How to Ensure Compliance With Federal Regulations for the Reimbursement of Medicare Bad Debt

Featuring: Cara Tucker, Ensemble Health Partners

The Centers for Medicare and Medicaid Services (CMS) reimburses hospitals 65 cents on the dollar for Medicare patients’ “bad debt” if the provider first makes reasonable efforts to collect the debt and follows regulatory requirements for medical debt collection. Medicare bad debt consist of deductible or coinsurance amounts that are deemed uncollectible from Medicare patient accounts.

A recent federal court decision highlights the liability risk providers may face under the False Claims Act (FCA) if they or their vendors do not comply with Medicare bad debt regulations. Medicare bad debt is also an active work plan item for the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG) which intends to audit hospitals to ensure policies and procedures adhere to federal criteria in treating bad debt.

What You Should Know About Medicare Bad Debt Regulatory Requirements

Under the regulations, providers may seek reimbursement of bad debts from CMS through cost reporting if the following four criteria are met:

  1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
  2. The provider must be able to establish that reasonable collection efforts were made.  
  3. The debt was uncollectible when claimed as worthless.  
  4. Sound business judgment established that there was no likelihood of recovery at any time in the future.

If the above criteria are met and if all collection efforts have ceased, including those by an external collection agency, then the provider may write off the patient’s deductible and coinsurance amount and recognize it as allowable bad debt in its cost reporting. Medicare then reimburses hospitals 65% of the allowable bad debt.  

Reasonable Bad Debt Collection Efforts

A provider must engage in reasonable collection efforts — such as subsequent billings, collection letters, telephone calls, emails, text messages or other types of communication — for at least 120 days after the patient’s original bill is issued before the provider may write the debt off as uncollectible. If the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary despite reasonable and customary attempts to collect the bill, the debt may be deemed uncollectible. If a payment is received within that 120-day period, the provider must start a new 120-day collection period and follow the steps for reasonable collection efforts.

The provider’s collection efforts must be similar between Medicare and non-Medicare patients—i.e., there cannot be different collection policies for Medicare patients and non-Medicare patients. Collection efforts must also be documented in the patient’s file by copies of the bill(s), follow-up letters, reports of telephone and personal contact, etc. If a patient is not eligible for Medicaid and is determined to be indigent, the bad debt may be deemed uncollectible. Refer to 42 CFR § 413.89 and Chapter 3 of the CMS Provider Manual regarding Medicare-Medicaid crossover claims and what constitutes reasonable collection efforts if a patient dually eligible under Medicaid.

Tips to Mitigate Risks + Enhance Regulatory Compliance

By creating a comprehensive collections policy and auditing program, you help ensure that your organization is prepared for an OIG audit and also reduce the risk of FCA actions, which may result in costly damages and penalties.

  • Develop a comprehensive collections policy to ensure policies and procedures align with Medicare bad debt regulations and create accurate reporting to monitor collection activities. Document collection efforts in the patient’s file and ensure collect efforts are similar between Medicare and non-Medicare patients.
  • Create an associate education and corresponding audit program to ensure appropriate policies are being followed, including appropriate documentation of collection efforts, and provide education if gaps are identified. When selecting a vendor to perform bad debt collection, ensure that they have adequate policies and procedures in place to reduce compliance risk for your system.
  • Engage your compliance department if you identify gaps or trends in non-compliance and ensure all associates understand how to notify your compliance team of potential issues.

Resources

These materials are for general informational purposes only. These materials do not, and are not intended to, constitute legal or compliance advice, and you should not act or refrain from acting based on any information provided in these materials. Neither Ensemble Health Partners, nor any of its employees, are your lawyers. Please consult with your own legal counsel or compliance professional regarding specific legal or compliance questions you have.