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Last Modified: 8/31/2018 Location: FL, PR, USVI Business: Part A

Clarification of Medicare bad debt policy/bad debt policy related to accounts at a collection agency

In order for bad debts to be reimbursable under Medicare, they must meet the criteria set forth in 42 Code of Federal Regulations (CFR) 413.89 and all requirements in the Provider Reimbursement Manual, Part 1 (PRM), Chapter 3. The purpose of this article is to clarify longstanding policy concerning reimbursement for a Medicare bad debt while the account is at a collection agency. As a result of this instruction, Medicare contractors (FIs and A/B MACs) are required to disallow Medicare bad debts for accounts at a collection agency where the contractors may heretofore have allowed those bad debts in the past based, at least in part, on interpretation of language contained in the Omnibus Budget Reconciliation Act of 1987 (OBRA of 1987).
Language contained in the OBRA of 1987, Pub.L. No. 100-203, 4008(c), as amended by the Technical and Miscellaneous Revenue Act of 1988, 8402, and OBRA of 1989, 6023, collectively, imposes what we refer to as a “moratorium” on changes to the Medicare bad debt policy in effect on August 1, 1987, as applied to hospitals. Specifically, the moratorium states, in part:
The Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, in accordance with the rules in effect as of August 1, 1987, with respect to criteria for indigency determination procedures, record keeping, and determining whether to refer a claim to an external collection agency, has accepted such policy before that date, and the Secretary may not collect from the hospital on the basis of an expectation of a change in the hospital's collection policy. [Emphasis added]
In addition, the Conference Report accompanying the 1988 legislative amendment states, “the conferees do not intend to preclude the Secretary from disallowing bad debt payments based on the regulations, PRRB decisions, manuals, and issuances in effect prior to August 1, 1987.” [Emphasis added]
Section 413.89(e) of the regulations, which has been in effect since 1966 (31 FR 14813; published November 22, 1966), provides that to be an allowable Medicare bad debt, the provider must be able to establish that reasonable collection efforts were made, the debt must be uncollectible when claimed as worthless, and that sound business judgment established that there was no likelihood of recovery at any time in the future. Section 310 of the PRM, which has been in existence prior to August 1, 1987, provides further clarification on what constitutes a reasonable collection effort. Section 310.2, Presumption of Noncollectibility, provides that, “If after reasonable and customary attempts to collect a bill, the debt remains unpaid for more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.”
It has been the Centers for Medicare & Medicaid Services’ (CMS) longstanding policy that when an account is in collection, a provider cannot have determined the debt to be uncollectible and cannot have established that there is no likelihood of recovery under the regulations. This is true even if a provider has deemed a bad debt as uncollectible under Section 310.2 because Section 310.2 must be read within the context of the regulations and Section 310. That is, until a provider’s reasonable collection effort has been completed, including both in-house efforts and the use of a collection agency, a Medicare bad debt may not be deemed as uncollectible under Section 310.2. Therefore, in accordance with the regulation/policy in effect prior to August 1, 1987, moratorium, until a provider’s reasonable collection efforts have been completed, including both in-house efforts and the use of a collection agency, unpaid deductible and coinsurance amounts cannot be recognized as a Medicare bad debt.
If a Medicare contractor interpreted the policy as of August 1, 1987, to allow a Medicare bad debt for an account at a collection agency, then the application of the policy was not “in accordance with the rules in effect as of August 1, 1987.” Furthermore, if a Medicare contractor interpreted and applied policy as of August 1, 1987, that was not in accordance with the regulations in effect as of that date, then CMS has the ability to apply, and is expected to apply, the applicable policy correctly.
Thus, CMS has determined that any instructions previously issued which allowed hospitals to claim Medicare bad debt for accounts at a collection agency based on a Medicare contractor’s interpretation of the policy as of August 1, 1987, are incorrect. In no case is an unpaid Medicare account which is in collection, including at a collection agency, an allowable bad debt under the regulations. If a Medicare contractor’s practice has been to allow Medicare bad debts for some hospitals while the accounts are at a collection agency, based on its practices as of August 1, 1987, the Medicare contractor shall disallow these bad debts effective as of the date of this memorandum/letter. However, the Medicare contractor should not reopen cost reports to apply this policy.
It is Medicare’s policy not to reimburse hospital and non-hospital providers for Medicare bad debts while an account is at a collection agency. Medicare contractors are responsible for effectuating this policy.
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