Bad Debt and Charity Care Reporting

Medicare contractors should more closely examine providers’ bad debt claims, HHS watchdog says

A review of Medicare cost reports found instances in which providers received reimbursement for bad debt despite not complying with federal requirements.

January 3, 2023 8:31 pm

Medicare administrative contractors (MACs) soon could apply more scrutiny to providers’ reported bad debts if CMS implements recommendations from the HHS Office of Inspector General (OIG).

OIG in December issued a report in which it examined bad-debt reimbursement claims on Medicare cost reports spanning 2016 through 2018 for 67 randomly selected providers (including 29 hospitals).

In those cost reports, investigators found that among a sample of 62 claims involving bad debt, providers did not comply with federal requirements pertaining to collection efforts in 18 instances. In four other cases, the claims did not reflect the amounts owed by beneficiaries.

Those 22 cases resulted in nearly $30,000 in Medicare reimbursement that should not have been allowed, according to OIG. The discrepancy happened “because the MACs did not concentrate on reviewing bad debts when performing audits of cost reports,” OIG wrote.

CMS should update the guidance it provides MACs regarding reviews of Medicare bad debts as claimed in cost reports, according to OIG. One option would be to establish a dollar threshold beyond which a reported bad debt would trigger an audit.

CMS, responding in a letter from Administrator Chiquita Brooks-LaSure, said it concurred with OIG’s recommendation and would “consider” the findings “when issuing future guidance to MACs regarding the review of Medicare bad debts, taking into account budgetary constraints and competing priorities for the MACs.”

How providers went off course

Federal regulations require Medicare to reimburse providers for 65% of deductible and coinsurance amounts that remain unpaid after reasonable efforts to collect. Efforts generally qualify as reasonable when providers apply similar collection processes as they use with non-Medicare patients. (For patients categorized as indigent based on standard criteria, the debt automatically can be deemed uncollectible, rendering collection efforts unnecessary.)

In 16 of the 22 problematic cases, OIG found a lack of documentation showing that reasonable efforts had been made. In addition, one provider acknowledged not undertaking reasonable collection efforts in two different cases.

The four other cases, involving claims that did not reflect the amounts owed by beneficiaries, included two instances in which the claimed amount was an overstatement and two in which providers actually put in for less reimbursement than they were entitled to based on the coinsurance amount.

Although incidental to the focus of the report, OIG also found 29 instances in which providers did not comply with their internal collection policies. In one example, contrary to its internal policy, a provider had not documented any offers of financial assistance to the Medicare beneficiary.

“Providers that do not comply with their own stated policies and procedures are at an increased risk that they will not comply with federal requirements,” OIG wrote.

A growing concern

The potentially heightened scrutiny in Medicare could come as bad debt levels across payers seem set to rise with the end of Medicaid continuous enrollment, which has been a provision of the COVID-19 public health emergency. Recently passed FY23 spending legislation establishes April 1 as the date when states can begin the “unwinding” process (i.e., for the first time since early 2020, beneficiaries can be disenrolled if they don’t meet standard Medicaid eligibility requirements).

Most formerly eligible Medicaid enrollees likely can sign up for subsidized commercial insurance through the Affordable Care Act marketplaces, but there’s concern that at least some will fall through the cracks and add substantial numbers to the ranks of the uninsured. And some who end up with commercial insurance may struggle to afford annual out-of-pocket costs that are capped at $9,100 per individual and $18,200 per family for 2023 ACA plans.

As a result, “Hospitals are going to be charged with doing more screening for charity care, financial assistance, payment arrangements and collection activity,” Shawn Stack, HFMA’s director of perspectives and analysis, said during the “Beyond the News” segment in the latest episode of HFMA’s Voices in Healthcare Finance podcast.

Stack also noted the importance of keeping the patient’s perspective in mind when considering issues of billing, collections and reimbursement amid the unwinding.

“It’s not just hospitals and healthcare providers that are experiencing these huge increases in inflation,” he said. “Every time a person goes to the grocery store, they’re reminded of how much inflation has gone up.” 


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