Because Medicare processes over one billion fee-for-service claims annually, it is impossible for CMS and its contractors to review every claim – or even a substantial percentage of claims – on a pre-payment basis. Accordingly, Medicare has set up various post-payment mechanisms to investigate and recover those payments that it determines, on a post-payment basis, were improper. These include various types of post-payment audits and claim reviews by CMS and its various contractors, including Medicare Administrative Contractors (MACs) and Unified Program Integrity Contractors (UPICs).
According to its annual report to Congress, in Fiscal Year 2023 (the last year available at the time of writing), CMS’ program integrity activities saved Medicare an estimated $14.9 billion and produced a return on investment of $8.30 to $1.[i] According to that same report, CMS collected over $3.3 billion in overpayment recoveries during that same fiscal year.
For Medicare providers and suppliers who disagree with CMS’ post-payment findings, federal law establishes a multi-step administrative appeal process which includes:
Step 1: Redetermination (to the MAC that issued the initial determination)
Step 2: Reconsideration (to a “Qualified Independent Contractor” (QIC))
Step 3: Administrative Law Judge (ALJ) hearing
Step 4: Medicare Appeals Council
Step 5: Federal District Court
In addition to challenging the contractor’s underlying substantive findings, as well as the sampling/extrapolation methodology for any extrapolated overpayment demand, Medicare providers, suppliers and their attorneys should also avail themselves of Medicare’s “Without Fault” rule, where appropriate.
What is the Without Fault Rule?
As a general rule, a provider is liable for an overpayment unless the CMS contractor determines that the provider was “without fault with respect to the overpayment.” Medicare Financial Management Manual (MFMM), Ch. 3, Sec. 70. A provider is “without fault” if the provider:
[E]xercised reasonable care in billing, and accepting the payment, i.e., it made full disclosure of all material facts, and based on the information available, including but not limited to, the Medicare instructions and regulations, it had a reasonable basis for assuming that the payment was correct, or, if it had reason to question the payment, it promptly brought the question to the Contractor’s attention.Id. at Sec. 90. “If the Contractor determines that an overpaid provider or physician was without fault and therefore not liable for the overpayment, it relieves the provider of liability for the overpayment.” Id. at Sec. 70. The MFMM goes on to state that providers who act “in good faith” in providing services found later not to be reasonable and necessary should not be held liable for any resulting overpayment.
Another Medicare manual – the Medicare Claims Processing Manual (MCPM) – provides examples of situations where “an assumption” can be made that the provider is “without fault”:
- The service is for a type of treatment that can be rendered only by a physician, but the contractor has not previously denied payment for the treatment, and it is not unreasonable that a particular physician might consider the treatment appropriate. In order to determine whether the services are reasonable and necessary, the contractor requests its physician consultant or CMS to advise whether the services are covered. This is a case for which there are no general coverage guidelines for the services; the contractor has not advised either the physician or the medical community regarding the coverage of the services; and the contractor is uncertain without expert consultation. In such a case, it may be presumed that neither the beneficiary nor the physician could have known that the services would be noncovered.
- The item or service is ordinarily covered, but a question is raised as to whether it is reasonable and necessary in treatment of a particular diagnosis. Neither the provider, practitioner, or supplier nor the medical community has been advised that the item or service is not covered for that diagnosis. The case requires a determination by the contractor’s medical consultant or is referred to CMS for guidance. As in example (a), the liability of both parties should be limited.
- The provider, practitioner, or supplier is newly arrived in the contractor service area, and the contractor has not yet communicated to the provider, practitioner, or supplier information in an existing general notice that the item or service is not covered, always or under certain circumstances.
MCPM, Ch. 30, Sec. 1002. The MCPM adds that if the provider, practitioner, or supplier “could reasonably be expected, by virtue of normal medical knowledge, to know that the service was unneeded, the presumption suggested in the above examples would not apply.” Id.
The provider/supplier carries the burden of establishing that it is without fault and must do so by a preponderance of the evidence (i.e., more likely than not) standard.
Recent ALJ Decisions Applying Without Fault Limitation
Recently, several Medicare ALJs have applied the “without fault” provision to limit a provider’s liability and overturn an overpayment determination. Here are two recent examples that we have handled:
Example 1: In March 2025, Medicare ALJ J.K. Waits issued a decision that was fully favorable to our client, a gastroenterology practice. The MAC issued a large overpayment demand based on its finding that the practice billed for anesthesia services provided by a CRNA who was – unbeknownst to the practice – under a CMS revocation. After a hearing – during which counsel presented documentary and testimonial evidence regarding the practice’s due diligence – ALJ Waits concluded that the provider was entitled to the Medicare payment as billed under the Without Fault provisions.
Example 2: Similarly, in June 2024, Medicare ALJ Gina Shin issued a decision fully favorable to our client, a podiatry practice. The MAC found that our client improperly billed for amniotic injections that Medicare considered experimental and not medically necessary. After a hearing, Judge Shin concluded that the services were not covered, but that the provider was not liable pursuant to the “Without Fault” provisions. Specifically, Judge Shin found that the provider “had a reasonable basis to assume that payment was correct” based on evidence presented at the hearing that the provider made contact with Medicare regarding how to bill the services at issue and used codes listed on Medicare’s website. Judge Shin also found that CMS did not have any guidance on the topic until after the dates of service at issue. Judge Shin concluded that “the record contains evidence to rebut the presumption that the Appellant knew, or should have known, that the services were not covered under the Medicare program.”
A third ALJ – Judge Paula Gregory – issued a decision very similar to the Judge Shin’s, described above, in favor of our client, a pain practice. Unfortunately, Medicare appealed that fully favorable decision and the Medicare Appeals Council reversed the ALJ’s decision, concluded that the ALJ’s decision to limit the provider’s liability under the Without Fault provisions were “not supported by the preponderance of the evidence.” Although the Appeals Council acknowledged that “Medicare had not issued guidance specifically concerning the non-coverage” of the services provided, it nevertheless reversed the ALJ, finding that the provider “could have reasonably been expected to know that Medicare would not cover the services.” We have appealed that decision to a federal district court judge in South Carolina, and that case is currently pending.
How to Utilize the Without Fault Provision to Limit Your Liability
Medicare providers and suppliers should include a Without Fault argument in any Medicare overpayment appeal. This is especially true in cases where the contractor denied the claim(s) at issue based on a post-hoc medical necessity determination and/or in cases where Medicare has not issued any clear guidance regarding the items or services at issue.
Although it is very unlikely that the Without Fault argument will carry the day in the first two levels of administrative appeal (redetermination and reconsideration), it is nevertheless important that these arguments be made at all levels of appeal to preserve it for the ALJ’s consideration. By including a Without Fault argument, you give the ALJ an opportunity to limit your overpayment liability even where the claims were improperly paid.
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The attorneys at Chilivis Grubman represent healthcare providers of all types and sizes in connection with Medicare, Medicaid, and private payor audits and audit appeals. If you need assistance with such a matter, please contact us.
[i] https://www.cms.gov/files/document/fy2023-medicare-and-medicaid-report-congress.pdf.