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."
While a couple of recent court cases have been favorable to hospitals, uncertainty in the provider community exists regarding the claiming of MBD on cost reports. What is apparent is that CMS will disallow any MBD claimed for accounts at an OCA unless the provider can prove the moratorium is in effect. Otherwise, the MBDs are not allowable until the accounts are returned to the provider.
A challenging situation
CMS' position presents providers with a couple of significant challenges in analyzing and reporting their MBD. First is the issue of preparing an accurate, well-supported MBD listing that ensures all appropriate reimbursement is claimed and that will also prevail upon audit. Next are the actions that should be considered with cost reports already filed.
In preparing the MBD listing that is filed with the cost report, different types of claims can be included:
- Self-pay coinsurance and deductible amounts returned from the OCA.
If the moratorium does not apply, self-pay coinsurance and deductible amounts returned from the OCA during the fiscal year of the cost report filing should be included. - Medicare patients with Medicaid as secondary insurance.
Providers may have Medicare patients with Medicaid as secondary insurance ("dual eligibles"). In Section 1905(p)(3) of the Social Security Act, payment for deductibles and coinsurance is required from the states for dual eligible patients. In Section 1902(n)(2) of the Act, a state is allowed to cap the liability to the Medicaid rate. Essentially, this means that a state is not required to pay any portion of a deductible or coinsurance if the amount paid by Medicare exceeds the amount Medicaid would have paid. Providers may claim these amounts as MBD as long as they bill the state and receive a remittance advice back indicating zero payment. - Indigent, bankrupt, or deceased patients.
Providers should also claim MBD for patients they determine to be indigent and not eligible for payment from any other source. Indigence should be ascertained by the provider using its established methods, including analyzing the financial situation and mitigating circumstances of the Medicare beneficiary.
Key considerations for auditable listings
There are two key considerations when developing a complete, accurate, and auditable MBD listing:
- Constant and clear communication between the provider's patient financial services (PFS) staff and Medicare reimbursement staff is critical. Medicare reimbursement staff must understand PFS policies related to bad debt processing and PFS staff must be fully educated by the Medicare reimbursement staff on the latest Medicare regulations.
- An easy to follow audit trail of the recording of MBD transactions in the provider's patient accounting system is another key consideration. A clear trail will help the Medicare audit go much smoother for both provider Medicare reimbursement staff and the auditor.
"At Covenant, the reimbursement department has historically prepared the bad debt listing by identifying accounts through write-off adjustment codes," says Maine. "This requires us to work very closely with our PFS colleagues. We also perform a 100% review of these accounts before filing and we've found this process to work very well," she added.
With cost reports already filed but not audited, a provider should consider modifying its MBD listing by removing all accounts it claimed that were at the OCA and sending the revised listing to the FI. This step assumes the moratorium does not apply and may require the amending of the cost report. The provider should then have its accounts at the OCA sent back and claim them in the period they were returned.
If audited cost reports contain MBD that is disallowed for accounts at the OCA, providers should recall these accounts from the OCA and claim them in the period returned. This is the situation at Covenant.
"Accounts deemed non-allowable by our FI in prior audits because they are still with the OCA have been allowed in a subsequent period when the account is returned from the agency," says Maine. Alternatively, providers could legally challenge the disallowance on the audited cost report, although the time and expense of such an approach should be taken into consideration.
The shifting landscape of MBD reimbursement presents significant challenges to providers. "We put a significant amount of time and effort into this issue," says Maine. "Yes, the issues are complex and require a great deal of diligence, but we believe our focus and attention on MBD has been worth it in ensuring we are paid appropriately in this area."
Mark A. Taylor is a Financial Director at IMA Consulting with 22 years of Medicare reimbursement experience. He can be reached at mtaylor@ima-consulting.com.