The Administration proposes to reduce bad debt payments from 65 to 25 percent over three years to Medicare providers beginning in 2017 (saving $32.9 billion over 10 years).
On February 2, 2015, President Obama’s budget for Federal fiscal year (FFY) 2016 was released by the Office of Management and Budget (OMB).
This budget includes provisions related to Medicare and the would use federal savings and revenues to reduce the deficit, replace sequestration of Medicare and other federal programs over a ten year period (2016 through 2025), and pay for new spending priorities. Reductions to provider Medicare bad debt payments are included in these reductions.
This is not a surprise for hospitals. Over the years, reduction of Medicare bad debt payments have been a target of savings for the program.
The Balanced Budget Act (BBA) of 1997 proposed reducing bad debt payments by 25% for Federal fiscal year (FFY) 1998, 40% for FFY 1999, and 45% for every year thereafter. These reductions were deemed too harsh for providers, which lead to the Medicare, Medicaid, and State Child Health Insurance Program (SCHIP) Benefits Improvement and Protection Act of 2000 which reduced the percentages from 45% to 30% so that hospitals were reimbursed 70% of their Medicare bad debts.
More recently, in February 2012, Congress passed the Middle Class Tax Relief and Jobs Creation Act of 2012. This legislation reduced Medicare bad debt payments for hospitals and other providers to the current 65% beginning October 1, 2012.
A recommendation to cut Medicare reimbursement for bad debts was included in the Simpson-Bowles report. The Simpson-Bowles proposal recommended that Congress phase in the elimination of all Medicare reimbursement for bad debts for a savings of over $20 billion over a 10-year span.
This is not a new issue for hospitals but one that they should continue to monitor, especially urban safety-net and rural hospitals.