Summary of Fiscal Intermediary Medicare Bad Debt Bulletins

Medicare Fiscal Intermediaries AdminaStar Federal and United Government Services (UGS) have issued bulletins clarifying allowable bad debt reimbursement and the application of the “bad debt moratorium” promulgated by the Omnibus Budget Reconciliation Act (OBRA) of 1987.

The criteria in 42 CFR 413.89 (e) for allowable bad debts are:

1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
2. The provider must be able to establish reasonable collection efforts were made.
3. The debt was actually uncollectible when claimed as worthless.
4. Sound business judgment established that there was no likelihood of recovery at any time in the future.

The Fiscal Intermediaries (FI) will require documentation that the bad debt is uncollectible, and all collection efforts have been exhausted. Therefore, if a hospital continues to collect on an account, including a referral to a collection agency, the debt is not considered worthless for Medicare reimbursement. If a hospital uses a Collection Agency to recover bad debts, the hospital must have notice from the Collection Agency that the particular debt is worthless and all collection efforts have ceased.

While this policy applies to all hospitals, some hospitals may still be covered under the “bad debt moratorium” provisions of OBRA 1987. The “moratorium” from OBRA 1987 states that the fiscal intermediary (FI) may not require a hospital to change its bad debt collection policy if:

• The FI knowingly allowed bad debt write-offs prior to the collection agency ceasing collection efforts at a given hospital prior to August 1, 1987.
• After August 1, 1987 the Hospital did not:
• Change ownership, such as merge into another Health System.
• Transfer to another FI.
• Change its collection policy.
• Convert to another Provider type such as from a PPS Hospital to a Critical Access Hospital.

The FI will require hospitals still covered by the moratorium to provide documentation that the collection policy in effect on August 1, 1987 was explicitly approved by the FI and that the policy has not changed for the subsequent corresponding covered cost reports.

We recommend that hospitals not covered by the moratorium notify their collection agencies of the FI’s scrutiny of Medicare bad debts. We also recommend that hospitals require their collection agencies to provide them with a list of accounts where they have exhausted collection efforts on a regular basis, especially near the fiscal year end. Remember that any change in collection policy for Medicare must apply to all payors.

Sources

• “Clarification regarding Medicare Bad Debt Reimbursement – When a Bad Debt Becomes Allowable” (AdminaStar Federal, Inc./December 2005)
• “Medicare Bad Debt Moratorium” (United Government Services LLC/June 2006)