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Bad Debt Recommendations

If Medicare Bad Debt derived from unpaid coinsurance and deductibles are properly claimed and documented, Medicare will reimburse provider's at 70% of the amounts written off and claimed on the annual cost report. SNF's may also be reimbursed at up to 100% of all dually eligible bad debt. Very often a provider's entire profit margin can be attributable to the amount of bad debt claimed and reimbursed! While the regulations are fairly straightforward, the intermedaries interpretation and audit trends often exceed the published requirements. Hence, the accompanying recommendations are based upon 42 CFR 413.89 (attached), Provider Reimbursement Manual Part I Chapter 3 (attached), Various Provider Reimbursement Review Board Decisions, Intermediary Fact Sheets, FAQ's and Website Excerpts (attached), and anecdotal audit experience of TFG Consulting, LLC with various Intermediaries.

42 CFR 413.89 states that:

(e) Criteria for allowable bad debt. A bad debt must meet the following criteria to be allowable:
(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 actually uncollectible when claimed as worthless.
(4) Sound business judgment established that there was no likelihood of recovery at any time in the future.

To be considered a reasonable collection effort, a provider's effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients.

All Medicare Bad Debt is claimed on the cost report that covers the period that it was actually written-off. Bad Debt is written off only when deemed worthless and should be reported on the CMS 339 Exhibit 5 bad debt schedule.

We find it helpful to bi-furcate the criteria and documentation requirements based on dually eligible and non-dually eligible bad debt.

Dually Eligible Medicare Bad Debt

Dually Eligible Medicare Bad Debt is bad debt derived from unpaid Medicare Coinsurance and Deductibles for patients that have Medicaid (Title XIX) as the secondary insurer. These patients are deemed indigent by virtue of Medicaid Eligibility.

Normally, a provider bills the State for secondary automatically via crossover. It is critical that the state Medicaid program is billed and that the provider keep a copy of the Medicaid Remittance Advice in the patients financial folder. The State remittance advice should also include all denial codes. A copy of the patient's Medicaid card should also be placed in the patient's financial folder. Do not send statements to these patients or try to collect as they are indigent. Billing the beneficiary for dually eligible could be in violation of Sec. 1902 of 42 U.S.C. 1396a.

Bad Debt will be disallowed, if a provider cannot provide both the Medicare RA and the Medicaid RA for all dually eligible patients. The bad debt is eligible for write-off only when the debt is deemed worthless which will be on or after the date of the Medicaid RA.

Non-Dually Eligible Medicare Bad Debt

Non-Dually Eligible Medicare Bad Debt is bad debt derived from unpaid Medicare Coinsurance and Deductibles for patients that DO NOT HAVE Medicaid (Title XIX) as the secondary insurer. More extensive collection efforts are required to these patients.

The regulations have long required that you bill the patient shortly after discharge. However, you cannot bill the beneficiary or secondary until you have received the Medicare RA and "shortly after" has never been defined in regulation. Although not supported by regulation, several intermediaries are now defining "shortly after" as anywhere between 45-90 days after discharge. Hence, you should make every effort to initiate your collection efforts shortly after discharge. If you are not able to bill for secondary shortly after discharge the reason for the delay should be documented in the patient's file. Since "shortly after" discharge is not defined in regulations, recently, some intermediaries have been defining shortly after discharge as being 30-60 days after your Medicare Remittance Advice date rather than 45-90 days after discharge. It is critical that you learn of your intermediaries current definition of "shortly after" when establishing your billing and collection policy. Contact our office to find your intermediaries current definition as they change from time to time with no notification which will likely lead to numerous PRRB appeals.

After the first statement is sent to the beneficiary, we recommend that statements be sent for at least three consecutive months (120 days) which is at total of at least 4 statements. Copies of all statements shall be placed in the patient's financial file and documented in the account history. Several Intermediaries are denying bad debt if collection efforts are not consistent (i.e. first statement 30th day, 2nd 10 days later, 3rd 50 days later,...). Once 120 days have elapsed from the date of the first statement, the debt is eligible for write-off. The account history needs to clearly show the actual date of write-off which should also agree to submitted bad debt schedules. Hence, the date of 1st statement must be after the Medicare RA Date, and the date of write-off should be at least 120 days after the date of 1st statement. If the write – off date is 118 days after the date of the first statement, the bad debt amount will be denied by the intermediary. If any payments have been received from the patient or the secondary insurer, these amounts should be documented and offset the amount of bad debt claimed. A listing of any bad debt written off that were subsequently recovered shall also be maintained and reported as negative amounts on the bad debt logs submitted with the annual cost report.

Upon audit, the intermediary will usually request the Medicare RA, copies of collection efforts (statements), account history, name of the secondary or insurer or a notation in the file if there is no secondary, bad debt policy, a notation in the account history showing the date of write-off and proof that no further collection efforts occurred after the date of write-off. If any of these items cannot be provided, the bad debt will be denied by the intermediary.

Once a debt is written off, it must be deemed worthless. Hence, do not continue to attempt collection after write-off!

We often discourage the use of collection agencies because a debt is not deemed worthless until actually returned from the collection agency and the provider has no way to ensure that the collection agency had reasonable collection efforts. If you write-off a bad debt before the collection agency has returned it to the provider, the bad debt will also be denied at audit. If you want to use collection agencies we need to work with you to ensure that the collection agency contract is structured in way to protect reimbursement for bad debt.

Summary

Your bad debt write-off policy must state that your effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients. All Medicare Bad Debt is claimed on the cost report that covers the period that it was actually written-off. Bad Debt is written off only when deemed worthless and should be reported on the CMS 339 Exhibit 5 bad debt schedule (attached). If the bad debt is dually-eligible, you must bill the state and retain the Medicare and Medicaid RA's and the write-off date must be after the Medicaid Denial. If the patient is not dually eligible, you should have regular collection efforts and keep copies of all statements and collection efforts. The first statement should be sent shortly after discharge and must be sent after the Medicare RA date. The definition of shortly after varies depending upon intermediary. Then at least 120 days must elapse between the date of the first statement and the date of write-off. The date of write-off should also be well documented and all collection efforts should cease as of that date. We discourage the use of collection agencies unless the agreement is structure properly and the collection agency has demonstrated a high success rate of collection. You should also keep a copy of the Medicare RA and document any secondary insurers if any.