Ask for the credit balance report and watch the room. In many practices it has never been run, and when it is, the total is larger than anyone expected: a few hundred small patient credits, a dozen payer overpayments from a year or more ago, and some large negative balances that turn out to be posting errors rather than real money. Nobody is stealing anything. The money is simply sitting there because no one owns the task of giving it back.
Credit balances are a compliance problem and an operations problem at the same time. Medicare overpayments carry a legal obligation to report and return them within a defined period. Commercial contracts have their own refund clauses. Patient credits are governed by state law, including unclaimed property rules for refunds that cannot be delivered. And on the operations side, every credit is a claim that was posted or adjudicated wrong somewhere, which means the credit report is also a list of process failures.
We are describing operational practice here, not giving legal advice; the decisions about how to quantify and return a Medicare overpayment belong with the practice's counsel or compliance advisor. What follows is how the work is done.
Key takeaways
- Run the credit balance report for the whole system every month, sorted by age and amount. Old and large is where the risk sits.
- A negative balance is not automatically an overpayment. Classify every line first; in our experience most of the dollars turn out to be posting errors and unapplied cash that never leave the practice.
- Medicare and Medicaid overpayments must be reported and returned within 60 days of being identified. Write the identification date down the day it happens and involve counsel when a pattern appears.
- Check for recoupment before you send a check, refund through the payer's own channel, and post the refund as a visible transaction.
- Patient credits fall under state unclaimed property law if they cannot be delivered; writing them off to income is not a solution.
Step one: run the report and sort it
Every practice management system can list accounts with a negative balance. Run it for the whole system, not just patient balances, and export it with the payer, the date the credit was created, the amount and the last transaction. Sort by age, then by amount. The oldest large items are where the risk is; the newest small items are usually still in motion (a secondary payment posted before the primary adjustment, for example) and will resolve themselves within the month.
Run it at the account level and at the encounter level. A patient account can show a zero balance while one visit carries a $140 credit and another carries a $140 debit, and the account-level report will hide both. The encounter-level view is the one that finds misapplied payments.
Step two: decide what each credit actually is
A negative balance is not automatically an overpayment. In our experience, credits fall into five groups, and only two of them involve returning money.
| What the credit really is | How to recognize it | What to do |
|---|---|---|
| Posting error | A payment posted twice, to the wrong patient, or a contractual adjustment missing so the payment looks like an overpayment | Correct the posting; no refund; note the cause |
| Unapplied payment | Payment sits on the account with no charge to attach to, often because the claim was posted under a different encounter | Apply to the correct charge |
| Both payers paid as primary | Two payments for the same service, each at the primary rate; usually a coordination of benefits error | Determine the correct primary; refund the payer that should have been secondary, with an explanation |
| True payer overpayment | The payer paid more than the contracted amount, paid a denied line, or paid after a recoupment | Refund or accept recoupment; document |
| True patient overpayment | Patient paid a copay or estimate that insurance later covered, or paid twice | Refund the patient promptly |
The classification step is where practices save themselves from refunding money that was never owed. It is also where the process fixes live: a run of "both payers paid as primary" credits points at front-desk coordination of benefits questions, and a run of posting errors points at a poster who needs training or a system that allows duplicate posting.
Step three: the Medicare 60-day rule, in operational terms
Federal law requires that a Medicare or Medicaid overpayment be reported and returned within 60 days of the date it is identified, or by the date a corresponding cost report is due, whichever is later. CMS's regulations for Medicare Parts A and B define what identification means and set a lookback period of six years. CMS revised parts of that rule in the CY2025 Physician Fee Schedule final rule, effective January 1, 2025: the standard for when an overpayment is "identified" now follows the False Claims Act's knowing standard (actual knowledge, reckless disregard or deliberate ignorance), and a practice that identifies one overpayment and begins a timely, good-faith investigation into related overpayments gets the 60-day clock suspended until the investigation concludes or 180 days pass, whichever comes first. A practice should read the current regulation text or ask counsel rather than rely on a summary, including this one.
Operationally, three habits keep a practice on the right side of the rule. First, the credit report is run and classified every month, so the clock is not started by an auditor finding something first. Second, when a credit is confirmed as a Medicare overpayment, the date of confirmation is written down, and the refund is sent through the Medicare contractor's voluntary refund process with the claim numbers, the reason and the amount, well inside the window. Third, when a single overpayment suggests a pattern (the same code overpaid for a year, for example), the practice does not stop at the one claim; it involves counsel to decide how far to look and how to quantify the rest, and it documents the start date of that investigation.
Step four: the refund workflow
- Verify. Pull the remittance and the contract or fee schedule. Confirm the overpayment amount to the penny and the reason.
- Check for recoupment. Many payers recover overpayments by offsetting future remittances; on the 835 this shows as a negative line or a PLB segment with the original claim reference. Before sending a check, check whether the payer has already taken it back, or the practice will refund twice.
- Choose the channel. Medicare contractors have a voluntary refund form and instructions; most commercial payers have a refund address or portal process and want the claim number and a reason. Patients get a check or a card reversal to the original payment method.
- Document. For each refund keep the remittance, the calculation, the correspondence, the check or transaction number and the date. Post the refund to the account so the balance returns to zero with a visible transaction, not an adjustment that hides it.
- Record the cause. One line per refund: posting, COB, payer error, estimate too high. Review the causes quarterly.
Patient refunds and unclaimed property
Patient credits are usually small and numerous, and practices let them sit because each one is fifteen dollars. Two rules of thumb: refund anything over a small threshold promptly, and never offset a credit against a future visit without the patient's agreement. Refund checks that are never cashed, and credits for patients who cannot be found, fall under state unclaimed property laws after a holding period that varies by state; the practice's accountant should know the state's reporting requirement. Writing off a patient credit to income because the patient did not respond is not a solution in most states.
The cheapest way to reduce patient credits is to stop creating them. Most come from time-of-service estimates that were too high, or from copays collected on visits that turned out to be preventive with no copay. Compare the estimate tool's numbers to the remittances for a month; if the estimates run high by more than a few dollars on average, adjust the tool rather than refunding the difference forever.
A worked example
A dermatology practice ran its first credit report in years: 412 accounts, $61,300 in negative balances. After classification, $28,900 was posting error and unapplied cash and was resolved with no money leaving the practice. $19,400 was 63 accounts where a commercial plan and Medicare had both paid as primary over two years, which traced to the front desk not asking about employer coverage for patients over 65. $9,800 was Medicare overpayments on a code the practice had been billing with an incorrect modifier; the practice recorded the identification date, refunded the identified claims within the window and asked counsel about the lookback. The remaining $3,200 was patient credits, refunded over two weeks. The practice added the credit report to its month-end close and changed its registration questions. Twelve months later the report was under $2,000, all of it under 30 days old.
Questions we hear
The payer overpaid us and has not asked for it back. Can we wait until they do?
For Medicare and Medicaid, no: the obligation to report and return runs from identification, not from the payer's request. For commercial payers, the contract usually sets a refund obligation and a period during which the payer may recoup, and sitting on a known overpayment is a poor position to be in when the contract is renegotiated. Refund it, with documentation, through the payer's channel.
Can we hold small patient credits and apply them to the next visit?
Only with the patient's agreement, recorded in the account. Many patients are happy to do this for a $10 credit. The practice still needs to track the credit and refund it if the patient does not return within a reasonable period, because an unreturned credit eventually becomes unclaimed property.
Our system shows $80,000 in credits. Is that a compliance emergency?
Not until it has been classified. In our experience, half or more of a first-run credit report is posting error and unapplied cash. Classify it this month, refund the clear patient and payer credits, and involve counsel on anything that looks like a Medicare pattern. The emergency is not the total; it is not knowing what the total is made of.
What to do this month
- Run the credit balance report at the encounter level for the whole system, and export it with payer, age and amount.
- Classify every line over $50 or older than 60 days into one of the five groups.
- Refund confirmed patient credits this week, and correct posting errors without moving money.
- For anything that looks like a Medicare overpayment, write down today's date and talk to counsel before deciding scope.
- Add the report to the month-end close so this becomes a monthly twenty-minute task rather than a project. Practices that want an outside pass at their credit balances can include it in an RCM audit; when Revelrex handles billing, the credit report is reviewed monthly and refunds are documented as part of the close.
