Hospitals claim approximately $3 billion of Medicare bad debt annually through the Medicare cost report, of which the federal government reimburses 65% of this amount, or $1.95 billion each year. It should come as little surprise that this has the attention from federal agencies.
CMS reviewed criteria of “allowable” Medicare bad debt in great detail on its 2021 Inpatient Prospective Payment System final rule. Within the rule, CMS discussed several “long-standing” policies related to reporting Medicare bad debts, including the requirement to write off Medicare/Medicaid crossover balances to a bad debt expense account rather than contractual.
Most recently, the U.S. Department of Health & Human Services published a report on December 15, 2022 detailing audit results of Medicare bad debts performed by the Office of Inspector General (OIG). The outcome of that OIG audit highlighted 22 errors out of 62 non-indigent accounts sampled, equating to an approximate 35% error rate.
Hospitals should be prepared for additional scrutiny of Medicare bad debts, particularly among the non-indigent population, according to this most recent OIG audit. Of significance to this population of bad debts is not only the requirement of minimum collection efforts set forth by CMS, but also the requirement for hospitals to comply with their own collection policies. Furthermore, hospitals often utilize third-party companies that operate as an extension of their billing office to pursue outstanding patient balances. It’s important that all collection activity align with hospital policy even when efforts are performed by third parties.
There are several items management should address to claim Medicare bad debts compliantly while being reimbursed amounts to which the hospital is entitled. The first step is to confirm that a collection policy exists and that it meets both the hospital mission and minimum requirements established by CMS. The collection policy should be reviewed annually to account for changes that may have occurred. This may be of particular relevance in today’s environment given potential changes in collection cycle stemming from the pandemic. Other items to consider include:
- Check that Medicare crossovers are being written off to a bad debt expense, i.e., implicit price concession, account rather than Medicaid contractual
- Establish a financial assistance policy that considers both income and assets
- See that third-party vendors cease monitoring of patient balances once they have returned accounts to the hospital as uncollectible
- Perform reviews of Medicare bad debt lists before cost report submission for compliance with CMS regulations
- Maintain documentation (Medicaid remittance advices, billing history, and financial assistance information) in the event of a CMS audit
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