Blog, Reimbursement, The Hospital Finance Podcast®, Uncompensated Care

The Common Elements of Uncompensated Care – Part 2: Bad Debt [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Dana Aylward, senior consultant on BESLER’s Reimbursement Services team, to discuss the topic of bad debts. This is part two of our series focusing on the common elements of uncompensated care.

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Highlights of this episode include:

  • Addressing the long-rumored elimination of reimbursement for Medicare bad debt.
  • What the requirements are for total and Medicare bad debt to be included on the Worksheet S-10.
  • Actions that hospitals can take regarding bad debts.
  • What important details are needed when facing an audit.
  • And more…

Download our SPECIAL REPORT: The Common Elements of Uncompensated Care to learn about the interdependence of S-10, bad debts, and DSH as they relate to uncompensated care.

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast®.

Today, we’re looking at part two of our series around uncompensated care with a focus on bad debt. And to help me understand more about that topic, I’m joined by Dana Aylward who is a senior consultant on our Reimbursement Services team here at BESLER.

Dana, welcome back to the podcast.

Dana Aylward: Thank you Mike. Thank you for having me again.

Mike: Dana, let’s walk through some things around bad debt. First off, it’s been rumored over the years that the reimbursement of Medicare bad debt is going to be eliminated. Have there been any recent changes?

Dana Aylward: No, not right now. Well, you are correct, the elimination of the reimbursement for Medicare bad debts has been under the radar for several years. CMS has reduced reimbursement down to 65% (or 63% if accounting for sequestration). Despite the payment cuts, Medicare bad debts continue to be a major source of reimbursement for hospitals.

Mike: Okay, great. So bad debts are here for the moment. And now that they’re included on Worksheet S-10 and used for the allocation of the uncompensated care pool, do we see that changing at all?

Dana Aylward: No, the cost reporting forms captures total bad debt and Medicare bad debts on separate lines. Total bad debts for the entire facility, including sub-providers, are reported on Worksheet S-10, line 26, and should be inclusive of the Medicare bad debt. Line 2701 was added to capture Medicare allowable bad debts for the entire facility.

The non-reimbursable Medicare bad debts, the 35% reduced portion which is mainly the deductibles and co-insurance is not subject to the cost-to-charge ratio, while the non-Medicare bad debts is subject to the cost-to-charge ratio.

Mike: Understood! So, what are the requirements for total bad debt to be included on Worksheet S-10.

Dana Aylward: The total bad debt should contain the reconciliation to the working trial balance and the audited financial statements. Keep in mind that bad debt provision is an estimate, and it may not be the actual bad debt write-off.

If that’s the case, the reconciliation should show the following—the total bad debts written off, any recoveries netted, non-hospital bad debts removed such as physician fees, home health agencies and so forth, non-patient liabilities (these would be your denials or non-covered services) and any other descriptions or differences between the reported amount and the audited financials such as your year-end entries or accruals.

Mike: And Medicare bad debts…?

Dana Aylward: The requirements for Medicare bad debts remain the same. For a Medicare bad debt to be reimbursable, it must meet the following criteria:

The collection effort must be reasonable and similar to non-Medicare patients. The write-off is more than 120 days from the first bill date to the patient, amount reported is related to covered services, amounts are limited to deductible insurance, and the amounts deemed uncollectable at the time written off such as indigent or Medicaid crossovers. Also, make sure you have any amounts returned from the collection agencies.

Mike: Okay. So thanks for laying the foundation around bad debt for us. So Dana, do you have any suggestions for hospitals regarding bad debts?

Dana Aylward: The 2019 IPPS final rule requires the submission of a detailed bad debt listing that matches the reported bad debt amounts filed on the cost report. Hospitals need to file accurate bad debt listings that are free of errors and compliance issues.

Since S-10 will be subject to audits, it is highly recommended that hospitals maintain bad debt listings for the entire complex that mirrors the Medicare bad debt listing layout.

Hospitals should match claims information to their Patient Financial System or PFS data in order to optimize their bad debt. We need to be cognizant of not just Medicare but for all payers. Be sure to validate every patient bad debt which is included on the cost report. The collection effort should be consistent with the Medicare rules. There may be recoveries made in the current year for previously reported bad debts. Make sure to identify these amounts.

Also keep an eye out on major increases or decreases from year to year. These types of slings may trigger further sampling or explanations for the MAC. MACs will be looking for duplicates. So in the event a patient moves from the bad debt listing to the charity care side, be sure those accounts are reviewed.

There may be offsets or reclasses for any patient that may move from one listing to another. Ultimately, these accounts fall under the total entire uncompensated care cost. But the cost-to-charge ratio may or may not affect these reclasses if they’re moved to the insured charity care line.

Mike: Great detail there, Dana. Can you go a little bit further and tell us the level of detail that might be needed for an audit?

Dana Aylward: Yes, MAC auditors will be on the lookout for detailed patient listings similar to the Medicare bad debt log. In addition to the proof of reasonable collection efforts, auditors will want to see the revenue code or UB code and CPT HCPCS Summary. This is to ensure allowable charges are being reported, mainly non-physician fees. It is recommended that patient payments and third-party payments and adjustments be separated. It is likely patient responsibility, driven by the agreement, will be tested.

And furthermore, don’t forget to keep your bad debt, charity care and financial assistance policy handy.

Mike: Great advice, Dana. Thank you so much for joining us on the podcast today to talk about bad debt as it relates to the entire pool of uncompensated care.

Dana Aylward: You’re welcome. Thank you very much for having me, Mike.

Mike: To get your copy of our new paper, The Common Elements of Uncompensated Care, visit

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