Weak Collection and Bad Debt Policies Could Result in Medicare Denials
To avoid Medicare bad debt denials, health care organizations should review their bad debt policies to ensure they are abiding by the regulations outlined in the Medicare Provider Reimbursement Manual (PRM).
Prompted by audits, appeals, and reopened settlements resulting in denials of Medicare bad debt claims, the Centers for Medicare & Medicaid Services (CMS) recently clarified the bad debt guidelines with Medicare fiscal intermediaries and health care providers.
In some reopened cases, (as old as three years from the reopened notice of program reimbursement date) hundreds of thousands of dollars have been recouped to Medicare.
CMS specifically clarified:
Medicare allowable bad debt criteria
For Medicare bad debts to be reimbursable through the Medicare cost report, the following criteria must be met:
- The bad debt must be related to a Medicare covered service 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 was established to determine there was no likelihood of collection in the future.
When is a bad debt deemed uncollectible/worthless?
The PRM states that Medicare regulations require providers to follow the same collection policies for Medicare accounts as other accounts. Therefore, if other accounts are turned over to a collection agency, Medicare accounts must also be turned over to a collection agency.
“Some hospitals are handling Medicare bad debts differently than debts from other payers, and according to the regulations, they can’t do that,” states Jill Sigelman, health care reimbursement manager with LarsonAllen.
Per the PRM guidelines, Medicare fiscal intermediaries are disallowing Medicare bad debts claimed in the Medicare cost report if the provider claimed the bad debt at the time it was turned over to a collection agency.
The Medicare fiscal intermediaries have indicated that if collection efforts are still underway there is a likelihood of some collection; therefore the debt is not worthless. The regulation clarifications say accounts should not be claimed as bad debts until they are recalled or returned from the collection agency as uncollectible/worthless.
But many facilities are writing off uncollected Medicare (and other payers with the exception of Medicaid) deductibles/coinsurance amounts when they turn bad debts into collection agencies.
“This is a really big deal for hospitals,” explains Sigelman. “I’ve talked to hospital leaders who indicated they have never stopped their collection agencies from trying to collect on bad debts—they continue collection efforts infinitely.”
What is a reasonable collection effort?
According to the PRM, “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. It 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.”
Noridian Administrative Services (Noridian), a Medicare fiscal intermediary, defines “shortly after” as 90 days and recommends that bad debts be disallowed on the cost report if the bill was not issued within the 90-day period.
“We believe this is critical for skilled nursing facilities,” states Deborah Elsey, a health care reimbursement principal with LarsonAllen.
Elsey explains that many state Medicaid programs have discontinued paying the coinsurance for dually eligible individuals due to the fact it is collectible as a bad debt on the Medicare cost report. Based on Noridian’s interpretation, the State Medicaid program must be billed within 90 days of Medicare discharge to obtain the appropriate denial notice, in order to collect the coinsurance that has been deemed a Medicare bad debt.
However, Noridian’s 90-day policy is their interpretation of the regulation and does not represent the position of all Medicare fiscal intermediaries. Due to extenuating circumstances, some organizations won’t be able to meet this short timeline.
For more information, contact Deborah Elsey or Jill Sigelman at 1-888-529-2648 or read the PRM (Part 1, Chapter 3).
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