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Solutions for the Challenges of Medicare Bad Debt Reimbursement

By Mark A. Taylor, for HealthLeaders Media, June 28, 2010

Reimbursement issues concerning Medicare Bad Debt (MBD) continue to present significant challenges for providers. Interpreting recent court decisions, determining how to best accumulate and complete MBD listings, and Medicare cost report treatment of MBD are some of the key concerns facing providers.

Medicare beneficiaries treated in the hospital are generally obligated to pay for a portion of their care in the form of deductibles or coinsurance. For any number of reasons, a beneficiary may not be able to pay these amounts. To ensure the costs of these services are not passed on to non-Medicare patients, Medicare reimburses providers for these bad debts. Note, criteria for unpaid Medicare deductibles and coinsurance to be reimbursable are addressed in the Code of Federal Regulations at 42 CFR 413.89(e), and sections 308 and 310 of the Provider Reimbursement Manual (PRM).

However, perhaps the reasonable collection effort criterion presents the greatest issue for providers. Addressed in PRM 310, this requires that a provider's attempt to collect Medicare patient deductibles and coinsurance amounts be similar to those for non-Medicare patients, as inconsistent collection efforts may trigger disallowances. PRM 310 also describes permissible collection activities. Finally, the section notes that, if after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date of the first bill, the debt may be deemed uncollectible.

Based on this guidance, providers have for years claimed MBD on their cost reports when accounts are sent to the outside collection agency (OCA). However, in recent years, CMS has been very aggressive in disallowing MBD with an OCA, reasoning that, in cases where the account is still at the OCA, there is still a chance of payment.

Guidance from CMS on bad debts has posed challenges for providers. A "moratorium for bad debts" issued in 1987 by CMS allowed limited situations for providers to claim MBD sent to an OCA. More recently, in May 2008, CMS issued a "joint signature memo" which stipulated that MBD would only be allowable once the accounts are returned to the provider as uncollectible, regardless of how CMS had treated MBD in the past.

Peggy Maine, reimbursement manager, at Covenant Medical Center in Saginaw, Michigan has noted changes in recent audits at her hospital. "Unlike prior audits, our FI's recent audit of bad debts did indeed change after the joint memo was issued, Maine says. "In particular, the emphasis was on the hospital's OCA activity. If the OCA had an 'active' account that was on our bad debt listing, it was deemed unallowable until collection efforts ceased and the account was returned from the OCA."

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