Sixth Circuit Revives Medicare Waiver of Liability Doctrine

Medicare providers understand that a claim may be denied if the services do not satisfy applicable coverage requirements. The more difficult question is whether a provider must repay Medicare when a coverage determination is later overturned and recouped, or when the provider reasonably believed the services qualified for coverage at the time they were furnished. That question was recently addressed by the U.S. Court of Appeals for the Sixth Circuit in In Home Health, LLC v. Kennedy, a decision that could have significant implications for Medicare providers facing post-payment audits and overpayment demands.

The Social Security Act provides for a Waiver of Liability doctrine wherein a provider is not liable for a Medicare overpayment where the provider did not know and could not reasonably have been expected to know that payment would not be made. Waiver of Liability issues typically arise where Medicare coverage guidance is vague, open to interpretation, or non-existent. However, the doctrine typically gets extremely short shrift in the Medicare claims appeal process, where most reviewers simply conclude that it does not apply without performing any substantive analysis.

In Home Health involved a hospice provider that faced a demand for nearly $1 million in alleged overpayments after Medicare contractors, and further levels of administrative review by a Qualified Independent Contractor and Administrative Law Judge (ALJ), that numerous hospice claims did not meet Medicare’s coverage requirements.

The Sixth Circuit held that the ALJ applied the wrong legal standard in determining whether the provider was required to repay Medicare reimbursements. The court explained that the Waiver of Liability doctrine under 42 U.S.C. § 1395pp functions as a “safe harbor” that protects providers from recoupment when they reasonably, and in good faith, interpret applicable Medicare guidance as supporting coverage, even if that interpretation ultimately proves incorrect.

In In Home Health, the Sixth Circuit rejected the idea that a provider’s general knowledge of Medicare rules and coverage guidance automatically establishes that the provider should have known a particular claim would not be covered. Instead, the court required an assessment of whether the provider adopted a “reasonable interpretation” of the applicable guidance as covering the specific claims at issue.

For healthcare providers, the decision highlights an important distinction: a determination that Medicare did not cover a service does not necessarily resolve whether the provider must pay the resulting recoupment. The circumstances surrounding the provider’s interpretation of the applicable coverage requirements may be equally important, in “recognition of the complexity of the Medicare maze.”

The decision also demonstrates the importance of maintaining documentation that supports medical necessity and coverage determinations when services are furnished. Providers facing Medicare audits, recoupment actions, or administrative appeals should evaluate not only whether the services satisfy the applicable coverage criteria, but also whether the statutory safe harbor may provide a good faith affirmative defense in the case of a repayment challenge.

For over 40 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding new developments in healthcare law and regulation. If you or your healthcare entity has any questions pertaining to healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com.