Accounts Receivable (AR) is used to measure the money that either insurance companies or patients owe to the health care providers. In simple words, AR refers to the invoices that either patients or insurance companies owe to health care providers for the services delivered.
When an insurance identifies an overpayment to a provider, the offset process is initiated. Providers are sent a letter specifying information regarding the overpayment and are given 30 days to refund the overpaid amount. Overpayment notices contain an accounts receivable number (AR#) which identifies the transaction. If the refund is not received from the provider within 30 days, a second notice is sent out for overpayments. If the overpaid amount is not received upon 40 days of the initial notification, Insurance will proceed with Offsetting money from payments to the provider until the overpaid amount is recovered.
Overpayment Reasons
Overpayments are usually created by late processing of amendments or incorrect transactions. The common types of amendments/transactions that cause overpayments are:
- Late processing of employment terminations
- Incorrect or duplicated allowances
- Incorrect salary levels/classifications
This article will discuss the topic in detail including definitions of necessary terms along with FAQs for health care providers.
Understanding offset payment in detail
As explained earlier, when an insurance company inaccurately makes an excess or wrong payment to its provider, it would adjust the amount in its successive claims and that is called offset in medical billing.
Let’s understand it better with an example. A doctor provides the health care services to a patient named David and bills the claim to the insurance company with an amount of $200 for the rendered services. The doctor receives a payment of $100 from the insurance company. When the auditing happens, the insurance company finds out that they have incorrectly processed the claim and paid $100 instead of $80.
Now, the insurance company either asks the health care provider to refund the excess amount ($20 in this case), or else it will offset the excess payment against the payment of upcoming claims of the same provider. Health care providers may even get a letter mentioning the overpayment and are given 30 days to refund the amount. Overpayment letters/notices have an account receivable number (AR) to identify the transaction. Providers may need to pay interest on overpayment if they do not refund the overpaid amount to the insurance company in the specified time.
FAQs for Health care providers
1. What should you do if you receive an overpayment letter or notice?
Ans. As mentioned earlier, the insurance company sends overpayment notice to the providers in case of an overpayment. It’s a formal request asking the provider to refund the extra amount. The providers get a certain time to pay the amount. The refund process is identified by the Accounts Receivable Number (AR #) provided in the notice.
The providers will have to bear interest if the demanded refund is not paid within 40 days from the date on the overpayment notice. The providers must include the notice number or AR number with the payment so that the transaction is identified properly.
2. Can you request an early or immediate offset of a demanded refund?
Ans. Yes. As soon as you receive an overpayment demand letter or notice stating that a refund is due, you can request an immediate offset of the debt in writing. The immediate recoupment process allows you to request that the recoupment begins before day 41. Choosing the immediate offset option may allow you to avoid paying interest if the refund is paid in full before day 31. If you choose an immediate offset, it is considered a voluntary repayment. However, a provider has the option to terminate the immediate recoupment process at any time.
3. What should you do if you have been overpaid on a claim by the insurance company?
Ans. You are required to refund the overpayment by completing the appropriate overpayment refund form. You need to mention the patient name, claim number/ID, AR number, and other necessary details while repaying the overpaid funds so that any required corrections related to the claim can be made and the payment is recognized properly.
4. What if you cannot refund the entire overpayment amount at one time?
Ans. If your practice is going through a financial strain and you find out that there is a refund due, this is what you should do. To overcome this problem, you can request an Extended Repayment Schedule (ERS) if you cannot pay the entire refund in full. Under ERS, you will be allowed to pay the overpayment in monthly installments rather than paying in one go or by applying the payments of future claims to the refund (also known as offset).
FAQs
In simple words, AR refers to the invoices that either patients or insurance companies owe to health care providers for the services delivered. When an insurance identifies an overpayment to a provider, the offset process is initiated.
What is offset in accounts receivable? ›
An offset account is an account that is directly or indirectly related to another account, and it reduces the balance of the related account to give us a net balance which is used for calculation, valuation, interpretation, and application in financial statements as the requirement may arise in the course of business ...
What is the meaning of offset payment? ›
What is an “offset”? An offset is when the federal income tax refund you would have received is used to pay all or a portion of a debt owing to a federal or state agency. If the full amount owed is not collected in one year, future offsets may be done to satisfy your debt.
What is an insurance payment offset? ›
In the event that your policy pays a percentage of your prior earnings, the insurance company will likely “offset” from your benefits any money your receive from other sources, such as Social Security Disability Insurance, state disability insurance, workers' compensation or Public Employee Retirement System benefits.
What is claim offset? ›
offset. 1) n. also called a "setoff," the deduction by a debtor from a claim or demand of a debt or obligation. Such an offset is based upon a counterclaim against the party making the original claim.
What is an example of an offset? ›
Who has had to borrow more to offset the increase in eurozone savings? You offset the carbon on your flights? Allowing them to deduct sales taxes will help offset this disadvantage. An increase in premium traffic in the third quarter has helped offset rising costs.
Can you offset receivables and payables? ›
Introduction - Netting is the process of offsetting Payables with Receivables to partially or completely clear the open items for same Supplier & Customer. In an organization receivables and Payables transactions occur between the organization and the business partners.
What is the rule of offset? ›
The rule of offset, also known as the principle of netting, is a legal doctrine that allows for the balancing and setoff of mutual debts between parties. This means that if two parties owe each other money, the debts can be offset against each other, resulting in a net amount that is owed by one party to the other.
What is the difference between a deposit and an offset? ›
An offset account is a transaction account linked to your home loan. You can make deposits or withdraw from it as you would with a regular transaction account. The big difference is that when you hold money in an offset account over a period of time, you can reduce the amount of interest charged on your home loan.
Is an offset a debit or credit? ›
Hence, debits on your bookkeeping for a bank account are increases in your cash. Conversely, when you pay a bill – which debits an expense – the offset is a credit on your bank account ledger. Thus, credits on your bookkeeping for a bank account lower the cash balance.
What is a tax deduction? Tax deductions work differently from tax offsets. While a tax offset is subtracted directly from an individual or entity's tax payable, a tax deduction is subtracted from the individual or entity's assessable income, reducing their taxable income.
What does amount eligible for offset mean? ›
The amount of my federal payment (e.g., income tax refund) has been reduced ("offset"). Why? If an individual owes money to the federal government because of a delinquent debt, the Treasury Department can offset that individual's federal payment or withhold the entire amount to satisfy the debt.
What does offset mean in medical terms? ›
What is offset? The recovery by Medicare of a non-Medicare debt by reducing present or future Medicare payments and applying the amount withheld to the indebtedness. (Examples are Public Health Service debts or Medicaid debts recovered by CMS).
What is the right to offset? ›
Generally, a bank may take money from your deposit account to make a payment on a separate debt that you owe to the bank, such as a car loan, if you are not paying that loan on time and the terms of your contract(s) with the bank allow it. This is called the right of offset.
What does offset mean in balance? ›
An offset account is an account that is paired with and offsets another account. The other account contains a gross balance and the offset account reduces this balance, resulting in a net balance. For balance sheet presentation purposes, these two accounts may be merged into a single line item.
What does offset account balance mean? ›
An offset account is an everyday bank account that's linked to your home loan. You can deposit your salary and savings into the account and the balance is then offset against the amount owing on your home loan.
What does 100% offset account mean? ›
A 100% offset account is an account linked to your home loan where you can park your savings and spare cash to reduce the interest you pay. Then, when interest is calculated on your home loan, the balance in your offset account is deducted from the loan amount owing, and interest is only charged on what remains.
What does offset mean in company? ›
In business, an offset can refer to the case where losses generated by one business unit are made up for by gains in another. Similarly, firms may also use the term in reference to enterprise risk management (ERM), where risks exposed in one business unit are offset by opposite risks in another.
