Medicare and Collections

Recently federal courts have hosted challenges to whether or not bad debt that is still with an outside collection agency qualifies as “allowable bad debt” for Medicare cost-reporting purposes

Result: Conflicting decisions

California Decision (Aug. 8, 2007): bad debt moratorium barred CMS from disallowing hospital’s debts that were with an outside collection agency at the time claimed on cost report
Sixth Circuit: (Aug. 14, 2007): CMS prevailed on it’s position that bad debts may not be claimed until they are returned by outside collection agency

Criteria for Allowable Bad Debt:

A debt must meet these criteria to be an allowable bad debt:

The debt must be related to covered services and derived from deductible and coinsurance amounts;
The provider must be able to establish that reasonable collection efforts were made;
The debt was actually uncollectable when claimed as worthless; and
Sound business judgment established that there was no likelihood of recovery at any time in the future.

{see PRM at Section 308, 42 CFR Section 413.89(e)}

“Reasonable” Collection Efforts:

According to CMS, a “reasonable collection effort” is one in which “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.”
Collection effort must include issuing a bill on or shortly after discharge or death of the Medicare beneficiary to the person responsible for the patient’s financial obligations.
Other actions – subsequent billings, collection letters and telephone calls or personal contacts “which constitute a genuine, rather than a token, collection effort.”

{see PRM at Section 310}

Can Collection Agencies be Used?

PRM says “yes” a provider’s collection effort may include a collection agency…

When a collection agency is used, CMS expects the provider to refer all uncollected patient charges of like amount(s) to the outside collection agency with regard to the same class of patient

Presumption of Uncollectability:

If after reasonable and customary attempts to collect a bill the debt remains unpaid 120 days from the date of the first bill is mailed to the patient, the debt may be deemed uncollectable.

Charge Off Timing:

Uncollectable amounts from specified patients are to be charged off as bad debts in the accounting period in which the accounts are deemed worthless. {see 45 CFR Section 413.89(f)} Uncollected debts and coinsurance amounts “are recognized as allowable bad debts in the reporting period in which the debts are determined to be worthless” {see PRM Section 314}

Documenting Collection Efforts:

Provider’s collection effort must be documented in patient’s file (e.g., copies of bills, follow up letters, reports of telephone and personal contact, etc.)

{See, 42 CFR Sections 413.9, 413.24 and 413.20(a)}

In part, guidelines state “if the bad debt is written-off on the provider’s books 121 days after the date of the bill and then turned over to a collection agency, the amount cannot be claimed as a Medicare bad debt on the date of the write-off. It can be claimed as Medicare bad debt only after the collection agency completes its collection effort”

{See, Intermediary Manual, Part 1 B, 13-2}

Deciding Factor in California:

Bad Debt Moratorium – Omnibus Budget Reconciliation Act of 1989 (OBRA, Public Law 101-23-, 42 USC Section 1395f). Moratorium prohibits HHS from imposing new or different bad debt criteria on a provider after August 1, 1987, if the intermediary had “accepted” the provider’s policies before that date in accordance with the rules then in effect.