## Facts

- The Secretary of Health and Human Services administered OASDI and SSI benefits under the Social Security Act.
- The Act directs the Secretary, upon finding “more or less than the correct amount” has been paid, to make “proper adjustment or recovery” by paying balances due for underpayments or decreasing future payments/seeking refund for overpayments.
- The Act bars “adjustment or recovery” from a person “without fault” when recoupment would defeat statutory purposes or be against equity and good conscience; beneficiaries have a right to an oral waiver hearing when recoupment is pursued.
- The Secretary promulgated “netting” regulations that, for a period from the first payment error through the month of the “initial determination,” offset months of underpayment against months of overpayment and treat the result as a single net underpayment or net overpayment.
- Respondents were beneficiaries whose records contained both overpayments and underpayments; the agency netted the amounts, paid any net underpayment, and offered waiver hearings only for any net overpayment.
- Beneficiaries sued, alleging the netting regulations conflicted with the Act, violated due process by denying waiver opportunities for each discrete overpayment, and were arbitrary and capricious under the APA.
- The district court and the Tenth Circuit invalidated the regulations; the Supreme Court granted review.

## Issues

1. Whether the Social Security Act permits the Secretary to determine “more or less than the correct amount” by netting overpayments and underpayments across multiple months and treating the result as a single overpayment or underpayment.
2. Whether netting violates due process by limiting waiver hearings to the net overpayment sought to be recovered rather than each offset overpayment.
3. Whether the netting regulations are arbitrary and capricious under the APA.

## Decision

- The Supreme Court reversed the Tenth Circuit in a 5–4 decision.
- The Court upheld the netting regulations as a permissible construction of the Social Security Act.
- The Court held the regulations do not violate due process because waiver-hearing rights attach to the overpayment the agency seeks to recover, defined under the regulations as the net overpayment.
- The Court held the regulations are not arbitrary and capricious because netting is a rational administrative method that operates symmetrically for net underpayments and net overpayments.

## Legal Principles

- Statutory language directing the agency to determine whether “more or less than the correct amount” has been paid may reasonably be construed to permit calculation of a net amount owing as of the agency’s determination, rather than a required month-by-month approach.
- Agency regulations implementing an ambiguous benefits-calculation scheme are valid when they reflect a permissible construction of the statute and fall within the agency’s delegated authority.
- Statutory and procedural protections against recoupment from beneficiaries “without fault,” including an oral waiver hearing, apply to the overpayment the government actually seeks to recover; due process does not require separate waiver procedures for overpayments fully offset by underpayments.
- Under APA review, a benefit-calculation regulation is not arbitrary and capricious if it reasonably advances accurate payment administration and treats beneficiaries consistently, including by paying net underpayments.

## Conclusion

The Court sustained the Secretary’s authority to net underpayments against overpayments over a defined period and to treat the balance as a single net amount for payment or recoupment, with waiver-hearing protections preserved only for any net overpayment the agency seeks to recover.


Sullivan v. Everhart, 494 U.S. 83 (1990)