In this episode, we are joined by Jeff Wolf, Director of Reimbursement Software at BESLER, to talk with us about the importance of managing your Medicare bad debts correctly.Learn how to listen to The Hospital Finance Podcast® on your mobile device.
Highlights of this episode include:
- Overview Medicare bad debts
- The importance of Medicare bad debt
- Special Rules
- Reimbursement reduction
- Medicare Bad debts in the future
Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast. Unfortunately, bad debts are something that we have to deal with in hospital finance. And to talk with us about the importance of managing your Medicare bad debts correctly, I’m joined by Jeff Wolf, who is the Director of Reimbursement Software here at BESLER. Jeff, welcome back to the show.
Jeff Wolf: Thank you very much. Glad to be here.
Mike: So, Jeff, first question, why don’t you just give us an overview of what Medicare bad debts are?
Jeff: All right. So Medicare bad debts are essentially the patient responsibility, or what we call deductible and coinsurance for your Medicare patients that has not been paid. So it goes unpaid after the hospital has performed what’s called a reasonable collection effort. And those bad debts basically are amounts that are owed to the hospital. Patients didn’t cover them, and they’re for Medicare patients after you’ve done all your collection effort.
Mike: Fair enough. And Jeff, what is the importance of Medicare bad debt?
Jeff: Well, the reason Medicare bad debts are so important is Medicare rules currently are reimbursing that patient responsibility at $0.65 on the dollar. What that means is the Medicare is compensating for the patient responsibility when that patient does not cover it. And that represents an average of about $60 million a year across the hospitals. So that’s a significant amount of money for individual providers when you consider there’s only 6,000 hospitals out there, and each hospital should be tracking these bad debts and adding them to the cost report each year as they are recognized as bad debts.
Mike: So is that it, just to ID the patients, deductibles and coinsurance that are unpaid to get the reimbursement? Is that all you have to do?
Jeff: No. There’s unfortunately quite a few rules that go along with that. Basically, Medicare population that these facilities have, depending on how significant that population is, will tell you how much important it’s going to be for each of those facilities. For hospitals that have a significant portion of their population that’s Medicare, they’re going to have to look for making sure that their collection effort is consistent for all payers. What that means is you have to collect with the same effort and vigorousness all of your patient responsibilities, all of your payers, not just Medicare. You have to do what’s called a reasonable collection effort. And we’ve got that defined in the regs as being 120 days of collection effort. But it also means you have to do five mailers and three phone calls. You have to show that you’ve actually tried to collect these amounts. And you have to be able to document that because your list, when you create your list, will be audited, and they’ll do a sample of the audit. They’re not going to audit every single record because that would be too much for them. But they are going to look at each one of those, and say there’s a population, so you’ve got 1,000 records. They’re going to audit 20, 30, 40 of them and then extrapolate the results. And you need to prove that, yes, you did the collection effort. You have to show that you’ve got notes for the collection that shows that you called the patients and that you sent the letters out, and you need to show the responses. The fourth thing is the bad debt itself has to be deemed uncollectable at the time that you write it off. So that means that you actually have to exhaust all your efforts. When you deem this patient responsibility to be uncollectable, and you write it off your patient account, you can’t keep going after it. It’s done. You have stopped working those accounts, and so you write them off or write the balance down to zero.
And that’s actually your fifth thing is those accounts have to be written off as bad debts. You can’t keep a balance on those AR accounts. So you have to document that you’ve zeroed those out. And essentially, if someone comes in and says, “What do I owe you?” The answer would be zero. You can say, “It’s zero, but there is a portion that went unpaid and Medicare covered it,” but it is zero balance once you write it off. And there are some special rules around what’s called Medicare-Medicaid crossover, or we refer to that in the industry as Medi-Medi crossover claims because of the way that the interaction between Medicare and Medicaid works.
Mike: Could you talk to us more about those special rules, Jeff?
Jeff: Sure. So patients that are Medicare primary insurance that also have Medicaid as their secondary, those are the patients that we’re talking about. They have some special rules that apply. In most of the states that we’re working with, the Medicaid program determines that the patient or the claim that comes in, Medicare actually paid more than what Medicaid would have paid, and therefore, Medicaid at that point is returning a no payment claim. And the providers have successfully argued that since the Medicaid program did not pay for the patient responsibility that these are bad debts. And that means that at that point, there’s no further collection effort required because it’s a zero. And that’s something that you have to pay special attention to because Medicare is focusing on those.
Mike: Jeff, you mentioned earlier that the reimbursement is $0.65 on the dollar. Why the reduction?
Jeff: Well, when Medicare first started bad debt reimbursement, it was at 100% of whatever you wrote off. Over time, that reimbursement has been adjusted down to 65%. And that’s because Medicare is really looking at how to control costs and the like. Medicare over the years has shown that it does not really want to pay for these amounts. There’s a number of case arguments and things like that because realistically, Medicare contractually has paid the amount per DRG, per APC’s or any of the other reimbursement mechanisms, how much they’re supposed to pay the hospital. This is technically the patient’s responsibility, and so CMS does not want to really pay that. And there’s been a lot of arguments both ways on it. But currently, because of our federal government, there is still some compensation for that, and right now, it’s at 65%.
Mike: Jeff, what do you think Medicare is going to do about bad debts in the future?
Jeff: Well, there’s no doubt that Medicare will make adjustments to the reimbursement for bad debts as we go forward. Medicare has three years, as I said earlier, not agreed with the many, many crossover bad debts. They really don’t like that one. And they’ve lost a couple of cases because of the way that those were being processed. And they’ve struggled on how to eliminate these for years. In 2021 with the inpatient PPS update, my opinion is that they have now finally found a way to eventually remove the Medi-Medi crossover bad debts. In the 2021 rules, Medicare included a set of regulations that required the states to adjudicate the claims, which isn’t quite what they were doing. They were returning the claims as no payment. Now they’re going to be required to adjudicate the claims. And when you do that, when you adjudicate the claim, it will actually issue an EOB that says, “Here’s the hospital payment, zero,” because it was paid more by Medicare than Medicaid would have paid, but it’s also going to say, “Patient responsibility is zero.” And when that comes back, that means that there’s going to be a return claim that has no payment from the patient or no responsibility for the patient. And so Medicare is going to look at that and say, “You had a secondary payer. They deemed that there was no patient responsibility anymore. Therefore, there is no patient responsibility. You can’t claim the Medicare bad debt and coinsurance,” and that’s going to be a big change, and it’s probably going to knock down the bad debt reimbursement for most hospitals by 30 to 50 percent of what they currently get.
Mike: Great stuff, Jeff. And if you’re interested in a deeper dive on Medicare bad debt, Jeff has delivered a webinar on this topic, which goes into much more detail. You can go up to besler.com, click on the insights section, look for the Reimbursement tab, and you can watch that webinar if you weren’t able to participate live. Jeff Wolf, thanks so much for joining us today again on The Hospital Finance podcast.
Jeff: Thanks for having me.
[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.com/podcasts. The Hospital Finance Podcast is a production of BESLER, SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.
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