A physician who receives a Medicare overpayment demand letter faces a choice that has nothing to do with whether the overpayment determination is correct: whether to request immediate recoupment and let the Medicare Administrative Contractor (MAC) offset the debt out of upcoming payments now, or hold onto the cash while an appeal runs and let interest accrue against the balance. Both paths are lawful. Neither is free.
How Interest Accrues Under 42 CFR 405.378
Under 42 CFR 405.378, the interest rate on a Medicare overpayment is the higher of the Treasury's current value of funds rate or the private consumer rate the Treasury certifies quarterly. For calendar year 2026 the current value of funds rate is 1 percent, but the private consumer rate has run far higher, and CMS notified its contractors that the rate effective January 20, 2026 is 11.625 percent per year. Interest is simple, not compounding, and it is charged on the outstanding principal in 30-day blocks starting on day 31 if the demand letter's balance is not paid in full within 30 days. Once interest is assessed, any payment applies to accrued interest first and to principal second, which lengthens the time it takes a partial payment to actually reduce the debt.
What Requesting Immediate Recoupment Does
A physician can request that the MAC begin offsetting the overpayment against future Medicare payments starting by day 16 after the demand letter, either as a one-time request tied to that specific overpayment or as a standing election covering all current and future debts. The Medicare Financial Management Manual, Chapter 4, directs contractors to treat every written immediate recoupment request as a voluntary payment arrangement. If the offsets satisfy the debt in full before day 31, no interest is ever assessed on it. If a balance remains after day 30, interest continues to accrue on whatever is left until it is collected in full, the same as any other unpaid overpayment.
The Cost Of Waiting Out An Appeal
Section 1893(f)(2) of the Social Security Act bars a MAC from recouping an overpayment while a timely redetermination or reconsideration is pending, the first and second of the five levels of Medicare overpayment appeal. A redetermination request filed within 30 days of the demand letter keeps recoupment from starting on day 41, and a reconsideration request filed within 60 days of an unfavorable redetermination keeps it paused through the second level. That protection covers the principal only. Interest under 405.378 keeps running at the quarterly certified rate the entire time the appeal is pending, whether or not the physician has requested a stay of recoupment, so a physician who is confident enough in the appeal to hold onto the cash is also financing that decision at 11.625 percent a year against the outstanding balance.
The Interest A Physician Gives Up By Paying Voluntarily
The tradeoff runs in both directions. When a MAC recoups an overpayment involuntarily, meaning the physician did not elect immediate recoupment or an extended repayment schedule, and the physician later prevails at the Administrative Law Judge level or beyond, Medicare pays the physician interest under Section 1893(f)(2) on the amount recouped and later refunded, calculated from the date of recoupment to the date of the reversal. An immediate recoupment request forecloses that possibility. The demand letter language physicians sign when they elect immediate recoupment specifically states that they are waiving the potential interest payable under Section 1893(f)(2), because a voluntary payment is not the kind of involuntary recoupment the statute compensates.
Requesting immediate recoupment stops the interest meter on the debt but also forfeits the interest Medicare would otherwise owe back on a winning appeal.
Why Early Legal Counsel Is Critical
It is critical that physicians retain experienced healthcare defense counsel as soon as an overpayment demand letter arrives, well before the 30-day window to preserve recoupment protection closes. Counsel can assess the strength of the underlying determination, including whether it rests on statistical extrapolation from a small sample, before the physician has to decide whether to pay now or fight and carry interest. Delaying that assessment past the redetermination deadline narrows the choice to two costly defaults: recoupment starts automatically, or the physician requests immediate recoupment without first knowing whether the underlying overpayment can be reduced or reversed on appeal.
How Health Law Alliance Can Help
Health Law Alliance advises physicians on the immediate recoupment decision as part of the firm's Medicare audit defense practice, weighing the strength of the appeal against the interest that will accrue if the physician holds the cash and the interest that is forfeited by paying voluntarily. If your practice has received a Medicare overpayment demand letter and needs to decide between immediate recoupment and an appeal before the 30-day deadline runs, contact us for a free, confidential consultation.
