What is Overpayment in Medical Billing and How to Recover it?

Janet Scott
August 1, 2022
 Mins Read

Medical billing overpayments can wreak havoc on a company’s reputation. Not returning extra payments from patients or insurance companies exposes them to a variety of lawsuits. An Ohio healthcare provider got sued because it overbilled its private Medicare payers $29 million and their commercial insurers $7.7 billion. Even if overpayments happen by accident, the inability to take action quickly impedes your revenue directly.

Additionally, it reflects poorly on your organization if you don’t have efficient credit systems to deal with these issues. Healthcare management is also responsible to settle financial transactions with integrity.So, we aim to inform you about improving your overpayment process in medical billing to avoid these charges efficiently.

What is Overpayment in Medical Billing? Why does it matter?

Overpayment issues occur when patients or insurance companies pay healthcare providers more sum than they’re owed.

When medical service providers don’t return overpayments, they put their revenue and reputation on the line. While unintentional mistakes are understandable, not correcting these issues can land you in hot soup. Holding off on credits to the patient or the insurance company is a criminal offense in the US. Processing overpayments and offering credit is not an optional activity that healthcare providers can skip casually. It’s federally mandated under the 63 FR 70144 section of the law to follow these guidelines strictly. Your mistakes in this sector can cause legal trouble for you, the insurance companies involved, and your patients.

How Do Overpayments Happen?

Let’s understand which inefficient processes drive overpayments and cause trouble for you. Analyzing these sources helps you figure out an effective solution to tackle your overpayment issues.

Here are some common reasons for overpayment in the healthcare sector: –

  • Inefficient Technology

Your estimation tools may not perform at a 100 percent accuracy level.

  • Billing Issues

Your billing staff may make unintentional mistakes and over/under-bill.

  • Coordination of Benefit Issues

There may be confusion about how much coverage Medicare will provide them.

  • Bad Policies

Pre-collecting for procedures that are yet to be performed also causes overpayment issues. You may want to protect yourself financially. However, this strategy doesn’t work well on overpayment issues.

  • Rushing through Processing

‘Haste leads to waste’ certainly is valid in the medical billing system. If your medical billing staff is overloaded with tasks, they may bill incorrectly and initiate overpayments from patients.

  • Processing a New Client

Healthcare providers often cater to new clients that aren’t on their systems yet. In such cases, registering them on your systems and letting the insurance kick in takes time. Rushing through this process creates problems.

Overpayment Recovery in Medical Billing

If a Patient Overpays:

When a patient comes into your office and pays for a co-pay for mole removal, for example. You have an overpayment on your hand. On finding out about this issue, your medical staff can take it in two different ways: –

1. Notify the patient immediately

You can offer your patient credit notes for the next time he/she avails of your services. If they don’t want to wait for a future visit for reimbursement, you must return the overpayment through the appropriate means.

2. Immediately reimburse your patients

Sending a check to your patient through the submitted details explaining the credit also does the trick. Under any circumstances, do not keep the overpayment with you to avoid legal consequences.

If the Insurance Company Overpays:

If an insurance provider overpays, try to ascertain if it constitutes an overpayment. Connect with the provider to ask for a clarification of the calculated sum and the claim processing.

If they confirm that there’s indeed an overpayment issue, request them to process the claim again with the right amount. They’ll also have to send you a refund request to initiate a refund. If the insurance carrier appeals for a refund on the call, insist on having a written record of the overpayment to avoid miscommunication in the future.

After getting the written request, assign a cheque to this request and send it to the insurance provider. If you’re unaware of their address, send the cheque to the claims department with the subject ‘Attention: Overpayments’ on the envelope. If the complete payment was faulty, write ‘void’ on the cheque and explain to the provider about payment status. For example, if an accidental payment was made for the services a patient didn’t avail of, use the ‘void’ cheque option. Attach the message, ‘The patient never visited the office.’

Document all Overpayments

Since overpayments can potentially become huge legal problems, keeping all documents is crucial. Even after you credit the payment, you need to have documental evidence such as letters, notes, checks, and communication with the insurance providers. You could also track and record phone calls to keep proof of those claims whose physical requests don’t arrive.

Doing so protects you from credit card refunds and disputes in particular. Considering the legal ramifications and preparing for each overpayment meticulously helps your practice from trouble.

Be Cautious before Crediting the Payments

When a patient says that he/she didn’t overpay, analyze further to uncover possible explanations for the confusion. Sometimes your payer may have two insurance plans. Their first plan may permit an amount, and pay it, while their second plan processes the claim.

If the second plan permits and pays more than the necessary amount, a credit balance may occur. Such cases do not require crediting from your end. Considering this balance as an overpayment may cause a loss in your revenue.

However, private insurance companies use different rules. They may completely ignore other insurance and pay you the sum for the second time. So, you end up getting money from both of your patient’s insurance companies. Refunding this extra amount to your patient, in this case, becomes critical to your operations.


We hope you know how to handle overpayments now. Overpayment issues will always exist. However, if you try to minimize and manage them, you avoid all their negative effects. Hiring an experienced medical billing company will definitely reduce the struggles of identifying and addressing overpayment issues.

Manage these issues with vigor and proactivity to swiftly surge ahead.

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