A Medicare contractor can determine that a claim was overpaid and still recover nothing from the provider who submitted it. Two separate provisions in the Social Security Act make that outcome possible even though the underlying coverage decision against the claim stands. Waiver of recovery applies when the provider was without fault in causing the overpayment. Limitation on liability applies when the provider did not know and could not reasonably have been expected to know that the service would be denied. The two provisions answer different questions and are proven with different evidence, so raising the wrong one can cost a provider an argument that otherwise fit the facts.
Waiver of Recovery When the Provider Is Without Fault
Waiver of recovery arises under Section 1870 of the Social Security Act once an overpayment has already been identified, after the claim was paid. The question is not whether the service was covered, but whether the provider should have to give the money back. A provider is without fault when it did not cause the overpayment and had no reason to know, at the time it billed or accepted payment on the claim, that the amount paid exceeded what Medicare allowed. The CMS Medicare Financial Management Manual directs contractors to weigh the provider's billing history and whether it relied on the contractor's own instructions or a published coverage policy. A provider that first learns of the overpayment through a MAC Targeted Probe and Educate review and can show it followed the guidance then in effect has a stronger waiver argument than one whose billing pattern shows repeated, uncorrected errors.
Limitation on Liability When the Denial Could Not Have Been Anticipated
Limitation on liability arises under Section 1879 of the Social Security Act and attaches to the coverage determination itself. It protects a provider from liability for a service later found not reasonable and necessary, provided the provider did not know and could not reasonably have been expected to know that the service would be denied. Knowledge is measured against what was publicly available at the time: a governing local coverage determination on point, a prior denial for the same code, or a written notice already given for the same service. The inquiry overlaps closely with medical necessity denials, since the same clinical record usually supports both.
What Evidence Supports Each Argument
The two provisions call for different proof. A waiver of recovery argument is built from the provider's own conduct: billing records with no pattern of the same error, correspondence showing reliance on contractor instructions, and prompt repayment once notified. A limitation on liability argument is built from what was knowable at the time of the claim: whether a local coverage determination addressed the service, whether a Recovery Audit Contractor (RAC) had already flagged similar claims, and whether the provider had received a specific denial for the same service before. Showing only that the provider did not personally profit from an error will not satisfy the separate knowledge standard limitation on liability requires.
Where Each Argument Belongs in the Appeal Process
Limitation on liability is part of the coverage determination, so it belongs at redetermination, the first level of a Medicare appeal, and should be preserved through reconsideration and any later administrative law judge hearing. Waiver of recovery is a separate determination the contractor makes once an overpayment is established, and a provider can request it directly from the contractor, by phone or in writing, without waiting on the appeal. A provider facing recoupment while both are pending should raise each in writing, since a contractor evaluating one is not automatically evaluating the other.
Raising a waiver of recovery argument where a limitation on liability argument belongs, or the reverse, is enough to have the right defense heard at the wrong stage of the appeal.
Why Early Legal Counsel Is Critical
It is critical that providers promptly retain experienced healthcare defense counsel when facing a Medicare overpayment demand. Early legal intervention protects the provider's appeal rights, ensures the waiver of recovery and limitation on liability arguments are raised at the correct appeal level, avoids inadvertent admissions to the contractor, preserves defenses that depend on the record made at each stage, and allows counsel to communicate with the contractor on the provider's behalf. Delaying representation can close options that were available only earlier in the process.
How Health Law Alliance Can Help
Health Law Alliance has handled 5,000+ matters across healthcare regulatory and audit defense over 25+ years, including overpayment demands where a waiver of recovery or limitation on liability argument changed the outcome. If your practice has received an overpayment demand and believes either provision applies, contact Health Law Alliance's Medicare audit defense attorneys for a free, confidential consultation.
