Corporate Compliance

Note from the Instructor: Taking another look at Medicare bad debt reimbursement

Medicare Insider, January 13, 2015

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This week’s note from the instructor is written by Judith L. Kares, JD,regulatory specialist for HCPro.  
In preparation for an upcoming custom MBC-H course, I had an opportunity to review the Medicare rules relating to bad debt. This issue has become even more prevalent in recent years as underlying health care costs have skyrocketed, significantly increasing beneficiaries’ cost sharing liability, particularly under Part B. In addition, with the growth in inpatient denials and the recent expansion of providers’ ability to rebill those denials under Part B, many beneficiaries are now incurring significant cost sharing that would not have arisen if these inpatient stays had been covered under Part A. Therefore, providers are experiencing increasing financial losses due to their inability to recover for applicable Medicare deductibles and coinsurance under Parts A and B. 
Reimbursable bad debt
Under the Medicare program, bad debts attributable to uncollected deductibles and coinsurance for covered services are reimbursable, so long as certain requirements are met.
Under Medicare, costs of covered services furnished to beneficiaries are not to be borne by individuals not covered by the Medicare program, and, conversely, costs of services provided for non-beneficiaries are not to be borne by the Medicare program. Uncollected revenue related to covered services furnished to beneficiaries (including uncollected deductibles and coinsurance amounts) generally means the provider has not recovered the cost of services covered by that revenue.
To assure the failure of beneficiaries to pay the deductible and coinsurance amounts does not result in those costs being borne by others, the costs attributable to the deductible and coinsurance amounts that remain unpaid are added to the Medicare share of allowable costs. Bad debts arising from other sources, however, are not allowable costs.
To be allowable, bad debt must meet the following criteria:
  • The debt must be related to covered services and derived from deductible and coinsurance amounts.
  • The provider must be able to establish that reasonable collection efforts were made.
  • The debt was actually uncollectible when claimed as worthless.
  • Sound business judgment established there was no likelihood of recovery at any time in the future. 
Timing of write off
The amounts uncollectible from specific beneficiaries are to be charged off as bad debts in the accounting period in which the accounts are deemed to be worthless. In some cases, an amount previously written off as a bad debt and allocated to the program may be recovered in a subsequent accounting period; in such cases that income must be used to reduce the cost of beneficiary services for the period in which the collection is made.
In determining reasonable costs for hospitals, the amount of allowable bad debt is reduced, as follows:
  • For cost reporting periods beginning during FYs 2001 through 2012, by 30%.
  • For cost reporting periods beginning during a subsequent fiscal year, by 35%.
Implications for providers
Hospitals and other providers need to review their existing policies to assure they meet the relevant requirements for Medicare bad debt reimbursement. In particular, they need to assure they treat Medicare beneficiaries in the same way they treat all other patients with respect to bad debt, and they make consistent, reasonable efforts to bill and collect beneficiary and other patient cost sharing amounts. 
Medicare has indicated that a reasonable collection policy must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient's personal financial obligations. It should also include other actions, such as subsequent billings, collection letters and telephone calls or personal contacts with this party, to demonstrate they are making a genuine, rather than a token, collection effort. The provider's collection policy may even include using or threatening to use court action to obtain payment.
Providers also need to make reasonable efforts to determine if and when such debt is unlikely to be recovered in the future. Medicare guidelines state that, if, after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible. All these policies, as well as their individual efforts to comply with them, should be carefully documented in the beneficiary’s file.
Source authorities
More information on bad debt reimbursement can be found in the following source authorities:
42 CFR. § 413.89
Medicare Provider Reimbursement Manual, Part I, Chapter 3


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