Medicare-Medicaid Audit World
One of the best “investments” available today is the current 10.5% rate of interest paid by CMS on money improperly held by its contractors. The rules on when CMS will pay interest and how appeals affect interest paid on amounts recouped are set forth in 42 C.F.R. § 405.378 and 42 C.F.R § 450.379.
Medicare pays and charges interest from the date of a “final determination,” which is defined in §405.378(c) and generally is the date of the written advice of payment or demand for repayment. Interest starts to accrue 30 days after the notice date and is calculated in 30 day increments thereafter. This means if CMS pays or is repaid the full amount due within 30 days, there will be no interest. If CMS pays or is repaid on the 45th day, the interest due is that calculated as of the 30th day, not the 45th day.
The interest rate applied to the amount due is the higher of the rate fixed by the Secretary of the Treasury after taking into consideration private consumer rates of interest prevailing on the date of final determination or the current value of funds rate. This means that if, for example, the ALJ overturns a repayment demand that has been previously recouped or repaid, the interest rate applied to the amount repaid by CMS is the interest rate in effect on the date of the ALJ’s decision, not the rate in effect on the date of the initial repayment demand. A list of the interest rates paid by CMS since February 2001 is here so you can verify that the MAC is using the correct rate in calculating the interest due.
Section 405.378(g) provides that in the event of partial payments made over time, the amount paid is first applied to the outstanding interest and then to the principal, the same method used by credit card companies when the bill is not paid in full.
How do Requests for Redetermination by a MAC and Reconsideration by a QIC Affect the Interest Paid?
Pursuant to 42 C.F.R. § 405.942(a), a provider may seek a redetermination of an initial 
repayment demand “[w]ithin 120 calendar days from the date a party receives the notice of the initial determination.” However, if the amount claimed to be due has not been promptly repaid in full, § 405.379(d) permits a Medicare contractor to begin recouping the amount due from other amounts CMS owes the provider 41 days after the date of the initial repayment demand. Recoupment can be prevented or stopped, however, by a provider request for redetermination. If the provider is unsuccessful, 42 C.F.R. § 405.962(a) provides that a request for reconsideration to a QIC may “[b]e filed within 180 calendar days from the date the party receives the notice of the redetermination.” If the request for reconsideration is filed within 60 days of the adverse redetermination notice, recoupment continues to be stayed pursuant to §455.379(e)(ii). If no request for reconsideration is filed within 60 days, recoupment may be resumed, but will be stopped again by filing a reconsideration request at any time during the 180 day period. Recoupment will resume if the decision of the QIC is unfavorable.
If the provider is successful at either the 1st or 2nd level appeal, it is entitled to interest on any money held by the Medicare contractor for more than 30 days, whether received by payment from the provider or by way of recoupment. However, §405.378(j) imposes an interest penalty on providers who do not immediately pay the amount demanded in full and are not successful until appealing to an ALJ or the Medicare Appeals Council.
The Section 405.378(j) Interest Penalty
Pursuant to 42 C.F.R. § 405.1014(b)(1) a party may appeal to an ALJ within 60 days of receipt of the QIC’s determination. 42 C.F.R. § 405.1102(a)(1) provides that an unfavorable ALJ decision may be appealed to the Medicare Appeals Council within 60 days of receipt of the ALJ’s decision. According to § 405.378(j)(3)(iv) and (v), no interest is payable for the period between the appealed decision and the receipt by the ALJ or Medicare Appeals Council of the appeal request. So, if an appealed claim for $100,000 is won at the Medicare Appeals Council today, and the appeals from the QIC and ALJ were each filed on the 60th day, the provider will lose $3,500 in interest because of the § 405.378(j) penalty.
The Bottom Line
Interest on claims successfully appealed can be significant. If your cash flow will support it, the best course of action is to satisfy overpayment demand in full within 30 days and appeal those claims you believe have a reasonable chance of being overturned. In this situation, if your appeal is successful, CMS must pay interest from the date of the repayment demand until payment by the contractor. If you cannot repay the amount in full, you should strive to file your appeal to the ALJ or Medicare Appeals Council immediately after receiving notice of the unfavorable decision to minimize the interest penalty imposed by §405.378(j) if your appeal is ultimately successful.
Please contact us if you would like further information about how how CMS calculates interest or for assistance in helping to resolve other issues with any of the legion of CMS auditors that inhabit the Medicare-Medicaid Audit World.