Reimbursement for Medicare Bad Debt: Revisions and Provisions

The Middle Class Tax Relief and Job Creation Act of 2012 includes reductions to Medicare bad debt reimbursement for critical access hospitals, non-critical access hospitals and skilled nursing facilities. The bill reduces Medicare bad debt reimbursement for non-critical access hospitals from the current 70 percent to 65 percent beginning FY 2013. Skilled nursing facilities and critical access hospitals are currently reimbursed 100 percent of bad debts for dual-eligible beneficiaries. FY 2013, new legislation reduces Medicare bad debt reimbursement to 65 percent for non-dual eligible skilled nursing facility and critical access hospitals. Further Medicare bad debt payment reductions for dual eligible’s will be implemented in phases:

• 88 % in FY 2013;
• 76 % in FY 2014; and,
• 65 % in FY 2015.

In addition, the new legislation repealed the Bad Debt Moratorium effective for cost reporting periods beginning on or after October 1, 2012. With the repeal of the Bad Debt Moratorium, the Center for Medicare and Medicaid Services (CMS) may amend its definition of Medicare bad debts deemed “uncollectible” only after “reasonable collection efforts” have been made. CMS may impose additional requirements on hospitals and skilled nursing facilities before claiming bad debt reimbursement. Any efforts by CMS to revise its bad debt reimbursement policies will only be effective for cost report periods beginning on or after October 1, 2012. (per the United States Senate Committee on Finance Press Release dated February 16, 2012).

Each year many hospitals and skilled nursing facilities lose thousands of dollars by not claiming or under-claiming their Medicare bad debts. This valuable revenue source is not fully accessed because of the lack of personnel, time or expertise necessary to meet required procedures and documentation. The Medicare program reimburses hospitals and nursing homes for bad debts associated with uncollectible Medicare deductibles and coinsurance amounts if the bad debts meet specified Medicare reimbursement criteria. In order to fully account for all of the required Medicare bad debt information components, provider patient information must be analyzed. The following summary is a guide to demonstrate the requirements needed to maximize Medicare bad debt reimbursement.

Medicare Bad Debt is:

Deductibles and coinsurance amounts uncollectible from Medicare beneficiaries after reasonable collection efforts have been pursued.

Criteria for Allowable Bad Debts:

• Debt must be related to covered services and derived from deductible and coinsurance amounts.
• Provider must establish that reasonable collection efforts were made.
• Debt was actually uncollectible when claimed as worthless.
• Sound business judgment established that there was no likelihood of recovery at any time in the future.

When to Write-Off a Bad Debt:

42 CFR Section 413.89(f) requires that the uncollectible Medicare deductibles and coinsurance be charged off as bad debts in the accounting period when the bad debt is determined to be worthless.

Two Types of Bad Debts:

• Indigent or Medically Indigent Patients: No collection efforts required for Medicaid beneficiaries. Provider must bill Medicaid and retain remittance advice as documentation.
• Patients not deemed to be indigent: collection efforts required.

Reasonable Collection Efforts:

• Collection Letters (minimum of three is considered reasonable)
• Phone Calls
• Collection Agency

Collection Policy:

• Must be consistent among all payer types
• Must involve the issuance of a bill on or shortly after the date of service
• Must constitute a Genuine, rather than a token, collection effort

Presumption of Non-Collectability (120 Day Rule):

• If after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill was mailed to the beneficiary, the debt may be deemed uncollectible.
• Any payments received from the beneficiary restarts the 120 un-collectability timeframe.

** The 120 Day Rule also applies to bad debts that were sent to an outside collection agency. The agency must follow the same collection policy and the bad debt is not deemed worthless until determined to be uncollectable and returned back to the provider for write-off. **

Bad Debt Log Must Include the Following Information:

• Patient Name
• HIC Number
• Date of Service
• Whether the patient has been deemed indigent and their Medicaid number if this was the method utilized to determine indigence
• Date the first bill was sent to the beneficiary
• Date the bad debt was written off
• Remittance advice date
• Deductible and coinsurance amount
• Total Medicare bad debt (reduced by recoveries)

In addition, if your Medicare cost report has been issued a letter of Notice of Program Reimbursement (NPR) and there is a “new and material” amount of bad debts that have not been previously claimed, then your facility may be entitled to a Reopening of your Medicare cost report no later than three (3) years from the date of NPR.