Medicare Bad Debt

Your resource for Medicare Bad Debt knowledge

Medicare Bad Debt

There are a variety of rules and regulations that are required to be followed when recovering Medicare Bad Debt. Americollect has created an informative webinar with handouts, an example of a Medicare Log, and an article about claiming Medicare Bad Debt to help you better understand exactly what needs to be done to properly claim what you are owed.

If you are interested in better understanding Medicare Bad Debt, let us talk with you one-on-one and help answer any questions you may have.

In late May, the Centers for Medicare & Medicaid Services (CMS), proposed changes and updates to the Medicare bad debt rules and regulations[i]. While the comment period has ended, there are several changes that hospitals should be aware of as they go into effect before, on, and after October 1st as noted by each section of the IPPS rule. This article will shed a light on what some of those changes are to prepare hospitals for the implementation of the rule.

Before we dive into those changes, lets first discuss what the Medicare Bad Debt rule is at very high level as it is complex. With the implementation of Medicare Part A (Facility charges), beneficiaries (patients) where made responsible for payments of copayments and deductibles. Shortly after this implementation, Medicare recognized that beneficiaries may fail to pay a deductible or coinsurance, which could lead to non-Medicare patients bearing those costs. Because of this, Medicare introduced a program where if a beneficiary did not pay for their services, Medicare would then reimburse the hospital for the non-payment, as long as:

  1. The bad debt was related to “covered services” and derived from the deductible andcoinsurance amounts.
  2. The hospital established that “reasonable collection efforts” were made.
  3. The bad debt was uncollectible when claimed “worthless.”
  4. Sound business judgment established that there was no likelihood of recovery at any time in the future.

CMS Proposed Changes:

Retroactive – CMS is proposing that many of the rules will be “retroactive.” The reasoning is that a “retroactive effective date does not affect prior transactions or impose additional duties or adverse consequences upon providers or beneficiaries, or does it diminish rights of providers or beneficiaries.” This may create urgency for hospitals to claim “worthlessness” of accounts in the fiscal year ending September 30 if the changes below will impact Medicare reimbursements.

Reasonable Collection Efforts – Non-indigent – Several changes were proposed for Non-indigent individuals including:

  1. Defining “Non-indigent” as “a beneficiary who has not been determined to categorically or medically needed 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.” The attempt is to define who is indigent, which then defines who is non-indigent instead of remaining silent on this matter.
  2. “Reasonable collection efforts” – This has always been the standard to which a provider must attempt to collect against a beneficiary including, “using similar efforts to collect from non-Medicare patients”, “issuance of a bill shortly after discharge or death, subsequent billing, collection letter, and telephone calls or personal contacts which constitutes a genuine, rather than token, collection effort” and finally “including using or threating to use court action to obtain payments”.
    1. “Shortly after” – This has been considered too vague. A timeframe of 90-120 days would afford greater flexibility, but it would not deal with secondary payers. CMS has proposed the following – “It must involve the issuance of a statement to the beneficiary or party responsible for the beneficiary’s personal financial obligations on or before 120 days after: 1. The date of Medicare remittance advice; or 2. The date of the remittance advice from the beneficiary’s secondary payer, if any; whichever is latest.”This language will allow providers additional time to bill beneficiaries without the fear of losing out on Medicare bad debt recoveries.
    2. “120 days collection effort” & partial payments – Providers must make a “reasonable and customary attempt” to collect a bill for at least 120 days from the date of the first bill mailed(yes the regulation still says “mailed” for those that have started using “e-statements”) to the beneficiary. CMS effort is to further define what happens with a “partial payment”. The proposal is that the 120-day collection effort must renew again from each partial payment. This change has far reaching implications for claiming Medicare Bad Debt accounts and should also be considered for any “returned” accounts from collection agencies to be claimed on the “cost report”.
    3. Previously claimed Medicare Bad Debt – CMS has proposed that – “Any payment on accounts made by the beneficiary, or a responsible party, after the write-off date but before the end of the cost reporting period, must be used to reduce the reimbursable Medicare bad debt costs.” Meaning if a payment comes in before the end of the fiscal year, this payment must reduce the final bad debt claimed amount. These payments will need specific tracking. Also, if a payment comes in for a prior fiscal year, then again, you must reduce the provider’s reimbursable Medicare bad debt costs in the period it is recovered. This proposal again will apply to “before, on, and after” the effective date of this rule making it retroactive and complex for any hospital system to find those payments (if any).
    4. Similar Collection Efforts – Currently the guidance states that if a provider sends non-Medicare accounts to a collection agency, then the provider must similarly refer its Medicare accounts of “like amount” to a collection agency. “Like amount” can be used for balance limitations. If a provider does use a collection agency they have to “ensure” that the collection agency’s collection efforts is similar to the effort the collection agency puts forth to collect comparable amounts from non-Medicare patients. Finally, the fees charged by the collection agency are allowable administrative costs. Utilizing a “net” contingency model for payments from collection agencies may inadvertently have applied the contingency fees as Medicare bad debt vs where they should be classified as “Administrative fees”. This is a question you will want to ask your accountant along with your collection agency to ensure you are properly accounting for the fees they are charging for Medicare bad debt.
    5. Billing and Collection Policy – CMS has now clarified that a Billing and Collection Policy or “documentation” must be required. This should not be a large endeavor for most hospital facilities as 501r has already required this.
  3. Indigent Beneficiaries Proposed Changes
    1. Policy for Determination of Indigence – CMS is proposing changing the determination of indigence from –
      1. The patient’s indigence must be determined by the provider, not by the patient, i.e., a patient’s signed declaration of his inability to pay his medical bills cannot be considered proof of indigence;
      2. The provider should take into account a patient’s total resources which would include, but are not limited to; an analysis of assets (only those convertible to cash, and unnecessary for the patient’s daily living), liabilities, and income and expenses. In making this analysis the provider should take into account any extenuating circumstances that would affect the determination of the patient’s indigence;
      3. The provider must determine that no source other than the patient would be legally responsible for the patient’s medical bill, e.g., title XIX, local welfare agency and/or a guardian; and
      4. The patient’s file should contain documentation of the method by which indigence was determined in addition to all backup information to substantiate the determination.

These changes refer to creating a “policy for determination of indigence” which would describe the method by which indigency, or medical indigence, was determined and the beneficiary-specific documentation which supports the provider’s documentation of indigence. To me, this should be simply ensuring your Financial Assistance Policy is also your Policy for Determination of Indigence. You could also create a separate Policy for Determination of Indigence because an “an analysis of assets (only those convertible to cash, and unnecessary for the patient’s daily living), liabilities, and income and expenses” should be completed for determining indigence.

Must submit to State for Dual – CMS is proposing changes for dual eligibility to be considered a reasonable collection effort, a provider must determine whether the State’s Title XIX Medicaid Program (or a local welfare agency, if applicable) is responsible to pay all or a portion of the beneficiary’s Medicare deductible and/or coinsurance amounts. To make this determination, the provider must submit a bill to its Medicaid/title XIX agency (or to its local welfare agency) to determine the State’s cost sharing obligation to pay all or a portion of the applicable Medicare deductible and coinsurance.

4. Accounting Updates on Medicare Bad Debt

  1. Implicit price concessions – CMS is proposing for cost reporting periods beginning on or after October 1, 2020, bad debts, also known as “implicit price concessions,” are amounts considered to be uncollectible from accounts that were created or acquired in providing services. “Implicit price concessions” are designations for uncollectible claims arising from the furnishing of services and may be collectible in money in the relatively near future and are recorded in the provider’s accounting records as a component of net patient revenue.
  2. Reductions in revenue  CMS is proposing for cost reporting periods beginning before October 1, 2020 that bad debts, charity and courtesy allowances should represent reductions in revenue.
  3. Contractual Allowances  CMS is proposing 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 expense account for uncollectible accounts (bad debt or implicit price concession).

These changes may require some significant updates to ensure your Medicare bad debt accounts are correctly quantified on upcoming cost reports. As always, if there are any questions on Medicare bad debt, please do not hesitate to reach out.


Claiming Medicare bad debt is the easy part! Passing a 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.

Click here to view Medicare Bad Debt Webinar

Click here to view an example of a Medicare Excel Log