Providers Must Bill State Medicaid Agency Before Attempting to Collect Bad Debt

The HHS Secretary properly denied bad debt claims made by a skilled nursing facility and a long term care hospital (facilities) for failure to prove that the debt was uncollectable, Cove by the District Court for the District of Columbia in the case of Cove Associates Joint Venture v. Sebelius.

Bad debts are deductible and coinsurance amounts that beneficiaries have not paid for services provided. Providers must make reasonable attempts to collect bad debts from the beneficiary before they can seek reimbursement for these bad debts from Medicare.

The term “reasonable collection efforts” mean that the provider has used the same methods to collect bills from Medicare patients as it does to make collections of comparable amounts from non-Medicare patients. Reimbursable bad debt has the following features:

  • (1) the debt must be related to covered services and based on unpaid Medicare deductible and coinsurance payments,
  • (2) reasonable collection efforts have been made,
  • (3) the debt is uncollectible when claimed as worthless, and
  • (4) there is no likelihood of recovery at any time in the future according to 42 C.F.R. §413.89 and §308 of volume 1 of the Provider Reimbursement Manual.

In addition, unless a provider demonstrates that a debt is uncollectible, it must wait 120 days from the date the first bill was mailed to the beneficiary before claiming the debt as worthless.

In this case, the facilities incurred bad debts when treating patients eligible for both Medicare and Medicaid (dual-eligible). The Secretary denied reimbursement because the facilities failed to comply with the agency’s “must-bill” policy. The policy requires facilities to bill the state Medicaid program before claiming payment for costs associated with dual eligibles as Medicare bad debt. The regulations provided that bad debt could be reimbursed to the extent that the state does not pay.

In the past several years a number of providers have challenged decisions by Medicare administrative contractors that denied reimbursement fort bad debts because the providers failed to bill state Medicaid agencies as part of their reasonable collection efforts. This decision upholds numerous decisions by the Provider Reimbursement Review Board and the courts that providers must bill state the Medicaid agency before making a claim for bad debts.

In this case the court held that it was reasonable to read into the regulations a duty to demand payment from the state in order to show that the states would not pay. The facilities, which did not participate in the state Medicaid program, could not establish that the state would refuse to issue a remittance advice until they submitted the bills for services provided to patients.

However, the court found that the Secretary had not previously enforced her must-bill policy against the facilities. Therefore, the case was remanded for the determination of whether the facilities were justified in relying on the Secretary’s prior failure to enforce the must-bill for the years 2004-2005.

For cost reporting periods beginning during fiscal year (FY) 2001 and later Social Security Act Section 1861(v)(1)(T) and 42 C.F.R. Section 413.89 states that allowable bad debt claimed by a hospital is reimbursed at 70 percent of the total allowable amount . There is no reduction in reimbursement for bad debts, however, for critical access hospitals, which are exempt from prospective payment rules.

Bad debts are reimbursable because a provider’s failure to collect Medicare deductibles and coinsurance amounts would shift costs to individuals not covered by Medicare and is therefore reimbursable.