If you’ve recently discovered that a patient or insurance company overpaid you for services rendered, you might be tempted to consider it “free money.” It’s like you’re playing Medicare Monopoly, and you just pulled a Community Chest card that reads: “Insurance error in your favor. Collect claim overpayment.” However, overpayments give you an inflated appraisal of your total revenue and might even encourage embezzlement—both of which can wreak havoc on your balance sheet. Worse yet, if you’re dealing with the Centers for Medicare & Medicaid Services (CMS), failure to pay back those extra funds within 60 days of identifying the overpayment—or by a corresponding cost report's due date—puts you at risk for some hard consequences, including lawsuits, hefty fines, and even jail time. You don’t mess around with Jim—er, CMS.

The best way to manage overpayments? Keep them to a minimum.

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Just (Don’t) Do It

Like Aaron Rodgers, you’ll need to do a discount double-check of sorts before you file claims. But instead of making sure you’re getting all applicable car insurance discounts, you’re ensuring accuracy in your reporting. As Context Healthcare notes in this article, the most recent Office of Inspector General audit report outlined five categories of outpatient physical therapy claim errors that can cause overpayment:

  1. Plan of care requirements not met.
  2. Treatment notes requirements not met.
  3. Progress reports untimely or not contained in the medical record.
  4. Medical necessity requirements not met.
  5. Physician certification requirements not met.

Double-checking for these common errors will certainly decrease your risk for overpayments, but if your clinic regularly receives overpayments, it might be time for an overhaul of your processes and team. Check out these blog posts for more information on how to evaluate your billing system and your billing staff.

Even if you do your billing best, overpayments can still happen. And if they happen to you, you’ve got to act fast.

Pay Promptly, Please

The sooner you get the overpaid funds off your books, the better—but the process for returning the funds greatly depends on who made the overpayment. Here’s the scoop:

Patient Overpayment

You have a couple of options:

  1. Contact the patient immediately after you discover the overpayment. Inform him or her of the situation and discuss repayment options. You could offer to apply the extra funds as a credit on the patient’s account, but you can only do that if you have his or her permission. If the patient no longer needs your services, or doesn’t want a credit, you must repay the funds at once.
  2. Mail the patient a check for the full amount right away. Be sure to include a written explanation of why you are returning funds.  

Insurance Overpayment

You might be waiting for the insurance company to send you a refund request—or to reduce the amount of pending payment—before you report and make good on your repayment.

A word of advice: don’t.

As noted in the Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2014, CMS is making a hard push to collect overpayments and is cracking down on providers who fail to pay promptly. Furthermore, CMS has the “authority to suspend payment if reliable information of an overpayment exists.” Plus, CMS could ultimately establish a final rule that would allow them to seek past Medicare overpayments—going back up to ten years (although CMS has delayed its decision on that rule for yet another year). Ouch. If your clinic has been more than a little lax in the repayment department, an audit of this kind would be especially painful—and costly.

So, instead of sitting back and making payers come to you, reach out to them. When you receive an overpayment, call the insurance company to confirm that the extra money is a true overpayment. Once you have that confirmation, ask the payer to reprocess the claim with correct payment, then send you a formal repayment request before you send back the money.

Note: If the payer assures you it processed the claim correctly, check to see if the patient has a second insurance plan. If he or she doesn’t, keep digging until you find the reason for the balance. Never assume (you know what that does), and never simply keep the money.


When it comes to overpayments, don’t roll the dice and hope for the best. “Free money” is too good to be true, and it only leads to healthcare fraud, waste, and abuse—and some pretty terrible consequences for your practice. The claim game offers no “get out of jail free” cards, so make sure you play by the rules.

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