Bad Debt

A provider's bad debts resulting from Medicare deductible and coinsurance amounts that are uncollectible from Medicare beneficiaries are considered in the program's calculation of reimbursement to the provider if they meet the criteria specified in 42 CFR 413.89 and PRM-I, §§ 306-324.

Per 42 CFR 413.89(e), a bad debt must meet the following criteria to be allowable:

  1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
  2. The provider must be able to establish that 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.

Additionally, the professional component of a provider-based physician remuneration is not recognized as an allowable bad debt in the event the provider is unable to collect the charges for the professional services of such physicians. (PRM-I, §§324)

A provider whose Medicare bad debts meet these criteria must complete Form Exhibit 2 or submit internal schedules duplicating the documentation requested on Exhibit 2 to support bad debts claimed. If the provider claims bad debts for inpatient and outpatient services, a separate Exhibit 2 or internal schedules for each category must be completed. Exhibit 2 contains most of the information the intermediary will need in order to determine the allowability of the bad debts.

Dual Eligible Bad Debts

Dual eligible bad debts are from persons who qualify for both Medicare and Medicaid coverage. Medicare covers their acute care services, while Medicaid covers Medicare premiums and cost sharing and long term care services. Medicare beneficiaries can qualify for Medicaid if they meet certain income and resource requirements or have high healthcare bills. Each state has its own eligibility standards and determines the scope of benefits provided to Medicaid beneficiaries, within federal guidelines.

With respect to "dual-eligibles", states are allowed to limit that amount to the Medicaid rate and essentially pay nothing toward dual eligibles' cost sharing if the Medicaid rate is lower than what Medicare would pay for the service. In those instances where the state owes none or only a portion of the dual-eligible patient's deductible or co-payment, the unpaid liability for the bad debt is not reimbursable to the provider by Medicare until the provider bills the State and the State refuses payment (with a State Remittance Advice). Even if the State Plan Amendment limits the liability to the Medicare rate, by billing the State a provider can verify the current dual-eligible status of a beneficiary and can determine whether or not the State is liable for any portion thereof.

What to submit

The provider should submit the Exhibit 2 [Excel], Bad Debt Listing, with the cost report. In order to expedite the review process, the provider may also want to consider submitting the state Medicaid remittance advices showing each uncollected co-insurance and deductible amount.

Exhibit 2

CMS-339, Exhibit 5 form
Columns 1, 2, 3 - Patient Names, HIC NO., Dates of Service (From - To). - The documentation requested for these columns is derived from the beneficiary's bill. Furnish the patient's name, health insurance claim number (social security number) and dates of service that correlate to the filed bad debt. (See PRM-1, §314 and 42 CFR 413.80.)

Column 4 - Indigency/Welfare Recipient. - If the patient included in column 1 has been deemed indigent, place a check in this column. If the patient in column 1 has a valid Medicaid number, also include this number in this column. See the criteria in PRM-1,chapter 3, §§312 and 322 and 42 CFR 413.80 for guidance on the billing requirements for indigent and welfare recipients.

Columns 5 & 6 - Date First Bill Sent to Beneficiary - Date Collection Efforts Ceased. - This information should be obtained from the provider's files and should correlate with the beneficiary name, Medicare ID, and dates of service shown in columns 1, 2, and 3 of this exhibit. The date in Column 6 represents the date that the unpaid account is deemed worthless, whereby all collection efforts, both internal and by outside entity, ceased and there is no likelihood of recovery of the unpaid account. (See CFR 413.89(f) and PRM-1, chapter 3, §§308, 310, and 314.)

Column 7 - Medicare Remittance Advice Dates. - Enter in this column the remittance advice dates that correlate with the beneficiary name and date of service shown in columns 1, 2, and 3 of this exhibit. This will enable the MAC to verify the authenticity of the Medicare patient and the related deductible and coinsurance amounts.

Columns 8 & 9 - Deductible - Coinsurance. - Record in these columns the beneficiary's unpaid deductible and coinsurance amounts that relate to covered services as instructed in this exhibit.

Column 10 - Total Medicare Bad Debts. - Enter on each line of this column the sum of the amounts in columns 8 and 9. Calculate the total bad debts by summing up the amounts on all lines of Column 10. This "total" should agree with the bad debts claimed in the cost report. Attach additional supporting schedules, if necessary, for recoveries of bad debts reimbursed in prior cost reporting period(s).

Tentative Settlement Review

Medicare bad debts are reviewed during the tentative settlement process to ensure Medicare payment is not made on bad debts that may be disallowed and thus require that the paid funds be recouped.

Since bad debts can be pass through costs, a bi-weekly pass through payment may be established after the first cost reporting period in which the facility claims bad debts.

Noridian PARD management reserves the right to not establish a bi-weekly pass through amount for facilities with bad debt amounts it determines to be immaterial.

Collection Efforts

To be considered a reasonable collection effort, a provider's effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients. It must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient's personal financial obligations. It also includes other actions such as subsequent billings, collection letters and telephone calls or personal contacts with this party which constitute a genuine, rather than a token, collection effort. The provider's collection effort may include using or threatening to use court action to obtain payment.

Where a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient. The "like amount" requirement may include uncollected charges above a specified minimum amount. Therefore, if a provider refers to a collection agency its uncollected non-Medicare patient charges that in amount are comparable to the individual Medicare deductible and coinsurance amounts due the provider from its Medicare patient, Medicare requires the provider to also refer its uncollected Medicare deductible and coinsurance amounts to the collection agency.

CMS has provided clarification that debts referred to a collection agency are not considered uncollectible and may not be reimbursed until the bad debt is returned from the collection agency as uncollectible.

The provider's collection effort should be documented in the patient's file by copies of the bill(s), follow-up letters, reports of telephone and personal contact, etc.

If after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.

Note: Any payment received on a bad debt restarts the 120-day period.

Indigent or Medically Indigent Patients

In some cases, the provider may have established before discharge, or within a reasonable time before the current admission, that the beneficiary is either indigent or medically indigent. Providers can deem Medicare beneficiaries indigent or medically indigent when such individuals have also been determined eligible for Medicaid as either categorically needy individuals or medically needy individuals, respectively. Otherwise, the provider should apply its customary methods for determining the indigence of patients to the case of the Medicare beneficiary under the following guidelines:

The provider, not the patient, must determine the patient's indigence; i.e., a patient's signed declaration of his inability to pay his medical bills cannot be considered proof of indigence;

The provider should take into account a patient's total resources, which would include, but are not limited to, an analysis of assets (only those convertible to cash, and unnecessary for the patient's daily living), liabilities, and income and expenses. In making this analysis the provider should take into account any extenuating circumstances that would affect the determination of the patient's indigence.

The provider must determine that no source other than the patient would be legally responsible for the patient's medical bill; e.g., Title XIX, local welfare agency and guardian.

The patient's file should contain documentation of the method by which indigence was determined in addition to all backup information to substantiate the determination.

Once indigence is determined and the provider concludes that there had been no improvement in the beneficiary's financial condition, the debt may be deemed uncollectible without applying the 120-day rule.

Please note that per PRM 15-1 §§328, charity, courtesy, and third-party allowances are not reimbursable Medicare costs. Charges related to services subject to these allowances should be recorded at the full amount charged to all patients and the allowances should be appropriately shown in a revenue reduction account.


Last Updated Oct 06 , 2023