Medicare will generally not pay for medical items and services furnished to a beneficiary who was incarcerated or in custody under a penal statute or rule at the time items and services were furnished. For additional information about this policy, please refer to the Medicare Learning Network’s recent “Medicare Coverage of Items and Services Furnished to Beneficiaries in Custody Under a Penal Authority” Fact Sheet (ICD 908084).

Recently, CMS initiated recoveries from providers and suppliers based on data that indicated a beneficiary was incarcerated or in custody on the date of service. For these recoveries, CMS identified previously paid claims that contained a date of service that partially or fully overlaps a period when a beneficiary was apparently incarcerated based on information from the Social Security Administration (SSA). As a result, a number of overpayments were identified. In some cases demand letters were released with appeals instructions, and, in many cases, automatic collections of overpayments were made. However, CMS has since learned that the information
was, in some cases, incomplete for purposes of collection.

CMS understands that this issue has been challenging for providers and beneficiaries, and we are actively addressing it. We have restored the original data on the Medicare Enrollment Data Base. Any new claims that are denied on or after October 28, 2013, because the beneficiary was incarcerated on the date of service, are based upon that information. We are also identifying all of the claims that were incorrectly demanded or collected, making changes to claims processing systems, and refunding amounts collected. This process will identify the claims that were denied in error and reprocessing will be completed by the Medicare Administrative Contractors.


Q1: How is CMS resolving the claims denial issues associated with the June, July, and August 2013 incarcerated beneficiaries’ data? 

A1: The resolution of this situation requires a series of complex actions, including the restoration of the original data on the Medicare Enrollment Data Base (EDB), the identification of claims that were incorrectly denied or cancelled, the determination of amounts that will need to be refunded, and making changes to our claims processing systems to update Medicare history and notify the other users of our data, such as secondary insurers. The EDB data has been updated and CMS has reduced related non-supplier open accounts receivable to zero in the majority of instances. Most suppliers will receive refunds by the first week in December.

Refunds for non-supplier providers will begin to be issued during the first week in December and the majority should be issued by the middle of December. Note that accounts receivable related to claims that have been appealed are not impacted by this action; appealed claims will be handled separately and, where appropriate, refunds will be generated at a later date.

Q2: As part of the reprocessing work to correct the erroneous claim denials, is Medicare reviewing the claims that were denied on a daily basis between CWF updates during June, July, and August 2013? 

A2: Yes. Now that the up-to-date incarcerated beneficiary data from the Social Security Administration has been loaded into its systems, CMS has instructed its Medicare Administrative Contractors (MACs) to reprocess any claims that may have been denied on or after May 1, 2013 through October 28, 2013, to ensure that the denial was correct. If the original denial was in error, the MAC will adjust the claim to pay. All of the reprocessing should be completed no later than the end of December 2013.

Q3: Were providers notified of which accounts receivable were closed? 

A3: No.

Q4: Were all of the accounts receivable associated with the erroneous claim denials/cancellations closed? 

No. Most of the accounts receivable for erroneous provider claims denials/cancellations were closed. However any accounts receivables in an appeal, bankruptcy, fraud or CMS hold status were not closed. Finally, a group of accounts receivable for affected professional provider claims that haven’t been closed will be closed by the Medicare Administrative Contractor. The timeframe for this activity is not yet finalized.
Last updated 11-27-13

Q5: If an accounts receivable was not closed, does that mean that the overpayment is valid and will be pursued using normal procedures? 

A5: If an accounts receivable was not closed and does not fall into one of these groups, appeal, bankruptcy, fraud or CMS hold status, the providers and suppliers should assume that the overpayment is valid and it will be recouped using normal procedures.

Q6: Will the overpayment letters/demand letters that went out for the claims that were subsequently reprocessed be rescinded? 
A6: No. This action is not necessary because the Accounts Receivable was closed if the demand was not paid, or refunded if the demand was paid.