what is medicare bad debt

by Johnnie Kuphal Published 2 years ago Updated 1 year ago

Reduce Medicare’s Coverage of Bad Debt

Background. When hospitals and other providers of health care are unable to collect out-of-pocket payments from their patients, those uncollected funds are called bad debt.
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Full Answer

How to collect Medicare bad debt on the cost report?

Traditional Medicare bad debts are those unpaid deductibles and coinsurance amounts that are related to Medicare Part A and Medicare Part B beneficiaries. These Part A and B bad debts are reported on the Medicare cost report each year and reimbursed as a lump sum to the hospital.

Why is some debt considered 'good' and some 'bad'?

Aug 05, 2019 · The CFR at 42 CFR 413.89(f) requires that the uncollectible Medicare deductible and coinsurance be charged off as bad debts in the accounting period when the bad debt is determined to be worthless. For example a bad debt that is properly written off the providers books as a bad debt after the providers current Medicare Fiscal Year End Cost Report must be …

What to do if you have medical debt?

Medicare Bad Debt Basics Medicare bad debt is claimed on a provider’s Medicare cost report and submitted to an assigned Medicare Administrative Contractor (MAC) annually. CMS administers the Medicare program and relies on a network of MACs to serve as the primary operational contact between the Medicare program and the

How much bad debt is acceptable?

Jan 14, 2021 · These bad debts represent reductions in revenue. For dual eligible accounts (beneficiaries eligible for both Medicare and Medicaid, with Medicare being the primary payer), the provider must bill the state and deduct the appropriate state cost sharing liability from the Medicare bad debt.

How does Medicare bad debt work?

If the Medicaid agency determines it does not have any liability for the unpaid deductibles and coinsurance, the provider is notified, and the amount can be claimed as a Medicare bad debt without exhausting the normal collection effort requirements of non-indigent (traditional) bad debts.Mar 9, 2021

What criteria must a debt meet to be considered an allowable Medicare bad debt?

Allowable Medicare bad debt defined

The provider must be able to establish that reasonable collection efforts were made; The debt was actually uncollectible when claimed as worthless and; Sound business judgment established that there was no likelihood of recovery at any time in the future.Apr 28, 2022

What is bad debt in healthcare?

Bad debt write-offs represent the amount a patient or other payer cannot (or will not) pay of its portion of the bill. The hospital considers bad debt unrecoverable and, therefore, it directly decreases revenue. Simply put, the more bad debt a health system has, the less revenue it generates.Nov 24, 2020

What is Medicare debt?

A Medicare overpayment exceeds regulation and statute properly payable amounts. When Medicare identifies an overpayment, the amount becomes a debt you owe the federal government. Federal law requires we recover all identified overpayments. Medicare overpayments happen because of: ● Incorrect coding.

Does Medicare pay for bad debt?

Hospitals are eligible for bad debt payments only if they satisfy rigorous government criteria — a process that can often take years to complete. These criteria are legally required under Medicare and ensure that every reasonable step has been taken to receive the cost-sharing from the beneficiary directly.

Can you send Medicare patients to collections?

To be considered a reasonable collection effort, a provider's effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients.

How do hospitals deal with bad debt?

4. Over 20 percent of hospitals do not have a bad debt recovery process. According to the Sage survey, 36 percent of hospital executives report using a third-party service to recover bad debt. About 25 percent report using an in-house approach, with 18 percent using a combination of the two.

Do hospitals write-off unpaid medical bills?

Many factors go into how and if, a hospital writes off an individual's bill. Most hospitals categorize unpaid bills into two categories. Charity care is when hospitals write off bills for patients who cannot afford to pay.

Can doctors write-off bad debt?

Some healthcare providers have a policy of writing off these small debt balances. Prompt payment discounts are write-offs for patients who pay in full at time of service. The difference between the standard fee and the discounted fee is written off.Dec 9, 2020

Is Medicare underfunded?

Politicians promised you benefits, but never funded them.May 5, 2021

How is Medicare financed?

Funding for Medicare comes primarily from general revenues, payroll tax revenues, and premiums paid by beneficiaries (Figure 1). Other sources include taxes on Social Security benefits, payments from states, and interest.Mar 16, 2021

How does Medicare affect the economy?

Providing nearly universal health insurance to the elderly as well as many disabled, Medicare accounts for about 17 percent of U.S. health expenditures, one-eighth of the federal budget, and 2 percent of gross domestic production.

What are the bad debt requirements for Medicare?

These Medicare bad debt amounts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts (bad debt). Effective for cost reporting periods beginning on or after October 1, 2019, providers must comply with these longstanding Medicare bad debt requirements.

When was the moratorium on bad debts issued?

The Centers for Medicare and Medicaid Services (CMS) issued a Moratorium for Bad Debts as part the Omnibus Budget Reconciliation Act of 1987 in section 4008 (c). Otherwise, in accordance with PRM 15-1, Section 310 (select chapter 3, open pr1_0300_to_0334.2 doc, then scroll to section 310), which allows the bad debt to be written off when claimed as worthless (when the debt has been returned from the collection agency as uncollectible) the bad debt would be unallowable if written off when sent to collection, and the provider cannot substantiate that this practice was allowed by the Intermediary prior to August 1, 1987 .

How long does it take for Medicare to issue a bill?

Providers must issue the first bill within 90 days of the last processed Medicare remit.

Can a hospital write off a small debit balance?

Hospitals however must continue to follow their policy, which requires that collection efforts be followed prior to writing off small debit balances, and MACs are authorized to disallow any bad debts that were written off, regardless of the amount, if the provider has failed to bill the Medicare patient for the deductible/coinsurance amounts. Additionally, any small debit balances remaining on larger Medicare deductible and coinsurance amounts must comply with a reasonable collection effort (120 day rule applies).

Does Medicare pay bad debt?

In those instances where the state owes none or only a portion of the dual-eligible patients deductible or co-pay, the unpaid liability for the bad debt is not reimbursable to the provider by Medicare until the provider bills the State, and the State refuses payment with a State Remittance Advice.

Is there a payment for bad debts?

As provided by CMS in Change Request (CR) 2225 , there is no payment for bad debts (unrecovered costs attributable to uncollectible deductible and coinsurance arising from covered services to beneficiaries considered in calculating payment to providers reimbursed on the basis of reasonable cost) with respect to services paid under the Medicare physician fee schedule. Under a fee schedule (e.g., fee based outpatient therapies after January 1, 1999 and ambulance services after April 1, 2002), payment is not based on incurred costs; rather payment is made based on a schedule for the specific service furnished. Whether a fee schedule has its basis in charges or is resource-based, the payment is not related to a specific providers cost outlay for a service and does not embody the concept of unrecovered cost. Bad debts are allowable only to an entity that payment is made on the basis of reasonable cost.

Can HMO bad debt be claimed on Medicare?

Building upon the theory that bad debts must be related to services that are based upon cost reimbursement, Medicare HMO bad debts cannot be claimed on the Medicare cost report. According to CMS, Medicare pays most HMOs on a capitated basis and any arrangements between a hospital or other provider and an HMO is a contractual arrangement between the two. When an HMO sends a member patient to a provider for services and that patient does not pay coinsurance and deductible amounts, the provider must deal with the HMO and not the Medicare program.

When do bad debts have to be written off for Medicare?

For cost reports beginning before October 1, 2020, Medicare bad debts must not be written off to a contractual allowance accounts, but must be charged to an expense account for uncollectible accounts. For cost reports beginning on or after October 1, 2020, Medicare bad debts must not be written off to a contractual allowance account, ...

Why is it important that all providers review their bad debt policies and procedures?

It is important that all providers review their bad debt policies and procedures to ensure that all of the above criteria are met.

Can you report deductibles on Medicare cost report?

It is important to remember that these requirements apply to traditional, fee-for-service Medicare services. Any deductible and coinsurance bad debts from Medicare advantage plans do not qualify for reimbursement on a Medicare cost report. Although many of these points may not appear new, some have been expanded for more clarity.

Can bad debt be written off to a contractual allowance account?

For cost reports beginning on or after October 1, 2020, Medicare bad debts must not be written off to a contractual allowance account, but must be charged to an uncollectible receivable account that results in a reduction in revenue. In addition to the above, CMS has proposed a new reporting format for the current Exhibit 2, ...

Does Medicare have to bill for bad debt?

For dual eligible accounts (beneficiaries eligible for both Medicare and Medicaid, with Medicare being the primary payer), the provider must bill the state and deduct the appropriate state cost sharing liability from the Medicare bad debt.

Does Medicaid have to pay coinsurance?

Statement from the State Medicaid program that they have no obligation to pay the Medicare deductible or coinsurance, or notice of the provider’s inability to enroll in Medicaid for purposes of processing a crossover claim. Documentation setting forth the State’s liability for the Medicare cost sharing, or lack thereof.

What is Medicare bad debt?

Medicare bad debt is defined as Medicare coinsurance and deductible amounts that are unpaid and uncollectable from the patient. The Centers for Medicare and Medicaid Services (CMS) pays hospitals 65% of their gross Medicare bad debt if ...

How much bad debt can be recovered from Medicare?

Hundreds of millions of dollars of unrealized Medicare bad debt revenue can be recovered at scale if reporting and analysis are performed efficiently with automation — whether via a fully outsourced consulting service or by using a SaaS solution. Recoveries can be close to a half a million dollars per provider (TransUnion Healthcare proprietary data).

How to deal with uncompensated care?

When tackling uncompensated care, specifically as it relates to Medicare bad debt, it is important to address the problem holistically, to ensure all your earned revenue is realized. Sophisticated analysis of all the relevant data must validate the thousands of opportunities. This can be a burdensome process, detracting from the primary goal of the billers and follow-up team to ship out claims and audit reimbursement. It is critical to evaluate assistance from third parties in this process in order to help free time for revenue cycle management staff to focus on other important issues. Cost report filing time is stressful for reimbursement departments, but external software and consultation can off-load weeks or even months of work.

How much of a hospital's annual revenue is patient financial responsibility?

Patient financial responsibility represents more than 30% of a hospital’s annual revenues. When tackling uncompensated care, specifically as it relates to Medicare bad debt, it is important to address the problem holistically, to ensure all your earned revenue is realized. Healthcare is becoming increasingly unaffordable to many, ...

How to find bad debts?

Analyze the data. Examining accounting and transaction codes should provide an in-depth analysis to find bad debts that are payable but may have been missed. Consider having an outside partner analyze the data, which may uncover missed or previously unknown opportunities.

What does every dollar of payment mean for a hospital?

To a hospital, every dollar of payment means a better opportunity to deliver excellent patient care. By finding the right partner and tools, hospitals can accurately and efficiently recover Medicare-bad-debt revenue. The money is waiting — go get it.

Does Medicare give back money?

Secure defendable documentation. Medicare doesn’t like giving money back, so reports need to be defensible on audit. Ensure the process delivers results with the full documentation required for submission to Medicare.

When does Medicare bad debt have to be recorded?

For cost reporting periods beginning: Prior to October 1, 2020, Medicare bad debt “must not be written off to a contractual allowance but must be charged to an expense account for uncollectible accounts” (reduction in revenue or allowance for bad debts). On or after October 1, 2020, Medicare bad debt “must be recorded in ...

What is the final rule for Medicare bad debt?

The 2021 IPPS Final Rule, published September 2020, further clarified how providers should treat Medicare bad debt in their accounting records, while also adopting the Financial Accounting Standards Board terminology for “implicit price concession.” Similar to the previous terminology of “allowance for uncollectible accounts,” implicit price concession represents providers’ estimates of the collectability of remaining balances, based on actual write-off experience and other factors. This terminology is related to all patient account activity and not specifically Medicare bad debts for uncollectible deductibles and coinsurance for covered services. Implicit price concession informs external financial reporting of bad debt, but it has no impact on the underlying transaction of writing off patient deductible and coinsurance as uncollectible.

What is a cross over claim for Medicare?

The term “crossover claims” refers to Medicare beneficiaries also entitled to Medicaid. After Medicare makes its payment, any deductible and coinsurance amounts are “crossed over” to the responsible Medicaid agency. If the Medicaid agency determines it does not have any liability for the unpaid deductibles and coinsurance, the provider is notified, and the amount can be claimed as a Medicare bad debt without exhausting the normal collection effort requirements of non-indigent (traditional) bad debts. Prior to these instructions, providers would often treat the remaining unpaid deductibles and coinsurance as deductions from revenue (Medicaid contractual allowances), because Medicaid was the last payer involved in the history of the account.

When will Medicare retroactive changes be effective?

The clarifications and codifications include both retroactive and prospective changes: Retroactive (effective for cost reporting periods beginning prior to and after October 1, 2020) (deemed “longstanding” policy): Definitions (three types of Medicare bad debt): Non-indigent (previously known as “traditional”)

How to contact PYA about bad debt?

If you have questions related to changes in Medicare bad debt requirements or need assistance implementing them, contact a PYA executive below at (800) 270-9629.

When does crossover bad debt have to be reported?

These requirements were effective for cost reporting periods beginning on or after October 1, 2019.

Is there a crossover rule for Medicare bad debt?

The 2019 clarification is specific to crossover bad debt, whereas the Final Rule clarification does not differentiate between crossover and other types of Medicare bad debt. The Final Rule language represents a change in terminology only, so there should be no need for providers to adjust their accounting treatment of Medicare bad debt based on ...

How long is the collection period for Medicare?

The 120-day collection period has caused some confusion in the past. Previously, the rule didn’t specifically mention restarting the clock with any payment within the 120-day period, but the updated rule calls this reset out, meaning you have one more data point to track. This “gotcha” from CMS means they can deny Medicare bad debt reimbursement if any payments have been made during the 120-day period.

How long do Medicare notices keep?

We are also expanding our engagement with our notice vendor so that they will store images of sent notices for three years, which will fulfill the requirement to maintain copies of the bills and follow-up notices. This way, if your Medicare contractor requests images of statements and notices sent to your patients, we will be able to quickly provide them.

Is Medicare bad debt final rule in effect?

Now that the Medicare Bad Debt Final Rule is fully in effect, it’s important to reexamine how these changes can impact your facility. Many of the revisions of the Medicare Bad Debt Policy impact non-profit hospital partnerships with their collection agencies going forward.

Do you have to make a collection call on Medicare?

If you make collection calls on non-Medicare accounts, you need to make collection calls on Medicare accounts. If you send non-Medicare accounts to collections, you need to send Medicare accounts to collections.

Can you claim bad debt on Medicare?

The simple answer is no. If an account is still at a collection agency, you cannot claim that account for Medicare bad debt reimbursement. According to the rule, the purpose of having an account at a collection agency is to collect on the account, even if it is in a passive collection status.