Medicare Bad Debt Policies Proposed in FY 2021 Inpatient Prospective Payment System (IPPS) Proposed Rule

InsightsClient Alert

In the FY 2021 IPPS Proposed Rule, the Centers for Medicare and Medicaid Services proposes to codify its bad debt policies included in Chapter 3 of the Provider Reimbursement Manual.  The following longstanding policies would be applied retroactively to past cost reporting periods.

  1. To determine a beneficiary to be an indigent non-dual eligible beneficiary, the provider must consider the beneficiary’s total resources (including assets, liabilities, income and expenses) and any extenuating circumstances, and the provider must determine that no other source would be legally responsible for the beneficiary’s medical bill.The provider must maintain and furnish upon request documentation supporting determination of indigency.  A beneficiary’s signed declaration of their inability to pay their medical bills and/or deductibles and coinsurance amounts cannot be considered proof of indigence.
  2. Providers must be able to support crossover claims with a Medicaid remittance advice. Any amount that the State is obligated to pay cannot be included as an allowable Medicare bad debt, regardless of whether the State actually pays its obligated amount to the provider.
  3. The reasonable collection effort requirement for a non-indigent beneficiary must be similar to the effort the provider, and/or the collection agency acting on the provider’s behalf, puts forth to collect comparable amounts from non-Medicare patients. It must involve genuine, rather than token, collection effort.
  4. Whether the provider performs the collection effort in house or uses a collection agency to perform the required collection effort, the provider must maintain and, upon request, furnish documentation that includes the provider’s bad debt collection policy which describes the collection process for Medicare and non-Medicare patients; the beneficiary’s account history documents which show the dates of various collection actions such as the issuance of bills to the beneficiary, follow-up collection letters, reports of telephone calls and personal contact, etc.; and the beneficiary’s file with copies of the bill(s) and follow-up notices.
  5. Providers are required to make reasonable collection efforts for 120 days from the date the first bill is mailed to the beneficiary.Each partial payment received restarts the 120-day collection effort period.
  1. Payments on accounts claimed in prior cost reporting periods must be used to reduce bad debts in the period in which the amounts are recovered. The amount of such reduction in the period of recovery must not exceed the actual amount reimbursed by the program for the related bad debt in the applicable prior cost reporting period.
  2. Collection accounts that remain at a collection agency, including accounts that are monitored passively by the collection agency, cannot be claimed by the provider as a Medicare bad debt.
  3. When a collection agency obtains payment of an account receivable, the gross amount collected must be credited to the patient’s account. The collection fee deducted by the agency is charged to administrative costs.

The following proposals would be effective for cost reporting periods beginning on or after October 1, 2020.

  1. Providers must issue a bill to the beneficiary or other responsible party no later than 120 days after the date of the Medicare remittance advice or the date of the remittance advice from the beneficiary’s secondary payer, whichever is latest.
  2. Medicare bad debts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts (bad debt or implicit price concession).

For more information or assistance, please contact our Albany office at (229) 883-7878 or our Atlanta office at (404) 220-8494.


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