Recoupment and Set-off (see also §140.6.4)

140.2.5 - Recoupment and Set-off (see also §140.6.4) (Rev. 13825; Issued: 06-11-26; Effective: 07-13-26; Implementation: 07-13-26) Recoupment and set-off are two of Medicare's primary tools for recovering overpayments from debtor providers, but these terms may be used differently in other federal contexts, including under the Federal Claims Collection Act. In bankruptcy, jurisdictions vary in their decisions about how Medicare can use these tools. Some jurisdictions consider the Medicare Part A provider agreement one contract/transaction and allow it to be the basis for broad powers of recoupment. Other jurisdictions consider each cost report year as a distinct contract and restrict recoupment to periods within a particular cost report year. The CMS Office/CMS Counsel can advise the Contractor whether current law in a specified jurisdiction permits recoupment. 1. Recoupment Recoupment permits a party to reduce current payments to account for prior overpayments made under the same contract or transaction. Recoupment permits adjustment across the petition date and does not require approval of the bankruptcy court. Therefore, Medicare should recoup in any jurisdiction where it is permitted. 2. Set-off If recoupment is not permitted, set-off will be considered. Medicare must take quick action to recover overpayments using set-off. Set-off should not take place without specific instructions by the CMS Office or CMS Counsel. Set-off permits making similar adjustments in situations involving one or more contracts or transactions. For example, suppose B owes A $40.00 under one contract and A owes B $50.00 under another contract. If set-off is allowed, then A can take her $40 from the $50 she is holding for B (A would only pay B $10.00). Generally, parties can request court permission to set-off. If allowed, parties can set-off pre-petition claims against pre-petition payments or post-petition claims against post-petition payments. They cannot set-off pre-petition claims against post-petition claims. 3. Administrative Freeze Once it is discovered that a provider is in bankruptcy, Medicare can enact a temporary administrative freeze. An administrative freeze (sometimes called a Strumpf freeze, named after a Supreme Court case) will allow time for Medicare to determine if there are any overpayments and to ask the bankruptcy court to allow set-off. Speed is essential because courts do not permit set-off across the petition date. A pre- petition overpayment can only be set-off against a pre-petition claim.