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CMS Attempting to Clarify Regulations Around Medicare Bad Debt 

Have you recently received Medicare bad debt audit adjustments that you felt were unfair? If so, you are not alone.

MACs (Medicare Administrative Contractors) have been tightening their auditing standards and practices surrounding Medicare bad debt listings for years. Regulations have been interpreted and enforced differently by MACs, thus causing inconsistent audit standards. Being held to auditing standards that were never communicated prior to enforcement can be extremely frustrating, and oftentimes, these standards are retroactively applied to fiscal years where the listings have already been completed. This leaves no chance for providers to implement the necessary changes to avoid ongoing audit adjustments.

Providers have been asking for clear guidance for years, and many have even gone to court to fight what they felt were unfair interpretations and applications of Medicare bad debt regulations. CMS has finally come out with proposed regulations to help clarify some of the confusion. If passed, these changes will go into effect on October 1, 2020, for FY2021. Comments are due to CMS by July 10th at which point they will review and prepare responses. The final rule will be issued 30 days before implementation.

We put together a summary of the proposed rules for your convenience and instructions on how to submit comments to CMS.

Proposed Regulations: 

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 

The documentation of the collection effort must include:

  • the provider’s bad debt collection policy, which describes the collection process for Medicare and non-Medicare patients
  • the patient account history documents, which show the dates of various collection actions such as the issuance of bills, follow-up collection letters, reports of telephone calls and personal contact & etc.

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 its 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 final ruling 

CMS is proposing to set a definite time frame of 120 days for the provider to send the first statement to the patient. The 120-day clock starts after (1) the date of the Medicare remittance advice; or (2) the date of the remittance advice from the beneficiary’s secondary payer, if any; whichever is latest.

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 retroactively 

The provider must determine that the Medicare beneficiary is indigent and not eligible for Medicaid. In order to determine that the beneficiary is indigent, they must:

  • (1) not only rely on the patient stating that they are indigent (a beneficiary’s signed declaration of their inability to pay cannot be considered proof of indigence),
  • (2) take into account a beneficiary’s total resources (assets, liabilities, income, and expenses). Any extenuating circumstances that would affect the determination of the beneficiary’s indigence must also be considered.
  • (3) determine that no source other than the beneficiary would be legally responsible for the beneficiary’s medical bill; for example, a legal guardian. The hospital must maintain and provide documentation describing the method by which indigence was determined and backup support of each beneficiary’s indigence.

Sending statements to Charity Patients —  applied retroactively 

Once indigence is determined and the provider concludes that there has been no improvement in the beneficiary’s financial status, the bad debt may be deemed uncollectible without applying a collection effort.

Write-off of bad debt & Charity accounts — applied after final ruling 

Bad Debt, Charity, and courtesy allowance write-offs need to be recorded as a reduction 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 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.

For those states which Medicaid does not provide a RA, CMS is looking for suggestions for alternative documentation to show the State’s Medicare cost-sharing liability.

Write-off of Crossover Account  — applied after final ruling 

Medicare bad debts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts (bad debt or implicit price concession).  The write-off can no longer be a reduction in revenue as many providers were doing. *Many find this proposed regulation concerning because it goes against GAAP.


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.

Submitting Comments to CMS: 

Due no later than 5 p.m. EDT on July 10, 2020. 

Comments must be submitted in one of the following three ways:

  1. Electronically (Recommended)http://www.regulations.gov. Follow the instructions under the “submit a comment” tab.
  2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1735-P, P.O. Box 8013, Baltimore, MD 21244-1850. Please allow sufficient time for mailed comments to be received before the close of the comment period.
  3. By express or overnight mail. You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1735-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Read the full proposed rule here.

If you have questions or would like to discuss how this could impact your organization, please contact your local Blue & Co. advisor today.

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