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Medicare Bad Debt Compilation and Systemic Reviews


The Hall Consulting Services' staff has been continuously involved in Medicare bad debts auditing and review for over 25 years.  As a result, our staff has a unique understanding on the evolution of numerous polices, interpretations, the Centers of Medicare and Medicaid Services (CMS) instructions, 42 U.S.C. section 1395f note (“Bad Debt Moratorium”) litigation cases, PRRB case issue positions, CMS administrator decisions, Office of Inspector General (OIG) audits and legal court decisions concerning the Medicare Bad Debt issue.


HCS has directly filed for a number of Medicare bad debt issues (reopenings and appeals) for hospital clients ranging in sizes from 125 to 1,500 patient beds. Additionally, HCS has audited, reviewed and analyzed a wide range of circumstances where a number of problems concerning Medicare bad debts were resolved. Over the years, HCS has development a detail systematic approach which can be customizes to any particular hospital size or complexity.


The Medicare program reimburses hospitals for bad debts associated with uncollectible Medicare deductible and coinsurance amounts if the bad debts meet specified Medicare reimbursement criteria.  Generally, Medicare bad debts must meet the following criteria, as set forth in Title 42 Code of Federal Regulations (CFR) Section 413.80(e):


  • The debt must be related to covered services and derived from deductible and coinsurance amounts

  • The provider must be able to establish that reasonable collection efforts were made

  • The debt was actually uncollectible when claimed as worthless

  • There was sound judgment established that there was no likelihood of recovery at anytime in the future


    New Developments in Medicare Bad Debts


    Recent court cases and CMS published instructions on the requirements for Medicare bad debts have lead to a number of developments which cause providers to implement new processes to fall within CMS’s increased restrictions in order to obtain bad debt reimbursement.   Below is a brief description of some of the CMS requirements for Medicare bad debts:  





    Outside Collection Agency


    CMS current position is that Medicare bad debt amounts transferred to a collection agency may not be claimed as allowable Medicare bad debts until all collection efforts have been exhausted by the collection agency and the bad debts returned to the provider as uncollectible.  Therefore, if a provider utilizes collection agencies to complete all or part of the required collection efforts, documentation must be available for review to support the collection agency’s actions during the appropriate fiscal year.


    However, there are a limited number of exceptions to CMS’s current collection agency policy statement outlined above.  Section 4008(c) of the Omnibus Budget Reconciliation Act (OBRA) of 1987 [Bad Debt Moratorium] states:


    “The Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, in accordance with the rules in effect as of August 1, 1987, with respect to criteria for indigent determination procedures, recordkeeping, and determining whether to refer a claim to an external collection agency, has accepted such policy before that date, and the Secretary may not collect from the hospital on the basis of an expectation of a change in the hospital’s collection policy. (emphasis added)”


    Based on this latter Act, if a fiscal intermediary knowingly allowed bad debt write-offs prior to the collection agency ceasing collection efforts at a given hospital prior to August 1, 1987, then the moratorium applies.  The moratorium relates to bad debts that are referred to a collection agency after the provider had documented the required prompt and continuous internal collection effort for at least 120 days.


    How HCS can assist you with Medicare bad debt


    1. Bad debts policy write-off review for the accounting period, Medicare cost report fiscal period and regulatory compliance.


    1. Review of recovery of bad debts offsets and allocations


    1. Review provider total bad debt and Medicare bad debt policies and procedures for compliance with Medicare requirements.


    1. Systematically review the bad debt internal control from beginning to end (e.g. bad debt initiation requirements, record keeping, write-off polices, etc…).  This review process will include some of the following procedures:

  • Ensure bad debt write-offs are in accordance with Medicare collection effort time requirements.

  • Ensure Medicare bad debts recoveries are properly offset and allocated.

  • Review of Medicare Bad Debts Log and related component requirements.


    1. Systematically Review the Internal Control of the Collection Agency Process for Medicare and Non-Medicare Bad Debts. This review process will include some of the   following procedures:

  • Develop and Coordinate with Collection Agencies to ensure all Bad Debts are properly identified by payer classification (e.g. Medicare, private, etc.)

  • Establish guidelines and policies to set a Standard Criteria for all Collection Agencies interactions to be in accordance with Medicare requirements


    Hospital Database Analysis


    In order to fully account for all of the required Medicare bad debt information components, provider patient information must be analyzed and comparatively matched with all applicable provider department information sources including components such as bad debt amounts, recoveries of bad debts, first patient bill date, and write-off dates.


    HCS can develop computer-based programs for your company to integrate the numerous sources of provider information and fiscal intermediary patient databases.


    Database Computer-Based Programs that have been developed for HCS' clients have included the following:

  • Develop, Manage and Implement Medicare bad debt amounts which tracks and account for the location of patient accounts across multiple departments, institutions, and Federal and State governments.


  • Identify and separate minimum dollar bad debt amounts which are excluded from Medicare collection effort requirements.  Medicare PRM-1, Section 310, supports the use of a minimum dollar threshold to turn over accounts to an outside collection agency as long as it consistently applies to Medicare and non-Medicare.


  • Develop a detailed bad debt database for all fragmented bad debt write-offs outsourced to collection agencies.  In addition, coordination of bad debt write-offs previously contracted to outside collection agencies in prior fiscal periods.




    Next Service: Medicare/Medicaid Cost Report Preparation and/or Review