Looking for more information about Medicare Bad Debts? BESLER Director of Reimbursement Software, Jeff Wolf, answers your questions from the recent webinar.
To listen to Jeff’s “Medicare Bad Debts 101” webinar, click HERE.
- Can you restate what you just said about what the state will need to do in order for hospitals to claim crossovers?
Currently, many of the states return a no claim notice due to the fact that Medicare paid more than the state program would pay on the claim. This returned “no Payment” statement can be used as the documentation that the Medicare Bad Debts are “not collectible” and the claim can be written off without the need to perform the Reasonable collection effort. However, in 2021, the CMS IPPS update included instructions to the states that they must start adjudicating the claims. We believe that this will make the states process that claim and provide the facility with an processed claim (EOB) that shows that the patient has zero (0) responsibility. When that happens, Medicare will use the returned claim to show that the Patient has no responsibility and therefore there is no Medicare Bad Debts, and the amount outstanding will become a contractual adjustment to the Medicaid claim.
- Can you please address special rules for indigent patients?
Indigent patients are the patients who are low income. Many of these patients are also Medicaid patients. Currently, many of the states return a no claim notice due to the fact that Medicare paid more than the state program would pay on the claim. This returned “no Payment” statement can be used as the documentation that the Medicare Bad Debts are “not collectible” and the claim can be written off without the need to perform the Reasonable collection effort. See also Q #1 and A #1.
- Do dual-eligibles include Medicaid and Medicare HMO?
Medicare Bad Debts can only be claimed on the Cost Report for Medicare traditional patients. This means that no Medicare HMO patients will be claimable on the Medicare Cost Report. Please contact your Medicare HMO plans to see if they provide compensation for Bad Debts as some do, but not through the Cost Report.
- Do statements count as letters?
Mailed statements are the equivalent of the “Speedy Mailers” I discussed in the webinar. They will count towards the collection effort. However, please remember that the reasonable collection effort “restarts” any time there is a partial payment, or a secondary payor claim response. That means that there will have to be 5 letters from the point that the collection effort (120 Days) must contain at least 5 letters in the reasonable collection effort time frame.
- Do you have to go through 5 letters/3 phone calls when you have verified the patient has passed and there is no estate to pay the patient portion?
If you have the court or estate documents that shows that the patient is deceased (Death Certificate) and that there are no assets in the Estate to distribute (or less than the patient responsibility) then you can use that documentation to determine that all reasonable collection efforts have been exhausted, and you can write it off prior to the 120 day mark.
- Do you need both 5 letters and 3 phone calls?
Yes. The 5 Letters AND 3 phone calls is considered the MINIMUM collection effort before determining that the claim is worthless and writing it off.
- Documentation #2 account must be written down to zero. What if the account is removed from AR to a Bad Debt Listing and the account still has a balance? It is no longer in AR?
Yes, the account can be moved from “Active AR” to “Bad Debt AR”. However, there are a few things that need to be done at the same time. The active AR should have a “Write off” to reduce the AR balance on the Balance Sheet and generate a Debit transaction on the Income statement to show the “write off.” Many providers maintain a “Bad Debt” AR in the event that the patient comes back when they have the financial means to settle the claim. These are considered recoveries of Prior written off Bad Debt, and must be used to reduce your Bad Debt expense in the Current Year Cost Report.
- Does a text message count as a call?
At this time, text messages are not accepted during the audit due to the lack of documentation involved. This may change over time as patients and organizations get more sophisticated in their use of the technology, but as of today, the answer is no.
- Does Bad Debt w/o apply to Georgia Medicaid?
Bad Debt write offs apply to all Medicare Bad Debts. In fact, the collection and write off practices must apply to ALL payors the same.
- Doesn’t the contra revenue account get labeled Bad Debt Expense?
You are correct. This is related to an incorrect statement that I made. Let me re-state the correction:
All Bad Debts must be written off to an expense account. What we have been recommending to clients since 2020 is that they book the Bad Debt Write off as a Credit to the AR account (zeroing it out) and the Debit to an expense account called “Bad Debt Expense.” Then, on a monthly, quarterly or annual basis, prepare a journal entry to move the amounts from the Bad Debt Expense Account to the Contra Revenue account that your financial auditors require it to be in. This way, you have satisfied the Medicare requirement (Bad Debt Expense) as well as the CPA requirement (Contra Revenue Account). - How do you collect lifetime information?
Lifetime information is actually contained in the Patient Accounting system for each patient’s encounter. When you look at the patient account and all of the transactions from the date of discharge, you can add up all of the charges (beginning account balance plus any late charges), all of the insurance payments (primary and secondary insurance payment amounts), all of the contractual adjustments (primary and secondary contractual account reductions), any administrative adjustments, patient payments, etc. All of this information can be obtained by downloads of the patients accounts with the transaction codes. The transaction codes will ID what each activity is in the account over its lifetime.
- If a patient opts out of paper statements and wants text messages instead, do those count?
Most facilities will use emails rather than text messages for patients who opt out of paper bills/statements. In our experience, the text messages do not have sufficient documentation to support at audit. This may change, but right now I would suggest emails rather than texts.
- If Medicare processes a corrected RA, does the 120 day collection effort clock start again?
Unfortunately, yes.
- If there is an EOB from Medicaid which shows no payment, can we file copay and deductible as Medicare Bad Debt?
If the EOB from Medicaid shows that there is no patient responsibility, then the Bad Debt from the Medicare claim would be covered by the Medicaid EOB and there would be no patient responsibility. Remember, that it’s the remaining Patient Responsibility after any secondary payors processing that is claimable for Medicare Bad Debts.
- If you have a hospital based RHC, do they need to follow the “NEW” Excel Bad Debt Listing format with the 16 items, or does that just apply to the hospital Bad Debt listing?
All Medicare patient claims for services covered in the Medicare Cost Report are subject to the same exact rules for reimbursement. In short, yes.
- Is emailing the patient considered a collection effort?
Yes.
- Is the submission of debts to an estate listing considered collection effort that restarts the 120-day timeframe? Estates can be opened years after the debt is incurred and may have already been filed for Medicare Bad Debt.
There is a long explanation of this, but basically if the AR is still active at the time of the Estate (patient’s death), then your collection effort will contain the attempt to claim the Bad Debt from the estate. The claim would not be considered “uncollectable” until the estate responds with payment of lack of assets. The 120-Day collection effort would not re-set, but if there is an estate then all REASONABLE collection effort has not been exhausted. If the account has been written off to Bad Debt and then the patient dies, any payment from the estate would be considered a recovery of previously written off Bad Debts and would have to be a reduction of the Bad Debt expense in the Current FY.
- Is there any chance in the near future that the Medicare Replacement/Advantage plans will be included in the Medicare Bad Debt?
No. Medicare Advantage (HMO or Part C) are not part of the Cost Report and therefore the Bad Debts from these claims are not allowed on the Cost Report. At this time, there are no plans to change this treatment.
- Please discuss carve out for Medicare OP fee schedule co-pays. How do I best identify these amounts?
The best way is based on the actual EOB from the Part B Carrier vs. the EOB (RA) from the Part A Intermediary. This may also be included in the notes to the Patient Account in your Patient Accounting system where you should be getting all of your collection data. If this is not the case and you do not have a way to ID the amounts, it will have to be based on the percent to total of the Charges for the Technical (Part A and B) vs. the Professional services.
- So, charity write offs are not MC Bad Debt?
No. Charity Write-offs are based on the policies of each facility and do not require any collection effort. Some providers even have a “Presumptive Eligibility” of all patients as Charity. Since there is no regulatory control and there is no collection effort put forth for the amounts that are Charity write-offs, Medicare will not allow them to be claimed as Medicare Bad Debts. Please note that you cannot treat Medicare patients differently than any other payor; if you do, then all of your Bad Debts will be disallowed.
- Some auditors ask for documentation that the secondary collection agency provide a return as exhausted with accounts listed numbers.
When you get a Bad Debt claim returned from a collection agency, the claim should be considered uncollectable (exhausted all collection efforts). To document this, most collection agencies provide some documentation with the returned claims that states these claims are considered worthless, uncollectable, etc.
- We have gotten correspondence stating that the first bill needs to be sent out within a certain amount of days. Can Medicare disallow Bad Debt if the collection letter was not sent within a certain number of days after the remit?
This would fall under the reasonable and prudent rules. There is no specific regulation that states that the first billing must happen within XX days of the RA, the Date of Discharge, etc. However, the reasonable and prudent “person” would not wait 90 days to send the bill out either. So the bill should be sent out within a reasonable time of the RA; I would suggest as a rule of thumb 30-45 days. Also, remember that there is a 5 letter collection requirement, and if you send out 5 letters once per month, that would be 150 days from the time the first letter was sent out. So, the earlier that the first letter is sent out the better.
- What is considered exhausting collection efforts?
Exhausted Collection efforts means that the provider/collection agency has tried everything a “Reasonable and Prudent” person would do to collect the outstanding Bad Debt. In addition, you can not just stop collecting at the 120-day mark, but instead finish all of the processes that have a potential to settle the debt.
- What is the definition of a contra revenue account? Is it Bad Debt or an allowance report?
You are correct. This is related to an incorrect statement that I made. Let me re-state the correction:
All Bad Debts must be written off to an expense account. What we have been recommending to clients since 2020 is that they book the Bad Debt Write off as a Credit to the AR account (zeroing it out) and the Debit to an expense account called “Bad Debt Expense.” Then on a monthly, quarterly or annual basis, prepare a journal entry to move the amounts from the Bad Debt Expense Account to the Contra Revenue account that your financial auditors require it to be in. This way, you have satisfied the Medicare requirement (Bad Debt Expense) as well as the CPA requirement (Contra Revenue Account). - When adhering to the 3 call reasonable effort rule, how much should the calls be spread out? Once a week, one each month?
This is a judgement call, but the “Reasonable and Prudent” rule comes into play. I would suggest that your policy should be a minimum of one call a month. That does mean that you would be doing more than the MINIMUM of 3 calls, but that is the best practice. If the calls were all lumped together in the last 3 days of the collection effort, the auditors would most likely disallow the claim due to the collection effort not being reasonable and prudent.
- When did that change, it used to be 3 statements?
There is no regulation that states that the minimum collection effort is 5 letters and 3 phone calls, but over the last 10+ years that has been the MAC audit standard and it has held up at appeal. What the MACs use as the basis is the “Reasonable and Prudent” rule.
- Where can I see a Draft Transmittal 17 on slide 25/29?
These documents are in the archives of the CMS (MedLearn) Website. There is a downloadable PDF of the instructions and a Downloadable copy of the excel 2552 forms. All of the proposed changes are in Red.
- Where specifically in the regs are the reasonable efforts documented? Are we to call patients with a $30 balance 3 times, or can that be done by the collection agency?
There is no regulation that states that the minimum collection effort is 5 letters and 3 phone calls, but over the last 10+ years, that has been the MAC audit standard and it has held up at appeal. What the MACs use as the basis is the “Reasonable and Prudent” rule. In addition, you MUST treat all payors the same and follow your own policies. My suggestion to clients is that you can have a small balance collection policy that is different from a large balance policy, so that you could send the small balances to the collection agency right away. However, that does NOT relieve the reasonable collection effort requirement, which is interpreted by the MACs as 5 letters and 3 phone calls. But that can be performed by the collection agency.
- Will the same apply to private insurance to show patient remittance to zero for hospitals not being able to collect Medicare Bad Debt?
Yes. All Payors must be treated consistently. This means that same minimum collection effort (5 Letters, 3 Phone calls), exhausted collection effort, and considered “uncollectable” must be adhered to for all patient accounts prior to writing the off to an expense Bad Debt account. The Auditors will ask to see this documentation on non-Medicare patients as proof during the audits (especially if they think that there is disparate treatment going on).
- I was confused by the reference that Medicare is requiring that we write bad debts off to a “contra revenue account” as of 10/2020. Our bad debts, in general, are expensed to a Bad Debt expense account when written off from active A/R, i.e., the account is zeroed out. (There are corresponding entries that “move” the account to the bad debt ledger for the amount written off.) For our Medicare/Medicaid cross over Bad Debts accounts, however, the unpaid amount is now written off to Bad Debt expense as of 10/2020. Previously, the write off for cross over accounts was a contractual adjustment (we accepted what Medicaid did or did not pay) which is what I consider a “contra revenue account.” Perhaps I am just confused by the terminology being used, but my understanding is that Medicare requires that all claimed Medicare Bad Debt be written off to Bad Debt expense (which in my mind is not a contra revenue account). What am I missing here?
No, you are correct. I presented the information incorrectly. Let me restate for clarity.
All Bad Debts must be written off to an expense account. What we have been recommending to clients since 2020 is that they book the Bad Debt Write off as a Credit to the AR account (zeroing it out) and the Debit to an expense account called “Bad Debt Expense.” Then on a monthly, quarterly or annual basis, prepare a journal entry to move the amounts from the Bad Debt Expense Account to the Contra Revenue account that your financial auditors require it to be in. This way, you have satisfied the Medicare requirement (Bad Debt Expense) as well as the CPA requirement (Contra Revenue Account).
- Are copays included?
Yes, Medicare Bad Debt is based on the Deductible plus Co-Pay that is the patient’s responsibility. The maximum you can claim for Medicare Bad Debts is the Deductible plus Co-Pay from the EOB/RA. Please remember that this amount is reduced if a secondary payor provides for a lower Deductible plus Co-Pay.
- Is it 3 phone calls for any balance amount?
Yes. You can have separate policies for small balance accounts than you do for large balance accounts, but all accounts that you want to claim from Medicare for Bad Debts must adhere to the reasonable collection effort requirements.
- Is this for straight Medicare, or can we include Medicare Managed Care plans in the Bad Debt amount?
No. Medicare Managed Care (Advantage, HMO, or Part C) are not part of the Cost Report and therefore the Bad Debts from these claims are not allowed on the Cost Report. At this time, there are no plans to change this treatment.
- What is best practice when you send out a statement and it is “return mail undeliverable.” Is it best practice to not claim on the Cost Report?
Best practice is to try and obtain a corrected address from the patient via phone or other communication perspectives. But even if you are unable to obtain a valid address for the patient, I would suggest sending all 5 letters out (at a minimum) to adhere to the collection effort for the audit.
- Would reasonable collection efforts also apply to deceased patients?
Yes. However, a reasonable and prudent person would shift the collection effort to the estate. As long as there is a clear path to collect on the debt then you have not exhausted all collections efforts.
- I listened to the Medicare Bad Debt 101 podcast. I am wondering if you could explain where in the regs it says 5 mailers and 3 phone calls. I have looked all over the CMS website, and it just says you have to do mailers and phone calls.
There is no regulation that states that the minimum collection effort is 5 letters and 3 phone calls, but over the last 10+ years that has been the MAC audit standard and it has held up at appeal. What the MACs use as the basis is the “Reasonable and Prudent” rule. In addition, you MUST treat all payors the same and follow your own policies.
- Should not the Bad Debt be written off to a bad debt contra revenue account?
I presented the information incorrectly; let me restate for clarity.
All Bad Debts must be written off to an expense account. What we have been recommending to clients since 2020 is that they book the Bad Debt Write of as a Credit to the AR account (zeroing it out) and the Debit to an expense account called “Bad Debt Expense.” Then on a monthly, quarterly or annual basis, prepare a journal entry to move the amounts from the Bad Debt Expense Account to the Contra Revenue account that your financial auditors require it to be in. This way, you have satisfied the Medicare requirement (Bad Debt Expense) as well as the CPA requirement (Contra Revenue Account). - Does Bad Debt w/o apply to Medicaid HMO payers?
Yes, your policies and collection practices must apply to all payors. However, ONLY Medicare Traditional (not Advantage, HMO, or Part C) can be claimed as Medicare Bad Debts on the Cost Report.
- If Medicare’s subsequent RA shows the same deductible and coinsurance as the initial RA, does the 120-day collection effort clock still start over?
Unfortunately, yes. Based on the regs, the 120-day clock re-sets at the last RA for the claim.
- If there is no estate filed, how would you get documentation?
If there is no estate filed, then there is usually a Probate filed where the state legally distributes what assets the deceased had.
- We have been told that Medicaid secondaries must be written off on the balance sheet as Bad Debt rather than Medicaid write-off. Is this correct?
If the Medicaid program provides a Non-Payment statement instead of adjudicating the claim, then you can write off the Bad Debt as expense. However, if the state adjudicates that claim and that states that the patient has no Deductible or Co-Pay then you can NOT claim the amount as a Medicare Bad Debt, but instead the amounts would be written off as Contractual Allowances to the Medicaid program.
- Do we have to write off non-covered services before the Bad Debt can be claimed?
Yes. Medicare requires that the account be written off as a requirement of Medicare Bad Debts.
- Does dual eligible include traditional Medicare and Medicaid HMO or only traditional Medicaid?
For a Bad Debt to be able to be claimed (in any amount), the patient must be a Medicare Traditional patient and the services have to be for the Technical Component of the services (not Physician services). As to the secondary insurance, they can have ANY secondary insurance including Medicaid HMO.
- Can Indigent/Charity Bad Debt be reimbursed by Medicare? This is when a patient is determined to be indigent before any collection effort.
No. Charity Write-offs are based on the policies of each facility and do not require any collection effort. Some providers even have a “Presumptive Eligibility” of all patients as Charity. Since there is no regulatory control and there is no collection effort put forth for the amounts that are Charity write-offs, Medicare will not allow them to be claimed as Medicare Bad Debts. Please note that you cannot treat Medicare patients differently than any other payor; if you do then all of your Bad Debts will be disallowed.
- With the minimum collection effort of 120 days, that is the date that you can list the MC Bad Debt, not when it can go to agency, correct?
Correct. The 120 days is the minimum collection effort, but it would include all forms of collection.
- So as long as it’s cancelled back from the agency 120 days after being sent, being deemed uncollectible, you can report as MC Bad Debt?
Yes, that is correct.
- Are there MC Bad Debts that would be deemed “too old” to report? Does the cost reporting year have to be open? If not open, can it be re-opened to claim?
Bad Debts are reported on the Cost Report in the year that they are written off. There is no requirement that states the claims can not be older then XXX. However, the reasonable and prudent rule may require you to document at audit why the collection effort dragged on (i.e. legal battle over the estate, etc.).
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