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CMS Finalized Ruling- Medicare Bad Debt Summary

On September 2, 2020, CMS released its final ruling. It is effective beginning October 1, 2020, for FY 2021. This means it will go in to effect the first day of your fiscal year 2021.
Below you will find a summary of the finalized regulations put in place by CMS for the Medicare Bad Debt listings.

Non-Indigent Beneficiaries-Valid Effort Bad Debts

Updated definition of non-indigent beneficiary – applied retroactively
A non-indigent beneficiary will be defined as a beneficiary who has not been determined to be categorically or medically needy by a State Medicaid Agency to receive medical assistance from Medicaid and has not been determined to be indigent by the Provider for Medicare bad debt purposes.

Documentation required to show a reasonable collection effort – applied retroactively
Providers must maintain and, upon request, furnish verifiable documentation that includes all of the following: (i) The provider’s bad debt collection policy which describes the collection process for Medicare and non-Medicare patients, (ii) The patient account history documents which show the dates of various collection actions such as the issuance of bills to the beneficiary, follow-up collection letters, reports of telephone calls and personal contact, etc.; and (iii) The beneficiary’s file with copies of the bill(s) and follow-up notices. Unpaid deductible and coinsurance amounts, without collection effort documentation, are not considered allowable for Medicare bad debt reimbursement.

Treatment of Medicare and Non-Medicare patients – applied retroactively
The Provider and/or collection agency must put forth the same collection efforts for Medicare and Non-Medicare patients. This includes actions such as subsequent billings, collection letters, and telephone calls or personal contacts with this party which constitute a genuine, rather than token, collection effort. If differences are found in the treatment of Medicare and Non-Medicare accounts, then they do not qualify for Medicare bad debt reimbursement.

Collection agency policies – applied retroactively
The collection agency’s collection effort may include using or threatening to use court action to obtain payment. The fee charged by the collection agency is a charge for providing the collection service and is not considered a Medicare bad debt. Accounts cannot be claimed as a Medicare bad debt until they are closed and returned to the Provider. When a collection agency obtains payment of an account receivable, the gross amount collected reduces the patient’s account receivable by the same amount and must be credited to the patient’s account. The collection fee deducted by the agency is charged to administrative costs.

Timeframe to send the patients first statement – applied after 10/1/2020
Providers must send the first billing statement to the patient 120 days after: (1) the date of the Medicare remittance advice; (2) the date of the remittance advice from the beneficiary’s secondary payer if any; or (3) the date of the notification that the beneficiary’s secondary payer does not cover the service(s) furnished to the beneficiary; whichever is latest. A provider’s reasonable collection effort must also include other actions such as subsequent billings, collection letters, and telephone calls or personal contacts with this party.

Time frame to collect on account before writing it off – applied retroactively
The Provider must collect on an account for a minimum of 120 days. For each subsequent partial payment received during a 120-day collection effort period, the Provider must continue the collection effort and the day the subsequent partial payment is received is day one of the new collection period.

Indigent Beneficiaries- Charity Bad Debts

Determining how a patient is eligible for charity – applied after 10/1/2020
The provider: (1) Must not use a beneficiary’s declaration of their inability to pay their medical bills or deductibles and coinsurance amounts as sole proof of indigence or medical indigence, (2) Must take into account the analysis of both the beneficiary’s assets (only those convertible to cash and unnecessary for the beneficiary’s daily living) and income, (3) May consider extenuating circumstances that would affect the determination of the beneficiary’s indigence or medical indigence which may include an analysis of both the beneficiary’s liabilities and expenses, if indigence is unable to be determined under (2) above, (4) Must determine that no source other than the beneficiary would be legally responsible for the beneficiary’s medical bill, such as a legal guardian or State Medicaid program, and (5) Must maintain and, upon request, furnish its Medicare contractor with the provider’s indigence determination policy describing the method by which indigence or medical indigence is determined and all the verifiable beneficiary specific documentation which supports the provider’s determination of each beneficiary’s indigence or medical indigence.

Sending statements to Charity Patients – applied after 10/1/2020
Once indigence is determined, the bad debt may be deemed uncollectible without applying a collection effort.

Write-off of bad debt & Charity accounts – applied after 10/1/2020
Bad debts (also known as “implicit price concessions)” charity, and courtesy allowances represent reductions in revenue.

Indigent Beneficiaries- Crossover Bad Debt Type

Billing Medicaid – applied retroactively
For dual-eligible beneficiaries, the Provider “must bill” Medicaid to determine if they are responsible to pay all or a portion of the Medicare beneficiary’s deductible/coinsurance. The Provider must keep a record of the Medicaid RA reflecting the payment decision. Any amount that Medicaid pays or is obligated to pay cannot be included as Medicare bad debt.

State Medicaid programs that do not provide Medicaid remits – applied retroactively
In limited circumstances, providers can comply with the must bill policy and still evidence a State’s cost-sharing liability (or absence thereof) for dual-eligible beneficiaries when a State does not process a Medicare crossover claim and issue a Medicaid RA to providers. Alternative documentation to the Medicaid remittance advice must be submitted which would include all of the following: (1) the State Medicaid notification evidencing that the State has no obligation to pay the beneficiary’s Medicare cost-sharing or notification evidencing the provider’s inability to enroll in Medicaid for purposes of processing a crossover cost-sharing claim, (2) documentation setting forth the State’s liability, or lack thereof, for the Medicare cost-sharing, and (3) documentation verifying the beneficiary’s eligibility for Medicaid for the date of service.

QMB Patients – applied retroactively
Medicare must bill bad debt policy with respect to QMB dual-eligible beneficiaries to require that the provider must bill the State for the QMB’s Medicare cost-sharing and submit the resulting Medicaid RA the provider receives to Medicare to evidence the State’s Medicare cost-sharing liability so that any State Medicare cost-sharing liability can be deducted from the Medicare bad debt reimbursement.

Write-off of Crossover Account – applied after 10/1/2020
Medicare bad debts must not be written off to a contractual allowance account but must be charged to an uncollectible receivables account that results in a reduction in revenue.


Recovery of Bad Debts – applied retroactively
Any payment on the account after the write-off date, but before the end of the cost reporting period, must be used to reduce the final bad debt for the account claimed in that cost report. Any payment received on a claimed Medicare bad debt account in future fiscal years must be used to reduce the Provider’s reimbursable costs in the period in which the amount is recovered. However, the amount of such reduction in the period of recovery must not exceed the amount previously claimed as a Medicare bad debt.

Full CMS rulings:

If you have any questions regarding the latest ruling or how it may affect your organization, please contact your local Blue & Co. advisor

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