Medicare Bad Debt

Resources for Medicare Bad Debt


Recorded Webinar

Claiming Medicare bad debt is the easy part! Passing an Fiscal Intermediary’s audit is the hard part. Watch this recorded webinar and learn some tips on how to pass an audit and suggestions on when to claim on the cost report.

Medicare Bad Debt Webinar

Handouts from Webinar 

Medicare Excel Log

Example of a Medicare Excel Log

Claiming Medicare Bad Debt before 2nd Placing Collections Accounts?

By Shawn K. Gretz, Ridiculously Nice VP of Sales

It is unheard of for most Fiscal Intermediary to allow Medicare bad debt after the cancelation of first placements but before the placement of second placements, but a recent ruling may open the floodgates to do so. The ruling I am speaking of occurred July 25, 2016, where the United States District Court for the District of Columbia ruled in favor of a group of hospitals who were denied reimbursement for certain Medicare bad debt. In this case, the court reversed the finding from the Fiscal Intermediary for the Secretary of the Department of Health and Human Services who denied the Medicare bad debts. This article will look more into the ruling and also what should hospitals consider from this ruling.

Basics of Medicare Bad Debt: Before we get into the ruling let’s look at the basics of Medicare bad debts. Medicare bad debts are those Medicare accounts that remain unpaid after a “reasonable collection efforts” are made and can be reimbursed for co-insurance and deductible amounts associated with covered charges that are reimbursable by the Medicare program. Hospitals have to make a “presumption of noncollectibility,” on these accounts. Other accounts/fees that can be included in the Medicare bad debts include:

– Unpaid because bankruptcy,

– Unpaid because qualified hospital charity (presumptive or otherwise),

– Unpaid because deceased with no estates,

– and Fees paid to collection agencies on partial pays.

A log of these accounts should be maintained with demographic data along with the collection efforts put into these accounts.

Below are the accounts that cannot be claimed:

– Unpaid due to deceased where probate was never filed,

– Unpaid bankruptcy where accounts pending discharge or Chapter 13 was never filed,

– and unpaid accounts when the billing and collection policy is not followed,

To claim Medicare bad debts, you have to place similar/identically work events into the account regardless of primary insurance. You will also need to attempt to collect the debt must last a minimum of 120 days. This 120-day rule is the same as 501r that the clock starts the day the patient is sent the first statement. All Medicare bad debt claims that are logged/canceled from the collection agency must be within the fiscal year being reported or to say it differently, if you forgot to claim several older Medicare accounts that were canceled in previous fiscal years, you cannot claim them now. Medicare allows five months after fiscal close date to report the log of accounts.

The Hospital’s “Reasonable Collection Efforts” in the Court Case: In 2004, 2005, and 2006 a group of hospitals claimed accounts as Medicare bad debt. Initially, all hospitals worked internally to collect all accounts by sending statements to patients. After 90 days, the hospital outsourced the first party phone calls to patients in the name of the hospitals. A final notice was also mailed by the first party outsourcer if the account had remained unpaid. All accounts (Medicare and non-Medicare) were then canceled back to the hospital to be listed with an outside collection agency for first placements. The first placement agency would work the listed accounts for 120 days. If the Medicare patient didn’t agree to terms of payment, the account would be canceled back to the hospital who then would write the account off to bad debt internally. Previous to 2004, the Fiscal Intermediary had accepted these accounts as Medicare bad debt but in 2004, 2005, and 2006 they were told they would not be accepted as they were not following identical collection efforts.

The Ruling: The basics of the ruling by the courts came down to the fact that the hospital made a “sound” business decision in claiming the accounts as Medicare Bad Debt before they went to second placements and that a requirement that comes from the Omnibus Budget Reconciliation Acts of 1987, 1988, and 1989 where Congress froze in place the Secretary’s interpretations of the bad debt regulations and guidance as they existed on August 1, 1987 (called the Bad Debt Moratorium). The Hospitals had listed on several occasions before the 1987 Bad Debt Moratorium were the secretary allowed a more flexible approach to Medicare bad debt. Because of these previous examples of flexibility, the court ruled in favor of the hospital.

To Claim or Not to Claim Before 2nd Placement: If (and this is a big “if” because of the legal cost that could be incurred) hospitals want to claim Medicare bad debt before second placing accounts, then the hospitals need to make the case of a “sound” business decision to treat Medicare and non-Medicare debt collection differently. In doing so, they have a leg to stand on against the Fiscal Intermediary to claim accounts as Medicare bad debt before placing accounts for second placements.

Another Solutions for Medicare Bad Debts:

Wait – The statute of limitations for collections vary from state to state, but the accounts will be canceled back by the collection agency at some point. At this point, all Medicare accounts (besides those that were previously canceled for bankruptcy and deceased) can be claimed on the cost reports.

Medicare Separation at the Collection Agency – Something that I would strongly suggest to make your life easier when it comes to Medicare bad debt is to ask your collection agency to create two separate client codes to allow for easier tracking of Medicare bad debts. Americollect asks this question during the implementation of our new clients or changeover of systems to allow us to easily and quickly report back all accounts in a fiscal year that we cancel for Medicare bad debts.

If you have any questions in regards to Medicare bad debts or Americollect as a whole, please contact Shawn Gretz at or 920-420-3420.

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