[Federal Register Volume 63, Number 57 (Wednesday, March 25, 1998)]
[Proposed Rules]
[Pages 14506-14526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4230]



[[Page 14505]]

_______________________________________________________________________

Part II





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



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42 CFR Parts 401, 403, et al.



Medicare Program; ``Without Fault'' and Waiver of Recovery From an 
Individual as It Applies to Medicare Overpayment Liability; Proposed 
Rule

  Federal Register / Vol. 63, No. 57 / Wednesday, March 25, 1998 / 
Proposed Rules  

[[Page 14506]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 401, 403, 405, 410, 411, 413, 447, 466, 473, and 493

[HCFA-1719-P]
RIN: 0938-AD95


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

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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

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