Extended Repayment Schedule (ERS) for Medicare Overpayments: Eligibility, Application, and Interest

A large Medicare overpayment can create a serious cash flow problem. If a provider cannot repay the overpayment within 30 days of the demand letter, interest begins to accrue, and the Medicare Administrative Contractor (MAC) may begin recouping current payments. For many providers, especially smaller practices, home health agencies, and suppliers, full recoupment could mean weeks or months with little Medicare revenue.

An Extended Repayment Schedule, or ERS, allows a provider or supplier to repay a Medicare overpayment in installments over time when repaying within 30 days would cause financial hardship. An ERS can protect operations while the debt is resolved, and it can be used alongside an appeal.

This article explains the legal basis for an ERS, who qualifies, how to apply, what documentation is required, how long an ERS can last, how interest works, what happens while a request is pending, how defaults are handled, and how an ERS interacts with recoupment, appeals, and Treasury referral. It is educational and does not replace legal or financial advice.

The Legal Basis for an ERS

Section 1893(f)(1) of the Social Security Act, added by Section 935 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, authorizes CMS to grant a provider or supplier a repayment schedule of at least six months if repaying an overpayment within 30 days would constitute a hardship. The rules are implemented at 42 CFR 401.607(c), and CMS's Medicare Financial Management Manual, Chapter 4, Sections 50 through 50.6, provides detailed instructions for MACs. CMS updated these manual sections in Transmittal 12262, issued September 28, 2023, and effective October 30, 2023.

CMS's Medicare Overpayments fact sheet confirms that if you cannot pay an overpayment in full within the required timeframe, the demand letter will include instructions for requesting an ERS.

Who Qualifies for an ERS?

Hardship

Under 42 CFR 401.607(c)(2) and CMS's manual, hardship exists when the total amount of all outstanding overpayments, including principal and interest, that are not included in an approved, existing repayment schedule is 10 percent or more of the total Medicare payments made to the provider or supplier for:

• The cost report period covered by the most recently submitted cost report, for providers that file cost reports, or

• The previous calendar year, for providers and suppliers that do not file cost reports.

Extreme Hardship

Extreme hardship exists when a provider or supplier qualifies as being in hardship and its request for an ERS of more than 36 months and up to 60 months is approved under the regulation's criteria. In practice, extreme hardship ERSs are reserved for situations where a longer schedule is necessary and justified by the provider's financial condition.

Situations That May Disqualify a Request

CMS's manual identifies situations in which an ERS may not be appropriate or may require additional review, such as:

• Suspected bankruptcy.

• The provider is ceasing business or leaving the Medicare program.

• Indications of fraud or abuse.

• Missing required elements, such as a signed request, required documents, a proposed schedule, or the first installment payment.

How Long Can an ERS Last?

• Hardship: Under 42 CFR 401.607, CMS or its contractor may grant an ERS of at least six months and up to 36 months.

• Extreme hardship: CMS or its contractor may grant an ERS of more than 36 months and up to 60 months.

CMS's manual explains that the length approved depends on the analysis of the provider's financial information, and the ERS may be granted for a period equal to or less than the period requested.

When to Request an ERS

CMS's manual explains that a provider may request an ERS at any time while an overpayment is outstanding. If repaying within 30 days would be a hardship, the request should be submitted immediately. Requests submitted after 30 days are still reviewed if the debt has not been referred to the Department of the Treasury.

Submitting early has important benefits:

• It can prevent standard recoupment from beginning, because CMS identifies a requested or approved ERS as an excluded category for standard recoupment.

• It limits the interest that accrues before the schedule begins.

• It avoids escalation to intent to refer letters and Treasury referral.

How to Apply

Follow Your MAC's Instructions

Each MAC publishes its own ERS request form and instructions, consistent with CMS's manual. Use the instructions in your demand letter and on your MAC's website.

Required Documentation for Shorter Schedules

According to CMS's manual, for ERS requests of 15 months or less, providers generally must submit:

• A signed request.

• A proposed amortization schedule.

• A good faith payment for the first month.

• Continued monthly good faith payments while the request is under review.

CMS's manual explains that requests of less than 16 months may proceed without full financial documentation if the provider meets the hardship qualifications and no disqualifying scenario applies. Requests of six to 15 months are considered on a case-by-case basis.

Required Documentation for Longer Schedules

For ERS requests of 16 months or more, CMS's manual requires financial documentation:

• Physicians who are sole proprietors: Form CMS-379, financial statements of the debtor, and the most recent year's income tax return.

• Entities other than sole proprietors: balance sheets, income statements with officer certification, cash flow statements, projected cash flow statements, and supporting schedules, such as restricted cash, investments, notes and mortgages payable, amounts due to and from related parties, and patient occupancy information, as applicable.

Financial records must relate to the participating business.

Preparing a Strong Request

• Calculate the hardship percentage using your outstanding overpayments and prior-year Medicare payments.

• Prepare a realistic amortization schedule you can sustain.

• Make the first good faith payment with the request.

• Assemble complete financial documentation if requesting 16 months or more.

• Include a cover letter explaining your financial situation and the reasons for the requested term.

• Submit all overpayments you want included, identified by accounts receivable number.

What Happens While the Request Is Pending

Recoupment

CMS's manual explains that when a provider submits a complete request with a good faith payment, the MAC accepts the payment and suspends recoupment during the review. If no good faith payment is submitted, recoupment is set at 30 percent of payments. For incomplete requests, recoupment is set at a minimum of 30 percent, and the request may be closed if missing documents are not received within 16 calendar days.

Review Timeline

CMS's manual requires MACs to approve, counter, deny, or refer a request within 30 calendar days of receiving a complete request, and to provide written notice of the decision within five calendar days. MACs must also verify enrollment status in PECOS and perform program integrity checks before approving an ERS.

Payments During Review

Payments received while the request is being processed are applied to the overpayment, first to interest and then to principal.

Approval, Counteroffers, and Denials

Approval

If approved, the MAC notifies the provider of the terms, including the payment amount, number of installments, and interest rate.

Counteroffer

The MAC may offer different terms, such as a shorter schedule. If the provider rejects the terms, CMS's manual explains that normal recoupment resumes at 100 percent of payments. If the provider disputes the terms based on hardship, the request may be referred to the CMS Regional Office.

Referral to CMS

MACs may refer requests to the CMS Regional Office with a recommendation, for example when a request involves extreme hardship, terminated providers, or other special circumstances.

Denial

If the request is denied, normal collection resumes. The provider may submit a new request with additional documentation if its circumstances support it.

Interest Under an ERS

Interest Continues

An ERS does not stop interest. Interest accrues on the outstanding balance throughout the repayment period.

How Interest Is Calculated

CMS's manual explains that the interest rate is the higher of the private consumer rate or the current value of funds rate, set quarterly. Interest is simple interest, uses a 360-day year, and accrues for each 30-day period. Under an ERS, the rate set for the quarter in which the overpayment was determined generally stays fixed unless the provider defaults.

Pre-Accrued Interest

Interest that accrued before the ERS was established is generally collected first, over a period of no more than three months unless CMS directs otherwise.

ERS and Section 935 Interest

If a provider is appealing an overpayment and later wins at the ALJ level or a higher level, Section 1893(f)(2)(B) of the Social Security Act provides for interest to be paid to the provider on amounts recouped under the limitation on recoupment. CMS's Financial Management Manual explains that this special interest applies only to overpayments recovered through involuntary recoupment, and MAC guidance confirms that payments under an ERS or other voluntary payments are generally not included. Providers should weigh the cash flow benefits of an ERS against this consideration.

Applying Underpayments and Refunds

CMS's manual explains that providers may elect to have underpayments and manual refunds automatically applied to the overpayment. Without that election, these amounts generally are not applied to an ERS except as specified in the manual. When applied, they shorten the ERS term rather than changing the installment amount.

Defaults

What Counts as a Default

CMS's manual explains that a missed installment payment not received within 30 days of its due date is a default.

What Happens After a Default

• The MAC sends a default notice within five calendar days.

• The ERS is suspended, and normal collection resumes, which may include recoupment and Treasury referral.

• After default, the interest rate on the remaining balance may change to the prevailing rate if it is higher.

• Reinstatement may be considered if the provider submits new documentation.

• A second default closes the ERS without reopening.

• A new ERS will not be granted while a prior defaulted ERS remains unresolved.

CMS's 2023 manual update clarified that a default occurs when a provider misses one payment, consistent with 42 CFR 401.607.

ERS and Treasury Referral

CMS's manual explains that if an intent to refer letter has been sent and an ERS request arrives before the debt is referred to the Treasury, the request is reviewed first. If the ERS is approved, the debt is not referred. If a missed payment occurs under an ERS, normal collection, including Treasury referral, may proceed.

ERS and Appeals

You Can Do Both

A provider may appeal an overpayment and request an ERS. This is common when the provider disagrees with the overpayment but cannot afford full recoupment if the appeal is lost at the early levels.

Coordinating Timing

• To prevent recoupment while appealing, file a valid redetermination within 30 days of the demand letter. During the first two appeal levels, recoupment of overpayments subject to the limitation is generally stopped.

• After the reconsideration decision, recoupment may begin even if you request an ALJ hearing. This is often when an ERS becomes most valuable.

• If you win the appeal, the overpayment is adjusted, and amounts paid that are no longer owed are refunded.

Consider the Interest Trade-Off

Because ERS payments are voluntary, they may not qualify for Section 935 interest if you later win at the ALJ level or above. For large overpayments with strong appeals, providers sometimes weigh allowing involuntary recoupment versus entering an ERS. This decision depends on cash flow, the strength of the appeal, and the time expected to reach a decision.

Terminated Providers

CMS's manual requires MACs to review complete ERS requests, including those from terminated providers, and to consider the provider's ability to repay. If an ERS may serve the program's interest, the request is referred to the Regional Office before denial.

A Step-by-Step ERS Plan

1. Review the demand letter and confirm the overpayment amount and accounts receivable numbers.

2. Decide whether to appeal some or all of the overpayment.

3. Calculate your hardship percentage.

4. Choose a realistic repayment term.

5. Gather required documentation based on the term requested.

6. Prepare a proposed amortization schedule.

7. Submit the request with the first good faith payment as early as possible, ideally before Day 30.

8. Continue monthly good faith payments while the request is pending.

9. Respond promptly to any MAC requests for additional information.

10. Review the approved terms carefully.

11. Set up reliable payment processes to avoid default.

12. Track the ERS balance, interest, and any applied underpayments.

Calculating the Hardship Percentage: A Simple Example

To estimate whether you meet the hardship threshold:

1. Add the principal and interest of all outstanding Medicare overpayments that are not already in an approved repayment schedule.

2. Identify your total Medicare payments for the most recent cost report period, or for the prior calendar year if you do not file cost reports.

3. Divide the outstanding overpayments by the total Medicare payments.

For example, a physician practice with $45,000 in outstanding overpayments and $400,000 in Medicare payments in the prior calendar year has a ratio of 11.25 percent, which meets the 10 percent hardship threshold. A practice with $30,000 in overpayments and the same Medicare payments has a ratio of 7.5 percent, which does not.

Confirm the calculation with your MAC's instructions, since MACs apply CMS's manual guidance when evaluating requests.

Questions to Discuss Internally Before Requesting an ERS

• Do we dispute any part of the overpayment, and should we appeal?

• How much can we realistically pay each month?

• How long a schedule do we need, and can we document it?

• Will an ERS affect our ability to receive Section 935 interest if we win an appeal?

• What controls will we use to make sure no payment is missed?

Common ERS Mistakes

• Waiting until recoupment has started to request an ERS.

• Submitting an incomplete request without required documents or a good faith payment.

• Requesting a schedule longer than the documentation supports.

• Proposing payments the organization cannot sustain.

• Assuming an ERS stops interest.

• Missing a single payment and defaulting.

• Forgetting to include all outstanding overpayments.

• Not considering the effect of an ERS on Section 935 interest during appeals.

Document Checklist for ERS Requests

For all requests:

• Signed ERS request on the MAC's form or letterhead.

• List of overpayments to be included, with accounts receivable numbers.

• Proposed amortization schedule.

• First good faith payment.

For requests of 16 months or more, add:

• For sole proprietors: Form CMS-379, financial statements, and the most recent income tax return.

• For entities: balance sheet, income statement with officer certification, cash flow statement, projected cash flow statement, and supporting schedules required by the MAC.

A Hypothetical Example

A small DME supplier receives a $180,000 overpayment demand following a postpayment review. Its Medicare payments for the prior calendar year were $900,000, so the overpayment equals 20 percent of prior-year Medicare payments, meeting the hardship threshold. The supplier disputes part of the overpayment and files a redetermination within 30 days for those claims.

For the undisputed $60,000, the supplier requests a 12-month ERS, submitting a signed request, a proposed amortization schedule, and the first good faith payment. Because the request is for less than 16 months and the supplier meets the hardship threshold, the MAC does not require full financial statements. The MAC approves the request within 30 days. The supplier sets up automatic monthly payments to avoid default and continues its appeal on the disputed claims.

Frequently Asked Questions

Who qualifies for an ERS?

Providers and suppliers whose outstanding overpayments not already in a repayment schedule are 10 percent or more of their Medicare payments for the most recent cost report period or prior calendar year.

How long can an ERS last?

Generally from six months up to 36 months for hardship, and more than 36 months up to 60 months for extreme hardship.

Do I need financial statements?

For requests of 15 months or less, full financial documentation may not be required if hardship is met. For 16 months or more, financial documentation is required.

Does an ERS stop recoupment?

CMS identifies a requested or approved ERS as an excluded category for standard recoupment. A complete request with a good faith payment generally suspends recoupment during review.

Does an ERS stop interest?

No. Interest continues to accrue throughout the ERS.

What happens if I miss a payment?

A payment not received within 30 days of its due date is a default, and normal collection resumes.

Can I pay off an ERS early?

Generally yes. Paying early reduces the interest you owe. Confirm the process with your MAC.

Conclusion

An Extended Repayment Schedule allows providers and suppliers facing financial hardship to repay Medicare overpayments over time rather than all at once. Eligibility depends on whether outstanding overpayments equal at least 10 percent of prior Medicare payments, and schedules generally range from six to 36 months, or up to 60 months for extreme hardship. Requests should be submitted early, with a proposed schedule, a good faith payment, and the required documentation. Interest continues throughout the schedule, and a single missed payment can trigger default. Used strategically, often alongside appeals, an ERS can protect cash flow and keep operations stable while overpayment disputes are resolved.

How HealthBridge Can Help

HealthBridge is a healthcare management consulting firm that helps providers evaluate ERS eligibility, prepare complete ERS requests and financial documentation, coordinate ERS strategy with appeals, and manage repayment to avoid default. If you need help requesting an Extended Repayment Schedule, please get in touch with us. We will be happy to help you with this topic.

References

• Centers for Medicare & Medicaid Services. Medicare Overpayments (MLN006379). https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/overpaymentbrochure508-09.pdf

• Centers for Medicare & Medicaid Services. Medicare Financial Management Manual, Chapter 4, Debt Collection. https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/fin106c04.pdf

• Centers for Medicare & Medicaid Services. CMS Manual System, Pub. 100-06, Transmittal 12262 (Extended Repayment Schedule Updates, September 28, 2023). https://www.cms.gov/files/document/r12262fm.pdf

• Centers for Medicare & Medicaid Services. CMS Manual System, Pub. 100-06, Transmittal 264 (Extended Repayment Schedule Manual Updates). https://www.cms.gov/regulations-and-guidance/guidance/transmittals/downloads/r264fm.pdf

• Centers for Medicare & Medicaid Services. Medicare Financial Management Manual, Chapter 3, Overpayments. https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/fin106c03.pdf

• Centers for Medicare & Medicaid Services. CMS Manual System, Pub. 100-06, Transmittal 12509 (Limitation on Recoupment and 935 Interest). https://www.cms.gov/files/document/r12509fm.pdf

• Federal Register. Medicare Program; Use of Repayment Plans, Final Rule (June 27, 2008). https://www.govinfo.gov/content/pkg/FR-2008-06-27/pdf/E8-13520.pdf

• Electronic Code of Federal Regulations. 42 CFR 401.607, Claims Collection. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-A/part-401/subpart-F/section-401.607

• Electronic Code of Federal Regulations. 42 CFR 405.378, Interest Charges on Overpayment and Underpayments. https://www.ecfr.gov/current/title-42/section-405.378

• Electronic Code of Federal Regulations. 42 CFR 405.379, Limitation on Recoupment of Provider and Supplier Overpayments. https://www.ecfr.gov/current/title-42/section-405.379

• U.S. Social Security Administration. Social Security Act, Section 1893, Medicare Integrity Program. https://www.ssa.gov/OP_Home/ssact/title18/1893.htm