By Reynaldo T. Acosta, Esq., Head of Litigation, Vitale, Suarez & Associates, P.A. · Miami Lakes, Florida
Medicare limitation on liability is not a general forgiveness of overpayments. It is a statutory rule that turns on one question: what did you know, or what could you reasonably have been expected to know, when you furnished the service?
If you manage compliance, billing, or operations for a practice, clinic, laboratory, home health agency, or facility that received a denial on the ground that a service was not reasonable and necessary, you need to know when this rule can keep Medicare paying, what counts as proof that you knew, and what you have to build in your own files before the question is asked. Those three answers decide whether the rule helps you or is used against you.
In plain terms, the limitation on liability is a provision of the Medicare statute, 42 U.S.C. § 1395pp, and its implementing regulations in 42 C.F.R. Part 411. It matters in an overpayment appeal because the denial grounds it covers are the ones that produce many demands. The article on the Medicare overpayment appeal process shows where the appeal levels fit.
What the Rule Covers
Under the statute, if a denial rests on the exclusion for services that are not reasonable and necessary, on the exclusion for custodial care, or on a coverage denial of the kind the statute describes for home health and hospice, payment can still be made when the individual and the provider did not know, and could not reasonably have been expected to know, that payment would not be made (42 U.S.C. § 1395pp(a)).
The regulation says the same thing in operational terms. Medicare pays for custodial care and for services that are not reasonable and necessary if both conditions are met. First, the services were furnished by a provider, or by a practitioner or supplier that accepted assignment. Second, neither the beneficiary nor the provider, practitioner, or supplier knew, or reasonably could have been expected to know, that the services were excluded (42 C.F.R. § 411.400(a)).
Two limits follow from that wording.
- It is tied to specific denial grounds. It does not apply to every overpayment. Read the denial for the ground it states before you assume the rule is available.
- It looks at knowledge on both sides. If both the beneficiary and the provider knew, or should have known, that the exclusion applied, no payment is made (42 U.S.C. § 1395pp(c)).
There is also a time limit. For inpatient hospital care, post-hospital skilled nursing facility care, and home health services, payment cannot be made for services furnished after the earlier of the day the beneficiary is determined to have actual or imputed knowledge of the exclusion and the day the provider is determined to have it (§ 411.400(b)). The regulation allows a short transition period in some cases.
What Counts as Knowing
The rule does not leave knowledge to inference. The regulation lists the situations in which a provider, practitioner, or supplier is considered to have known that custodial care or services that were not reasonable and necessary were not covered. Any one of them is enough (42 C.F.R. § 411.406).
- Notice from a QIO, intermediary, or carrier. One of those bodies told you that the services, or similar or reasonably comparable services, were not covered (§ 411.406(b)).
- Notice from a utilization review group or the attending physician. Your utilization review group or committee, or the beneficiary’s attending physician, told you the services were not covered (§ 411.406(c)).
- Notice to the beneficiary. Before furnishing the services, you told the beneficiary that they were not covered, or that the beneficiary no longer needed covered services (§ 411.406(d)).
- Knowledge from experience or notice. You received CMS notices, such as manual issuances, bulletins, or written guidance from intermediaries, carriers, or QIOs, including QIO screening criteria. Or you had notice through Federal Register publications announcing national coverage decisions or other noncoverage specifications. Or you knew the accepted standards of practice in the local medical community (§ 411.406(e)).
The statute adds a related route. A provider is also charged with knowledge if the Secretary, including through a quality improvement organization, flagged a past pattern of inappropriate utilization and gave the provider a reasonable time to correct it (42 U.S.C. § 1395pp(a)).
Read the last category carefully. Knowledge can come from what you received and from what the local medical community understands to be the standard. It does not depend on a notice addressed to you about this claim. That is why the rule is a documentation problem as much as a legal one.
What Happens When the Provider Knew
If the provider knew or should have known that payment would not be made, the statute requires the Secretary, on a timely application, to reimburse the individual for amounts the individual paid to the provider. Those amounts are treated as overpayments that can be recovered from the provider (42 U.S.C. § 1395pp(b)).
In that situation, the provider has the same appeal rights the individual has (§ 1395pp(d)). In plain terms, the knowledge finding is not the end of the matter. It is a finding that can be contested with evidence of what you received and when, and the rule gives you a path to do it.
Home Health Agencies Have a Separate Presumption
A home health agency that meets the statute’s timely-billing, patient-notice, and denial-rate requirements is presumed to lack the knowledge described in the statute. The presumption can be rebutted by notice from the fiscal intermediary or by clear and obvious facts showing the agency should have known (42 U.S.C. § 1395pp(f)). If you operate a home health agency, read the statute’s conditions against your own billing and notice practices before you rely on the presumption.
A Different Presumption After Five Years
A separate rule addresses delay. A provider or other person is presumed not to be at fault for an excess payment unless there is evidence to the contrary, and that presumption applies if the determination that too much was paid is made more than five years after the year in which notice of the payment was sent to the individual (42 C.F.R. § 405.350(c)).
This is a presumption that can be rebutted, not a waiver. It is also a rule about fault in the context of adjusting payments for an individual’s items and services. The related adjustment rules in 42 C.F.R. §§ 405.352 through 405.358 are written in terms of the individual, and they do not say that a provider can obtain a waiver under them. Do not describe your position as a waiver, and do not plan the appeal on the assumption that one is available.
How to Build the Knowledge Record
The control that matters is the file, not the argument. A provider that cannot show what it received and when has a control that exists on paper only. By the time a denial arrives, the notices that establish knowledge have already been sent, and the record of what you did with them already exists.
Step 1: identify the denial ground
Read the denial or the demand letter and write down the stated ground. If it is not an exclusion for services that were not reasonable and necessary, custodial care, or a covered coverage denial, ask counsel whether the limitation on liability fits at all.
Step 2: map each knowledge criterion to your file
For each criterion in § 411.406, ask what you received before the services were furnished. Prior notices from the contractor or QIO on the same or comparable services, notices from your utilization review group or the attending physician, notices you gave the beneficiary, CMS manuals and bulletins, and Federal Register publications of national coverage decisions are the categories the rule names.
Step 3: build the notice log
List every relevant notice by date, source, subject, and who received it. A notice you cannot date is a notice you cannot use, and a notice you cannot find may be one the reviewer finds first.
Step 4: account for local standards
The rule counts your knowledge of accepted standards of practice in the local medical community. Gather the policies, guidelines, and training records that show what your organization understood, and be prepared to explain differences between them and the service at issue.
Step 5: preserve what was told to the beneficiary
A notice to the beneficiary before the service can establish knowledge on your side. Preserve every form, consent, and communication, and be clear about what was said and when.
Step 6: raise the issue in the appeal, with evidence
State the limitation on liability in your request at the level you are at and support it with the notice log and the underlying documents. The evidence rules at each level decide what can be added later, so put it in early. The articles on new evidence in a Medicare appeal and the Medicare ALJ hearing cover the cutoffs.
How This Connects to Coverage Policy
Coverage policy is where knowledge often comes from. National coverage determinations are published in the Federal Register, and the regulation names those publications as a source of knowledge (§ 411.406(e)(2)). That means an NCD that applies to your service can both define what is covered and show what you should have known.
Local coverage determinations are a different category. The ALJ is not bound by them but gives them substantial deference, and the article on LCD and NCD arguments in a Medicare appeal covers how that works. In the knowledge analysis, a local policy can be part of the local medical community’s accepted standard, so treat it as potential evidence of what you should have known, not only as a coverage argument.
Common Provider Mistakes With Limitation on Liability
Assuming It Applies to Every Denial
The rule is tied to particular exclusions. A provider that builds the appeal around a rule that does not fit the denial ground has spent time and credibility on a point the reviewer will not reach.
Assuming That Not Receiving a Notice Means Not Knowing
The regulation lists several sources of knowledge, and some of them do not depend on a notice about your claim. Published guidance and the standard of practice in the local community can establish knowledge without any contact from the contractor.
Describing the Rule as a Waiver
The rule does not forgive an overpayment. It governs whether payment can be made. Calling it a waiver invites the question of which waiver provision applies, and the text of the adjustment rules does not give a provider one.
Raising It Late
Evidence that was not in the record at the earlier levels faces a good-cause test, and the later levels can exclude it. Build the knowledge file before the first filing, not before the last.
Making Informal Explanations That Become Admissions
A casual comment such as “we have known for years that payers do not cover that,” “the contractor told us the same thing last year,” or “everyone in the area knows how that gets denied” can later be cited as evidence of knowledge. Calls to the contractor, emails to the reviewer, and cover letters are part of the record. Your written statements are part of the evidentiary record.
Troubleshooting: When the Knowledge Question Goes Badly
If the contractor or reviewer finds that you knew, read the decision for the criterion it relied on. A finding under § 411.406(b) rests on a notice you should be able to locate and date. A finding under § 411.406(e) rests on guidance or standards, and the question is whether that guidance applied to the service and to the date.
If you cannot find a notice the reviewer says you received, say so and describe the search. Do not guess at what the notice said.
If a beneficiary was told before the service that it was not covered, the question becomes what the notice said and who gave it. A general disclaimer is different from a specific statement about the service.
If recoupment is running while the knowledge question is pending, treat the cash plan as a separate workstream. The pause on recoupment that applies at the first two levels ends at the ALJ level under 42 C.F.R. § 405.379, and the article on Medicare appeal deadlines covers the dates.
Expected Outcome: A File That Answers the Question Before It Is Asked
A well-built limitation on liability record shows the denial ground, the knowledge criteria applied to each date of service, the notice log, the local standards, and what the beneficiary was told. It does not guarantee that payment will be made. It makes the knowledge question answerable on your terms.
30-Day, 90-Day, and Ongoing Priorities
- Next 30 days. Identify the denial ground for each claim at issue. Start the notice log. Gather the guidance and policies that applied on each date of service.
- Next 90 days. Review beneficiary notices and consent forms. Build an index that ties each notice to the claims it could affect. Brief the people who answer contractor calls.
- Ongoing. Keep a central record of every CMS, contractor, QIO, and utilization review notice received. Review the process whenever a new national coverage determination is published.
When Counsel Should Be Involved
The knowledge question can decide an overpayment, and the answer depends on documents that sit in several places in your organization. If the denial rests on medical necessity, if the demand reaches back several years, if you cannot find notices that the reviewer cites, or if the matter arrived with a payment suspension or a records request, legal review before the first filing can shape the rest of the case. If counsel directs the review, communications about legal exposure may be better protected under the attorney-client privilege than informal email among billing and operations staff, where the privilege applies. These matters are described on the pages for Medicare and Medicaid overpayments and defense investigations, and the practice areas page lists the rest.
These rules are federal and apply wherever the demand originates.
The practical decision rule is simple: if you cannot name the denial ground, if you cannot list the notices you received before each date of service, or if you describe the rule as a waiver, the position is not ready. Build the notice log before you build the argument.
Frequently Asked Questions
What is the Medicare limitation on liability?
It is a statutory rule under which Medicare can still pay for services excluded as not reasonable and necessary, or for custodial care, when neither the beneficiary nor the provider knew, and could not reasonably have been expected to know, that payment would not be made (42 U.S.C. § 1395pp(a); 42 C.F.R. § 411.400(a)).
What counts as the provider knowing?
The regulation lists notices from a QIO, intermediary, or carrier, notices from a utilization review group or the attending physician, notice to the beneficiary before the service, receipt of CMS notices and Federal Register publications, and knowledge of accepted standards of practice in the local medical community (42 C.F.R. § 411.406).
Does the rule apply to every overpayment?
No. It is tied to the exclusions the statute names, so read the denial for the stated ground before relying on it (42 U.S.C. § 1395pp(a)).
What happens if the provider knew?
If the provider knew or should have known that payment would not be made, the statute requires the Secretary to reimburse the individual for amounts paid to the provider, and those amounts are treated as overpayments recoverable from the provider (42 U.S.C. § 1395pp(b)).
Is the limitation on liability a waiver?
No. It governs whether payment can be made, and a provider should not describe it as a waiver. The adjustment rules in 42 C.F.R. §§ 405.352 through 405.358 are written in terms of the individual.
Is there a presumption that a provider was not at fault?
There is a rebuttable presumption that applies when the overpayment determination is made more than five years after the year in which notice of the payment was sent to the individual (42 C.F.R. § 405.350(c)). Separately, home health agencies that meet the statute’s conditions are presumed to lack the relevant knowledge, and the presumption can be rebutted (42 U.S.C. § 1395pp(f)).
About the author. Reynaldo T. Acosta heads the litigation practice at Vitale, Suarez & Associates, P.A. in Miami Lakes, Florida, the firm founded in 1982 as The Health Law Offices of Anthony C. Vitale, P.A. He is a member of The Florida Bar and earned his J.D. from Florida International University College of Law, where he was named to the Dean’s List and competed on the International Commercial Arbitration and the Negotiation and Mediation teams. He also holds a B.S. in Criminal Justice and Public Management with a minor in Political Science from Florida International University, and advanced certifications in generative artificial intelligence, machine learning, and agentic systems from IBM, Anthropic, and Microsoft. He is a member of the American Bar Association, the Hispanic National Bar Association, and the Cuban American Bar Association, and works with clients in English and Spanish. Learn more about the firm.
This article is for general information purposes only and should not be taken as legal advice for any individual case or situation. Reading it, or corresponding with us through this site, is not intended to create and does not create an attorney-client relationship. Federal and Florida healthcare regulations change frequently, and how any rule applies depends on the specific facts of your arrangement, your payor contracts, and your jurisdiction. Vitale, Suarez & Associates, P.A. is based in Miami Lakes, Florida and represents clients in Florida. If you have received an audit notice, records request, subpoena, civil investigative demand, or overpayment demand, speak with a licensed attorney before you respond.
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