Since the release of Centers for Medicare & Medicaid (CMS) final ruling, there has been a lot of confusion regarding the correct way to write off a bad debt crossover account.
For years it has been acceptable to write off a Medicare bad debt crossover account to a contractual allowance. But then in 2018 an article was released in MLN stating that crossover accounts need to be written off to an expense starting 10/1/2019. The same “expense” terminology was used in the proposed CMS regulations earlier this year.
By using the word “expense”, many felt this was a direct contradiction to ASU Topic 606. Therefore, putting providers in a position to choose between compliance with CMS or Generally Accepted Accounting Principles (GAAP). After reviewing the comments submitted to CMS, the final ruling made a slight update in the wording to read:
“…for cost reporting periods beginning on or after October 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.”
This is now in line with ASU Topic 606 and points the bad debt crossover write off to be a reduction in revenue. It is no longer acceptable to write off crossover accounts to a contractual allowance account.
Questions to Ask Yourself and Your Team About Medicare Bad Debt Crossover
- What transaction codes are being used for Medicare bad debt crossover accounts?
- Do you know where your Medicare bad debt crossover write off is directed to on the financial statements?
- Is the write off routed to net patient revenue or operating expense?
- Do you have a separate General Ledger (GL) account set up for these Medicare bad debt crossover accounts?
- Will you be able to provide a detailed listing of all patient accounts that are hitting the GL?
If you have any questions regarding the latest ruling or how it may affect your organization, please contact your local Blue & Co. advisor.