On April 4, 2019, CMS clarified that to claim Medicare Part A coinsurance and deductibles as Medicare bad debt, providers must record the write-offs for those accounts to an expense account for uncollectible accounts (bad debt expense) and not to contractual adjustments. This clarified position is effective for all cost reporting periods beginning on or after October 1, 2019.
BKD created a Fine-Tuning Checklist to help providers enhance their processes for collecting coinsurance and deductibles and claiming the unpaid amounts as Medicare bad debt. CMS’ clarification may affect your process for recording the write-off of uncollectible coinsurance and deductibles. The Medicare Administrative Contractors’ review policy for bad debt is expected to change to include determining whether the claimed amounts were expensed to a bad debt expense account. Therefore, it will be important to help ensure the individual amount written off can be easily traced to the bad debt expense account. This might include writing off the specific amount with an individual description for each patient in the journal entry. Providers should consider segregating bad debts related to Part A coinsurance into a separate general ledger account to facilitate tracking amounts due from Medicare.
If your organization currently records an estimate for dually eligible (Medicare Part A and Medicaid) beneficiaries’ coinsurance amounts on the balance sheet, which will be collected through the Medicare cost report, you record the receivable (asset) for the expected bad debt reimbursement from Medicare with a corresponding adjustment to a contractual adjustment, and when Medicaid has adjudicated the claim, expense the write-off of the entire unpaid coinsurance to bad debt expense. This may require some in-depth assessment in your systems as to how various revenue cycle transactions are mapping to your accounting system. These entries should be separate from the above actual bad debt expense entries.
If an organization is receiving pass-through payments or lump-sum adjustments as an estimate of bad debt reimbursement claimed on a future cost report, those should be recorded in the estimated amounts due from the Medicare asset account on the balance sheet to offset the expected reimbursement for bad debts written off during the year. Doing so will more accurately reflect the amounts due from Medicare upon submitting the cost report.
If your financial reporting follows GAAP, you may want to consult with your financial accounting advisor or auditor on whether bad debt expense should be included in expense or netted from revenue.
If you have questions, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.