In recent revisions to the Medicare Financial Management Manual (Manual), CMS has established new requirements for unsolicited or voluntary refunds and instructions to Medicare contractors on how to account for checks received from providers, physicians, or suppliers (collectively "providers") purporting to be voluntary refunds. Medicare Financial Management Manual, Pub. 100-06, Transmittal No. 48 (July 9, 2004), replacing Transmittal No. 42 (Apr. 30, 2004). The effective date and the implementation date of these newly revised materials is October 4, 2004. These changes are significant and should be carefully reviewed and considered by providers who may be considering refunding monies to Medicare.

Medicare contractors, meaning both intermediaries and carriers, periodically receive unsolicited or voluntary refunds that are not related to open accounts receivable. CMS has issued the clarifications in Transmittal 42 to provide detailed instructions to contractors on how to identify, process, track, and report unsolicited or voluntary refund checks received from providers and other entities, including beneficiaries, insurers, employers, and third-party administrators. CMS notes that intermediaries generally receive these voluntary refunds in the form of an adjustment bill, although they may receive some voluntary refunds as checks. Carriers typically receive such refunds as checks.

The instructions to Medicare contractors require an element of provider education. CMS is requiring its contractors to include the following statement annually in any newsletters or bulletins published for providers, suppliers, and physicians:

The acceptance of a voluntary refund as repayment for the claims specified in no way affects or limits the rights of the Federal Government, or any of its agencies or agents, to pursue any appropriate criminal, civil, or administrative remedies arising from or relating to these or any other claims.

By way of background to these revisions, the OIG, working with the Department of Justice and CMS, has initiatives to help combat health care fraud and abuse and to encourage health care providers to comply with the rules and regulations of the federal health care programs. Among these initiatives are various tools, including guidance, corporate integrity agreements (CIAs), and the OIG self-disclosure protocol, the OIG uses to ensure that providers refund inappropriately received Medicare monies back to the trust fund. Contractors' Medicare systems must be able to separately distinguish and track unsolicited or voluntary refund checks which result from (1) a provider's participation under a CIA; (2) a provider's refund pursuant to a self-disclosure; and (3) a straight refund, i.e., a refund from a provider who is not operating under either a CIA or a self-disclosure. Medicare systems must have the ability to identify and produce a report that distinguishes a refund as a CIA, self-disclosure, or straight refund at the point of disposition, i.e., when it is investigated by the contractor.

These changes to the Manual provide for certain procedures the contractor is required to follow when refunds are received. First, contractors are prohibited from returning any checks made payable to the Medicare program that are submitted from a provider. The checks must be deposited within 24 hours of receipt in an account entitled "other liabilities-unapplied receipts." If patient or health information claim number information is provided, the contractor should make or initiate the appropriate adjustments. No appeal rights will be afforded if the submitting entity does not submit specific patient health information claim number information or if the provider is participating in a self-disclosure protocol agreement.

Medicare contractors must establish an accounts receivable in their Medicare systems to recognize the voluntary refund and submit a report to CMS within 60 days of the deposit of the refund. Medicare contractors must establish the accounts receivable reports as well as maintain specific information that is required to be captured in these reports. In the event that the voluntary refund exceeds the amount of an original claim (if the voluntary refund can be linked to a specific claim), Medicare contractors are not authorized to automatically refund excess recoupment, unless there are no other outstanding accounts receivable for that provider, or written documentation or evidence clearly supporting that Medicare is not entitled to the money or is not the intended recipient of the refund check.

Transmittal 42 also includes instructions to Medicare contractors on the handling of conditional endorsements - statements on the face of a check or associated correspondence which may suggest that the payer has discharged its obligation by writing "paid in full" or similar phrases that the payer intends as satisfaction of the debt. CMS notes that GAO guidelines state that agencies must be extremely careful to avoid an unintended "accord and satisfaction" (i.e., an agreement to accept a payment in full for an amount less than the amount claimed). CMS instructs Medicare contractors that checks containing conditional endorsements must be deposited within 24 hours of receipt and recorded in an appropriate account. Contractors are required to immediately notify the entity on whose account the check was drawn by certified mail that the check was received and include the following mandatory statement:

This is to acknowledge the receipt of the repayment in the amount of $____, check number ______. The matter is being researched; however, the amount of the repayment may be insufficient to discharge the obligation and the debt may not be fully extinguished.

With these requirements followed, the Medicare contractor is then instructed to process the checks as outlined above.

Transmittal 42 also provides guidance to contractors who receive and process unsolicited or voluntary refund checks when there is no identifying information provided. In particular, the guidance breaks down the instructions between checks relating to non-Medicare secondary payer (MSP) refunds and Medicare secondary payer checks. With respect to non-MSP checks, if there is no specific patient health insurance claim or claim number information provided with the voluntary refund check, the Medicare contractor must contact the provider for further information. CMS provides an overpayment refund form that Medicare contractors may use to obtain additional information from the provider during a phone inquiry or that may be attached to a letter sent to the provider. The Medicare contractor employee initiating the inquiry is instructed to inform the provider that if specific patient health insurance claim or claim number information is not provided, no appeal rights can be afforded to the provider. The minimum information that must obtained is the provider's name, provider number, tax ID number, the type of provider, whether that entity is under a CIA or is refunding pursuant to a self-disclosure protocol, the reason for the refund, the total number of refund checks in the event there are multiple checks submitted, and the total dollar amount of the refund.

Medicare contractors have 60 days from deposit of the check to obtain this minimum information from the submitter. When the information is obtained, the Medicare contractor is required to make or initiate any appropriate adjustments to the identified claims information. If the information is not obtained, the Medicare contractor must set up a new accounts receivable and CMS instructs that all Medicare systems must have the ability to manually complete this information to record and capture unsolicited refunds not able to be applied to specific claims. CMS again instructs that, only when written documentation or evidence clearly supports that Medicare is not entitled to money or is not the intended recipient of the refund check, is the Medicare contractor authorized to refund excess recoupments to the provider.

For MSP checks, the instructions are generally the same as for non-MSP checks, although the timing requirements are different, allowing Medicare contractors additional time to research and obtain information on refunds relating to MSP amounts. In such cases, the contractor is to send an MSP inquiry via the electronic correspondence referral system (ECRS) to the MSP coordination benefits contractor (COBC) within 20 days of the check's date of deposit. In such cases the Medicare contractor can allow up to 100 days from the date of the ECRS inquiry for response from the COBC before taking action with respect to the unapplied receipts. This time period allows for the COBC to develop the case. After information is obtained, depending on the nature of the information, the procedures for processing the results are identical to the process for receiving similar information for the non-MSP checks.

CMS will require all intermediaries and carriers to report quarterly to the CMS regional offices the receipt of all unsolicited or voluntary refund checks from Medicare entities.

As the details of Transmittal 42 indicate, CMS will be closely scrutinizing voluntary refunds and the reasons and basis for those refunds. Consequently, providers must carefully evaluate how and why they are submitting voluntary refunds and do so cautiously, for their intermediary or carrier will surely be looking very closely at all such refunds received.