remainder of his lifetime. Moreover, he is a

ventilator-dependent quadriplegic. Additionally, although he received a

settlement that was twice the amount of Medicare's potential recovery,

he has substantial accident-related expenses and is likely to have

future out-of-pocket expenses that will not be covered by Medicare or

another insurer.

Action: HCFA may find that it is against equity and good conscience

to recover, and grant full waiver based on the various factors involved

in this case. Although the settlement received by the individual is

more than Medicare's potential recovery, consideration must be given to

the extent of his disability, his need for lifetime 24-hour nursing

care, and the future accident-related expenses he is likely to incur.

Example 3

Facts: After being notified in writing by an SSA official that she

was eligible for title II and title XVIII benefits, the individual

dropped her existing health insurance based on the prospect of

receiving health insurance coverage under Medicare. One year later, it

was discovered that, due to an error by SSA, her eligibility status was

erroneous because she did not have enough qualifying quarters of

covered employment under the Act to obtain the required insured status.

During that year, the individual was hospitalized, and a significant

amount of Medicare benefits was paid on her behalf. Because the

individual dropped her previous health insurance coverage, Medicare was

her only source of health care coverage during this time. The

individual's financial situation is such that recovery of the

overpayment would change her financial position for the worse.

Analysis: In determining whether waiver may be granted on the basis

of equity and good conscience, HCFA may consider several factors. The

fact that the individual made a personal financial

[[Page 14522]]

decision based on her reliance on erroneous information supplied by SSA

warrants significant consideration. This, in turn, raises the question

of whether recovery would change the individual's position to her

material detriment, as well as the degree to which she contributed to

the overpayment. Since she did not know that she was not entitled to

receive the Medicare services (and, in fact, was told otherwise by

SSA), it appears that she did nothing to actually contribute to the

overpayment other than avail herself of services to which she believed

she was entitled.

Action: In this situation, recovery may be waived as against equity

and good conscience because the individual, based on erroneous

information provided by SSA, relinquished her right to payment from

another source, and recovery would change her position to her material

detriment.

Example 4

Facts: An individual sustained injuries in an automobile accident

that rendered her incapable of operating a motor vehicle unless the

vehicle was modified for use by a handicapped person. Medicare made

conditional payments on the individual's behalf. The individual filed

suit for the injuries and damages she suffered as a result of the

accident and received a settlement that was about equal to the amount

of Medicare conditional payments made on her behalf. The individual

submitted documentation demonstrating that all of the money she

received in the settlement was used to purchase a modified vehicle

required as a result of the accident and requested a waiver of recovery

of the overpayment.

Analysis: If Medicare seeks full recovery, the individual will

likely have to sell her modified vehicle to repay Medicare. This

modified vehicle is necessary because of the injuries she sustained in

the accident and, like the car in which she had the accident, is her

only means of transportation. Selling the modified vehicle to repay

Medicare would cause her to be without transportation and would place

her in a worse position than before the accident. Based on this

consideration, and the significant physical impact that the accident

has had on the individual, recovery of the overpayment may be against

equity and good conscience.

Action: HCFA may grant a waiver in an amount equal to the cost of

the vehicle and, based on the various factors involved in this case,

including the fact that all of the money she received in the settlement

was used to purchase the modified vehicle, could be justified in

waiving an additional amount. If the cost of the modified vehicle were

less than the settlement amount, HCFA could grant a partial waiver up

to the cost of the vehicle.

Note: Using the settlement money to purchase a vehicle was

considered appropriate only because the individual required a

modified vehicle as a result of her accident. It would be

inappropriate to grant waiver simply because the individual chose to

purchase another car from the proceeds.

Example 5

Facts: An individual sustained multiple injuries in an automobile

accident that caused him to be away from his job (without pay) for 4

months. His monthly income just equals his monthly expenses. The

individual received a liability settlement that was about equal to

Medicare's potential claim (after a pro rata share of procurement costs

were deducted). However, he incurred significant accident-related out-

of-pocket medical expenses.

Analysis: In determining whether waiver may be granted on the basis

of equity and good conscience, HCFA may take into consideration that

the accident has caused the individual to lose 4 months of income, and,

thus, his ability to absorb the out-of-pocket medical expenses has

greatly diminished. If the individual repaid Medicare the total amount

owed, he would be left with no funds with which to pay his out-of-

pocket medical expenses. Because of this, it may be equitable for

Medicare to reduce its recovery due to the individual's responsibility

for noncovered out-of-pocket expenses. Therefore, it would be against

equity and good conscience for Medicare to recoup its entire potential

recovery amount.

Action: HCFA may grant a partial waiver up to the amount of out-of-

pocket expenses.

Example 6

Facts: An individual was injured in an accident that triggered

Medicare conditional payments. Before the accident, he was experiencing

monthly financial difficulties due to expenses that were not related to

the accident. Medicare's recovery after reduction for procurement costs

is significantly less than the total liability settlement received by

the individual. The individual has several thousand dollars worth of

injury-related out-of-pocket medical expenses.

Analysis: Although the individual has monthly financial

difficulties that appears to constitute a financial hardship, it must

be noted that this financial hardship existed before the accident. It

is important to remember that repaying Medicare must be the

circumstance that causes financial hardship. Pre-existing financial

hardship alone is not a sufficient reason to grant waiver.

Additionally, after repaying Medicare and reimbursing himself for out-

of-pocket expenses, the individual will still retain a significant

portion of the settlement proceeds. The repayment of Medicare's claim

will not cause undue hardship. All of these factors must be taken into

consideration when making a waiver decision that is not unduly

favorable or adverse to either side, but is fair to both the individual

and to HCFA.

Action: Based on the circumstances presented in this case, the

likely outcome is to deny waiver. Although the individual has

substantial out-of-pocket expenses, he would not be unduly

disadvantaged if Medicare seeks full recovery because he will still

retain a significant portion of his settlement after the recovery.

(d) Special Rule: When recovery of an overpayment from an

individual is ordinarily considered inequitable. (1) Except for MSP

obligations, recovery of an overpayment from a without-fault individual

is ordinarily considered to be inequitable if the individual did not

receive the payment.

(2) For MSP obligations, recovery from a without-fault individual

is considered to be inequitable only if the recovery involves a group

health plan and the individual did not receive the Medicare payment.

(e) Deemed to be against equity and good conscience. In accordance

with section 1870(c) of the Act, recovery of an overpayment, or of such

part of an overpayment as is determined would be inconsistent with the

purposes of title XVIII of the Act, is deemed to be against equity and

good conscience when either of the following conditions exist:

(1) The overpayment resulted from expenses incurred for items or

services for which payment may not be made under title XVIII by reason

of the provisions of section 1862 (a)(1) or (a)(9) of the Act

(reasonable and necessary, or custodial care).

(2) HCFA did not determine that the payment was incorrect until

after the third year following the year in which the notice of the

payment was sent to the individual.

(f) Equity and good conscience deemed inapplicable. In considering

whether recovery of a Medicare overpayment should be waived, the

application of the standard of equity and good conscience is deemed

inapplicable in either of the following circumstances:

[[Page 14523]]

(1) The individual committed a fraud or misrepresented a material

fact that resulted, directly or indirectly, in the overpayment.

(2) The individual's actions or omissions indicate a lack of good

faith or the absence of an honest intention to abstain from taking an

unfair advantage of Medicare.

Sec. 401.364 Without fault and Medicare Secondary Payer (MSP)

obligations.

(a) MSP debt defined. In general, an MSP debt is an amount owed to

the United States Government, once a determination and any recovery

adjustments are made to an obligation, that resulted from a payment

made by Medicare for an identified item or service and payment for the

item or service has been made, can reasonably be expected to be made,

or, in certain circumstances, can reasonably be expected to be made

promptly, by another entity that is required or responsible under

section 1862(b) of the Act to make primary payment. HCFA's rules that

govern MSP obligations are located at part 411, subparts B through F of

this chapter.

(b) Application of without-fault provisions to MSP obligations--

third-party payor or other non-Medicare entity. The without-fault and

related provisions specified in Secs. 401.323 and 401.326 (with respect

to providers and suppliers) and in Secs. 401.352, 401.355, 401.358, and

401.361 (with respect to individuals entitled to Medicare) do not apply

to MSP obligations for which a third-party payer or other non-Medicare

entity is liable. A provision in a contract to which a third-party

payer or other non-Medicare entity is a party, or a State law provision

that governs the relations between the third-party payer or other non-

Medicare entity and an individual entitled to Medicare, that gives or

purports to give any right of subrogation to the third-party payer or

other non-Medicare entity does not confer a right to without-fault

consideration for an obligation for which the third-party payer or

other non-Medicare entity is responsible.

(c) Application of without-fault provisions to MSP obligations--

providers and suppliers. In general, a provider or a supplier is not

without fault with respect to a Medicare payment in an MSP situation

unless it complied with all of the requirements specified in part 411

of this chapter and, in the case of providers, part 489 of this

chapter.

(d) Application of without-fault provisions to MSP obligations--

individuals. (1) In general, an individual is without fault with

respect to a Medicare payment in an MSP situation except when the

individual (or the individual's representative)--

(i) Fails to give notice as required by Sec. 411.23(a)(1) of this

chapter (that is, notice that a claim has been filed with an entity

that may be primary to Medicare) to the intermediary or carrier within

60 days of filing the claim;

(ii) Fails to give notice as required by Sec. 411.23(a)(2) of this

chapter (that is, notice of receipt of a payment from an entity that is

primary to Medicare) to HCFA within 30 days of receipt of a payment;

(iii) Fails to file a proper claim, as defined in Sec. 411.21 of

this chapter, with an entity that is primary to Medicare for the item

or service for which no proper claim was filed, subject to the recovery

provisions in Secs. 411.24(l) and 411.32(c) of this chapter;

(iv) Makes an incorrect statement or withholds information to

obtain benefits that are not due him or her; or

(v) Accepts a payment that he or she clearly should have known was

not due.

(2) An individual who is without fault according to paragraph

(d)(1) of this section may have recovery of an MSP obligation (either

by adjustment of his or her social security benefit or by direct

recovery) waived if the recovery would either--

(i) Defeat the purposes of title II or title XVIII of the Act, as

specified in Sec. 401.358; or

(ii) Would be against equity and good conscience, as specified in

Sec. 401.361 (a) through (c), (e), and (f).

(3) An individual desiring a waiver of recovery of an MSP

obligation must request the waiver within 60 days from receipt of

written notification from HCFA that he or she is liable for the

obligation.

(4) HCFA may waive recovery, in whole or in part, in accordance

with Sec. 401.358 or Sec. 401.361 (a) through (c), (e), and (f) of this

subpart.

Sec. 401.367 Initial determination.

Each of the following determinations is an initial determination

for purposes of Secs. 405.704(b), 405.704(c), and 405.803(b) of this

chapter, as applicable, and the entities are parties for purposes of

Secs. 405.708 and 405.805 of this chapter:

(a) A determination that a provider or supplier must repay an

overpayment because the provider or supplier is not without fault.

(b) A determination that an individual (or the estate of an

individual), does not qualify for waiver of adjustment or recovery of

overpayments because the individual is, or the estate and the

individual are, not without fault.

(c) A determination, with respect to an individual that is (or an

estate and individual that are) without fault, that the individual (or

estate) does not qualify for waiver of adjustment or recovery of

overpayments on the basis that the purposes of title II or of title

XVIII of the Act would be defeated, as described in Sec. 401.358.

(d) A determination, with respect to an individual that is (or an

estate and individual that are) without fault, that the individual (or

estate) does not qualify for waiver of adjustment or recovery of

overpayments on the basis that recovery would be against equity and

good conscience, as described in Sec. 401.361.

Sec. 401.370 Liability of certifying or disbursing officer.

No certifying or disbursing officer is liable for any amount

certified or paid by him or her to a provider or supplier in either of

the following situations:

(a) The amount is waived under the provisions of this subpart.

(b) Recovery is not completed prior to the death of all persons

against whose benefits the recovery is authorized.

Suspension of Payment to Providers and Suppliers and Collection and

Compromise of Overpayments

Secs. 401.375--401.390 [Reserved]

Interest

Sec. 401.393 [Reserved]

Repayment of Scholarships and Loans

Sec. 401.396 [Reserved]

B. Part 401, subpart F, is amended as follows:

Subpart F--Claims Collection and Compromise

1. In Sec. 401.601, paragraphs (d)(2)(ii) and (d)(2)(iii) are

revised to read as follows:

Sec. 401.601 Basis and scope.

* * * * *

(d) Related regulations. * * *

(2) HCFA regulations. * * *

(ii) Adjustments in railroad retirement or social security benefits

to recover Medicare overpayments to individuals are covered in

Secs. 401.310 through 401.340.

(iii) Claims against providers and suppliers for overpayments under

Medicare and for assessment of interest are covered in Secs. 401.387

and 401.393.

* * * * *

2. In Sec. 401.607, paragraph (d)(2) is revised to read as follows:

Sec. 401.607 Claims collection.

* * * * *

[[Page 14524]]

(d) Collection by offset. * * *

(2) Under regulations at Secs. 401.310 through 401.340, HCFA may

initiate adjustments in program payments to which an individual is

entitled under title II (Federal Old-Age, Survivors, and Disability

Insurance Benefits) of the Act or under the Railroad Retirement Act of

1974 (45 U.S.C. 231) to recover Medicare overpayments.

C. Part 405 is amended as set forth below:

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

1. The authority citation for subpart C continues to read as

follows:

Authority: Sections 1102, 1815, 1833, 1842, 1866, 1870, 1871,

1879, and 1892 of the Social Security Act (42 U.S.C. 1302, 1395g,

1395l, 1395u, 1395cc, 1395gg, 1395hh, 1395pp, and 1395ccc) and 31

U.S.C. 3711.

2. The following sections are redesignated as part 401, subpart D

as shown in the table below:

------------------------------------------------------------------------

Old section-- New section--

------------------------------------------------------------------------

405.370................................... 401.375

405.371................................... 401.378

405.372................................... 401.381

405.373................................... 401.384

405.374................................... 401.387

405.375................................... 401.390

405.376................................... 401.393

405.377................................... 401.394

405.378................................... 401.395

405.380................................... 401.396

------------------------------------------------------------------------

3. Subpart C, is further amended by removing the undesignated

centered headings and Secs. 405.301 through 405.359, and subpart C is

reserved.

Subpart G--Reconsiderations and Appeals Under Medicare Part A

4. Subpart G is amended as follows:

a. The authority citation for subpart G continues to read as

follows:

Authority: Secs. 1102, 1151, 1154, 1155, 1869(b), 1871, 1872,

and 1879 of the Social Security Act (42 U.S.C. 1302, 1320c, 1320c-3,

1320c-4, 1395ff(b), 1395hh, 1395ii, and 1395pp).

b. In Sec. 405.704, the section heading and the introductory text

of paragraph (c) are revised, and a new paragraph (c)(3) is added, to

read as follows:

Sec. 405.704 Actions that are initial determinations.

* * * * *

(c) Initial determination with respect to a provider. An initial

determination with respect to a provider is a determination made on the

basis of the request for payment filed by the provider under Part A of

Medicare on behalf of an individual who was furnished items or services

by the provider, but only if the determination involves the following:

* * * * *

(3) A determination by HCFA that a provider must repay an

overpayment because the provider is not without fault as that term is

described in Sec. 401.323 of this chapter.

Subpart H--Appeals Under the Medicare Part B Program

5. Subpart H is amended as follows:

a. The authority citation for subpart H is revised to read as

follows:

Authority: Secs. 1102, 1842(b)(3)(C), and 1869(b) of the Social

Security Act (42 U.S.C. 1302, 1395u(b)(3)(C), and 1395ff(b)).

b. In Sec. 405.803, paragraph (b) is revised to read as follows:

Sec. 405.803 Initial determination.

* * * * *

(b) An initial determination for purposes of this subpart includes,

among others, the following determinations:

(1) Whether the items and services furnished are covered.

(2) Whether an individual deductible has been met.

(3) Whether a receipted bill or other evidence of payment is

acceptable.

(4) Whether the charges for items or services furnished are

reasonable.

(5) For items or services furnished an individual by a supplier in

accordance with an assignment under Sec. 424.55 of this chapter, that

are not covered by reason of Sec. 411.15(g) or Sec. 411.15(k) of this

chapter, whether the individual or supplier knew, or could reasonably

have been expected to know, that the items or services were excluded

from coverage.

(6) A determination that a supplier must repay an overpayment

because the supplier is not without fault as that term is described in

Sec. 401.323 of this chapter.

(7) A determination that an individual, or the estate of the

individual, does not qualify for waiver of adjustment or recovery of

overpayments because the individual is, or the estate and the

individual are, not without fault as that term is described in

Sec. 401.355 of this chapter.

(8) A determination, with respect to an individual that is (or an

estate and individual that are) without fault, that the individual (or

estate) does not qualify for waiver of adjustment or recovery of

overpayments on the basis that recovery would defeat the purposes of

title II or of title XVIII of the Act, as described in Sec. 401.358 of

this chapter.

(9) A determination, with respect to an individual that is (or an

estate and individual that are) without fault, that the individual (or

estate) does not qualify for waiver of adjustment or recovery of

overpayments on the basis that recovery would be against equity and

good conscience, as described in Sec. 401.361 of this chapter.

* * * * *

c. Section 405.805 is revised to read as follows:

Sec. 405.805 Parties to the initial determination.

The parties to the initial determination (see Sec. 405.803) may be

any party described in Sec. 405.802(b). A party may also be any

supplier as defined at Sec. 400.202 of this chapter that has been

determined to be not without fault as that term is described in

Sec. 401.323 of this chapter, with respect to that issue only.

D. Part 411 is amended as set forth below:

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE

PAYMENT

1. The authority citation for part 411 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

2. Section 411.23 is revised to read as follows:

Sec. 411.23 Individual's cooperation.

If HCFA makes conditional payments, the individual must do the

following:

(a) Cooperate in notifying HCFA of the progress and final outcome

of the liability claim, including, but not limited to--

(1) Notifying the intermediary or carrier within 60 days of filing

a claim with an entity that may be primary to Medicare; and

(2) Notifying HCFA within 30 days of the receipt of a payment from

the entity that is primary to Medicare.

(b) Cooperate in the recovery action.

3. Section 411.28 is revised to read as follows:

Sec. 411.28 Waiver of recovery and compromise of claims.

(a) HCFA may waive recovery, in whole or in part, if HCFA

determines that waiver is in the best interest of the Medicare program.

(b) General rules applicable to compromise of claims are set forth

in subpart F of part 401 of this chapter.

(c) Other rules pertinent to recovery are contained in subpart D of

part 401 of this chapter.

[[Page 14525]]

E. Part 466 is amended as set forth below:

PART 466--UTILIZATION AND QUALITY CONTROL REVIEW

1. The authority citation for part 466 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

2. In Sec. 466.86, new paragraph (a)(5) is added to read as

follows:

Sec. 466.86 Correlation of Title XI functions with Title XVIII

functions.

(a) Payment determinations. * * *

(5) A finding by the PRO that the provider or supplier is not

without fault, as that term is described in Sec. 401.323 of this

chapter, with respect to an overpayment, is conclusive for payment

purposes.

* * * * *

3. In Sec. 466.94, paragraph (c)(6) is redesignated as paragraph

(c)(7), and a new paragraph (c)(6) is added to read as follows:

Sec. 466.94 Notice of PRO initial denial determination and changes as

a result of a DRG validation.

* * * * *

(c) Content of the notice. * * *

(6) If applicable, a statement about the without fault

determination as that term is described in Sec. 401.323 of this

chapter.

* * * * *

F. Part 473 is amended as set forth below:

PART 473--RECONSIDERATIONS AND APPEALS

1. The authority citation for part 473 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

2. In Sec. 473.14, paragraph (c)(2) is revised to read as follows:

Sec. 473.14 Applicability.

* * * * *

(c) Nonapplicability of rules to related determinations. * * *

(2) Without fault determinations with respect to overpayments are

made under section 1870 of the Act, and limitation on liability

determinations on excluded coverage of certain services are made under

section 1879 of the Act. Initial determinations under sections 1870 and

1879 and further appeals are governed by the reconsideration and appeal

procedures in part 405, subpart G of this chapter for determinations

under Medicare Part A, and part 405, subpart H of this chapter for

determinations under Medicare Part B. References in those subparts to

initial and reconsidered determinations made by HCFA should be read to

mean initial and reconsidered determinations made by a PRO.

G. Technical Amendments.

Sec. 401.378 [Amended]

1. Redesignated Sec. 401.378 is amended as follows:

a. In paragraph (b), the citations ``Sec. 405.372'' and

``Sec. 405.373'' are removed, and the citations ``Sec. 401.381'' and

``Sec. 401.384'', respectively, are added in their place.

b. In paragraph (c), the citations ``Sec. 405.372'' and

``Sec. 405.372(a)(2)'' are removed, and the citations ``Sec. 401.381''

and ``Sec. 401.381(a)(2)'', respectively, are added in their place.

Sec. 401.381 [Amended]

2. Redesignated Sec. 401.381 is amended as follows:

a. In paragraph (a)(1), the citation ``Sec. 405.371(a)(1)'' is

removed and the citation ``Sec. 401.378(a)(1)'' is added in its place.

b. In paragraph (a)(2), the citation ``Sec. 405.371(c)'' is removed

and the citation ``Sec. 401.378(c)'' is added in its place.

c. In paragraph (b)(1), the citations ``Sec. 405.374'' and

``Sec. 405.375'' are removed and the citations ``Sec. 401.387'' and

``Sec. 401.390'', respectively, are added in their place.

d. In paragraph (e), the citations ``Sec. 405.371(b)'' and

``Sec. 405.378'' are removed and the citations ``Sec. 401.378(b)'' and

``Sec. 401.395'', respectively, are added in their place.

3. Redesignated Sec. 401.384 is amended as follows:

a. In paragraph (a) introductory text, the citation

``Sec. 405.371(a)(2)'' is removed and the citation

``Sec. 401.378(a)(2)'' is added in its place.

b. In paragraph (a)(2), the citation ``Sec. 405.374'' is removed

and the citation ``Sec. 401.387'' is added in its place.

c. In paragraph (c), the citations ``Sec. 405.374'' and

``Sec. 405.375'' are removed and the citations ``Sec. 401.387'' and

``Sec. 401.390'', respectively, are added in their place.

Sec. 401.387 [Amended]

4. In redesignated Sec. 401.387, paragraph (a), the citations

``Sec. 405.372'' and ``Sec. 405.373'' are removed and the citations

``Sec. 401.381'' and ``Sec. 401.384'', respectively, are added in their

place.

Sec. 401.390 [Amended]

5. In redesignated Sec. 401.390, paragraph (a), the citations

``Sec. 405.374'' and ``Sec. 405.372(b)(2)'' are removed and the

citations ``Sec. 401.387'' and ``Sec. 401.381(b)(2)'', respectively,

are added in their place.

Sec. 401.394 [Amended]

6. In redesignated Sec. 401.394, paragraph (e) introductory text,

the citation ``Sec. 405.374'' is removed and the citation

``Sec. 401.387'' is added in its place.

Sec. 401.601 [Amended]

7. In Sec. 401.601, the following changes are made:

a. In paragraph (d)(2)(ii), the phrase ``Secs. 405.350-405.356 of

this chapter'' is removed, and the citation ``Sec. 401.305'' is added

in its place.

b. In paragraph (d)(2)(iii), the phrase ``Secs. 405.374 and 405.376

of this chapter'' is removed, and the phrase ``Secs. 401.387 and

401.393'' is added in its place.

Sec. 401.607 [Amended]

8. In Sec. 401.607, in paragraph (d)(2), the phrase

``Secs. 405.350-405.358 of this chapter'' is removed, and the phrase

``Secs. 401.346 and 401.349'' is added in its place.

PART 403--RECOGNITION OF STATE REIMBURSEMENT CONTROL SYSTEMS

9. The authority citation for part 403 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

Sec. 403.310 [Amended]

10. In Sec. 403.310, in paragraph (a), the citation

``Sec. 405.378'' is removed, and the citation ``Sec. 401.395'' is added

in its place.

Sec. 405.705 [Amended]

11. In Sec. 405.705, in paragraph (d), the citation

``Sec. 405.376'' is removed, and the citation ``Sec. 401.393 of this

chapter'' is added in its place.

Sec. 405.1801 [Amended]

12. In Sec. 405.1801, in paragraph (a), under the definition

``Intermediary determination,'' in paragraph (4), the citation

``Sec. 405.376'' is removed, and the citation ``Sec. 401.393 of this

chapter'' is added in its place.

Sec. 405.1803 [Amended]

13. In Sec. 405.1803, in paragraph (c), the citation ``405.373'' is

removed, and the citation ``Sec. 401.384(a) of this chapter'' is added

in its place.

[[Page 14526]]

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

14. The authority citation for part 410 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

Sec. 410.1 [Amended]

15. In Sec. 410.1, in paragraph (b), the phrase ``subpart C of part

405 of this chapter'' is removed, and the phrase ``Subpart D of Part

401 of this chapter'' is added in its place.

Sec. 411.28 [Amended]

16. In Sec. 411.28, the following changes are made:

a. In paragraph (b), the citation ``405.376'' is removed, and the

citation ``401.393'' is added in its place.

b. In paragraph (c), the phrase ``in subpart C of part 405 of this

chapter'' is removed, and the phrase ``in subpart D of part 401 of this

chapter'' is added in its place.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE SERVICES

17. The authority citation for part 413 continues to read as

follows:

Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social

Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

Sec. 413.20 [Amended]

18. In Sec. 413.20, in paragraph (e), the citation

``Sec. 405.372(a)'' is removed wherever it appears (twice), and the

citation ``Sec. 401.381'' is added in its place.

Sec. 413.153 [Amended]

19. In Sec. 413.153, the following changes are made:

a. In paragraph (a)(1)(ii), the citation ``Sec. 405.377'' is

removed, and the citation ``Sec. 401.394'' is added in its place.

b. In paragraph (a)(1)(iii), the citation ``Sec. 405.378'' is

removed, and the citation ``Sec. 401.395'' is added in its place.

PART 447--PAYMENTS FOR SERVICES

20. The authority citation for part 447 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

Sec. 447.31 [Amended]

21. In Sec. 447.31, in paragraph (a), the citation ``Section

405.377'' is removed, and the citation ``Sec. 401.394'' is added in its

place.

PART 493--LABORATORY REQUIREMENTS

22. The authority citation for part 493 continues to read as

follows:

Authority: Sec. 353 of the Public Health Service Act, secs.

1102, 1861(e), the sentence following 1861(s)(11), 1861(s)(12),

1861(s)(13), 1861(s)(14), 1861(s)(15), and 1861(s)(16) of the Social

Security Act (42 U.S.C. 1302, 1395x(e), the sentence following

1395x(s)(11), 1395x(s)(12), 1395x(s)(13), 1395x(s)(14),

1395x(s)(15), and 1395x(s)(16).

Sec. 493.1834 [Amended]

23. In Sec. 493.1834, in paragraph (i)(1)(ii), the citation

``Sec. 405.378(d)'' is removed, and the citation ``Sec. 401.395(d)'' is

added in its place.

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93,774, Medicare--

Supplementary Medical Insurance Program)

Dated: January 8, 1998.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing Administration.

Dated: January 20, 1998.

Donna E. Shalala,

Secretary.

[FR Doc. 98-4230 Filed 3-24-98; 8:45 am]

BILLING CODE 4120-01-U