Eligibility for Medicare bad debt reimbursement varies by provider type and payment methodology. Certain provider types, including Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs) paid under the all-inclusive rate, generally do not qualify for separate Medicare bad debt reimbursement. In addition, guidance related to newer provider types such as Rural Emergency Hospitals (REHs) continues to evolve and may vary by Medicare Administrative Contractor (MAC). While the filing of a Medicare cost report is mandatory, there is another important reason to complete this process: Medicare bad debt reimbursement.
According to the Code of Federal Regulations, reimbursement for allowable Medicare bad debts, generally at 65% for inpatient prospective payment system (IPPS) hospitals, outpatient prospective payment system (OPPS) hospitals, and skilled nursing facilities (SNFs), subject to provider-specific payment rules for Medicare bad debts on covered Medicare services, provided certain criteria are met. These reimbursement opportunities are often overlooked, particularly as payment models and reimbursement structures continue to evolve across the healthcare landscape.
What Qualifies as Medicare Bad Debt
To start, the bad debt must relate to a covered Medicare service and include only the portion owed to the provider by the patient or beneficiary, specifically, any remaining coinsurance or deductible amount. As detailed on the NGS CMS Bad Debt Checklist for Providers, the Medicare bad debt listing should not include any Physician Part B professional component or any coinsurance outpatient fee for service reimbursement.
Collection Efforts & Documentation Requirements
Next, and most importantly, providers must exhaust reasonable and diligent collection efforts, as outlined in the provider’s bad debt collection policy. This policy should be in writing and should not differentiate between Medicare and non-Medicare balances in terms of collection steps. Collection efforts must be reasonable and consistent with the provider’s efforts for comparable non-Medicare accounts and are often interpreted by Medicare Administrative Contractors as extending for approximately 120 days after first billing for non-indigent, or providers must maintain full documentation of an indigency determination, either by the provider or through Medicaid. For patients who are dual-eligible for both Medicare and Medicaid, collection efforts must also be made to collect applicable balances from the state before amounts can be deemed uncollectible.
Reporting Medicare Bad Debt on the Cost Report
Once collection efforts have ceased and there is no expectation of recovery, these Medicare coinsurance and deductible amounts may be claimed for reimbursement on the Medicare cost report. The determination of uncollectibility must be made during the period covered by the cost report and should be written off to bad debt expense for financial reporting purposes or appropriately reconciled. Allowable Medicare bad debts are reported on the applicable bad debt worksheets within the provider’s Medicare cost report, with statutory reductions applied and sequestration applied at payment, and the applicable reimbursement rate applied to arrive at the final reimbursement received by the provider. These amounts are subject to CMS or MAC desk review post-submission, so providers must ensure all claim documentation, collection policies, collection efforts, and supporting records are readily available.
Don’t Miss an Opportunity for Reimbursement
Are you missing out on eligible Medicare bad debt reimbursement you may be entitled to? Reviewing your outstanding Medicare bad debts and collection policies now can help ensure your organization is prepared to take full advantage of this reimbursement opportunity in the next cost report cycle.
Because Medicare bad debt reimbursement is highly technical and varies by provider type, payment methodology, and MAC interpretation, organizations should evaluate eligibility and reporting requirements based on their specific circumstances.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
