Healthcare Perspectives


Top Eleven Medicare Bad Debts

Feb 07, 2017
By: Kelly N. Beth

The following are some questions to ask your bad debt preparer to ensure that the bad debts being claimed will hold up through a Medicare Administrative Contractor (MAC) audit. 

  1. Are you writing off the appropriate amount as a small balance adjustment? The amount you determine for the threshold for small balance write off should approximate the typical cost of collections and must be the same for all payors.
  2. Are claims being processed properly and receiving the proper EOB codes? MAC's will disallow bad debts if the EOB code on the Medicare or Medicaid remit is considered "non-allowable".
  3. Are you following your financial assistance policy? Although the regulations do not specifically state how you must determine a patient to be needy, they do state that you must determine this, not the patient. In order for this to be auditable, this also means that you must follow your policy and retain the documents that were used make the determination for financial assistance.
  4. If you are using a collection agency, are you sending only accounts of a certain dollar amount? Historical bad debts should be analyzed to determine the amounts that are worthwhile to send to the collection agency and the length that they should remain at the collection agency for maximum efficiency. Just remember that Medicare bad debts must be treated the same as all other payors.
  5. If you are using a collection agency, are you waiting to write off bad debts until the collection agency has returned them to the hospital? Medicare bad debts cannot be claimed until the collection agency has returned them to the hospital. The date of return of these accounts from the collection agency should be documented with a specific code on the patient account. Additionally, documentation from the collection agency showing that they have ceased all collection effort and that they deem the account to be uncollectible should be requested and retained for audit.
  6. Are you claiming bad debts in the period in which they were determined worthless and all collection efforts have ceased? Not only do you need to claim bad debts after you have determined them to be worthless but, you also should claim them in the period that such a determination was made (rather than subsequent periods) to avoid auditors who would consider this an error.
  7. Are you performing "reasonable collection efforts"? For Dual Eligible (Medicare and Medicaid eligible) patients, collection effort is not necessary. However, for all other patients for whom you claim Medicare reimbursement on the cost report, you must show that "reasonable" collection efforts were made. This typically means that at least three collection attempts have been made (phone calls, demand letters, etc.) and a period of 120 days has elapsed since the first collection attempt. Many auditors do not consider sending a statement to the patient as part of the three collection attempts.
  8. Are you waiting a reasonable amount of time after a patient makes a payment to deem the account worthless? If the patient is paying on the account, it should not be claimed as a Medicare bad debt. We recommend a period of 90 days with no payments before deeming the account worthless.
  9. Are you claiming bad debts for non-acute distinct areas of the hospital? Although they are usually not as voluminous as acute care Medicare bad debts, areas such as SNF, Rehab, Psych, Dialysis, and Rural Health Clinics most likely have claimable Medicare bad debts.
  10. Are you removing outpatient services paid on a fee schedule? Bad debts for uncollected deductible and coinsurance amounts related to outpatient and professional services that are reimbursed under a fee screen payment are not allowable for Medicare cost reporting purposes.
  11. Are you documenting that you verified the estate of deceased patient before deeming the account worthless? You must document that you checked the estate and document the result of your search for the estate in order to claim the amount due from a deceased patient.


Kelly N. Beth
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