CMS Proposes Reduction in Medicare Bad Debt Reimbursement

CMS is proposing significant changes in its policy to reimburse Medicare-participating providers and suppliers for bad debt. Starting in 2013, payments of allowable bad debt to hospitals, skilled nursing facilities, swing bed hospitals, end-stage renal disease facilities, and other providers and suppliers would be reduced by about 35 percent.

The change would come about both through a new law enacted earlier this year as well as through a proposed rule published July 11.

History of Medicare Bed Debt Reimbursement

An article by Christopher Kenny (King & Spalding, LLP, Washington, DC) in the May 2012 issue of the Dennis Barry Reimbursement Advisor provides a good overview of CMS bad debt policy.

By regulation, a provider may claim bad debt reimbursement for “uncollectible” accounts that, after “reasonable collection efforts,” demonstrate “no likelihood of recovery at any time in the future.” (42 C.F.R. sec. 413.89(e)) CMS further notes in the Provider Reimbursement Manual that to be considered a reasonable collection effort:

“…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. It must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient’s personal financial obligations. It also includes other actions such as subsequent billings, collection letters, and telephone calls or personal contacts with this party which constitute a genuine, rather than a token, collection effort.” (Provider Reimbursement Manual, CMS Pub. 15-1) sec. 310)

A bad debt is considered uncollectible after 120 days from the date the first bill, is mailed. The PRM text, therefore, provides a baseline for what constitutes a reasonable collection effort, leaving providers the leeway to determine when an account is unlikely to be recovered. As long as a provider applies the same policies to Medicare and non-Medicare patients alike, the hospital may claim the medicare bad debt.

Bad Debt Moratorium

In an attempt to protect providers from bad debt policy changes reflected in audits in the mid-1980s, Congress enacted the bad debt moratorium in 1987, stating that no changes could be made n the bad debt policy in effect on August 1, 1987, relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under the Medicare program (including criteria for what constitutes a reasonable collection effort).

CMS has tried several times since 1987 to revise its bad debt policies, but its attempts have been thwarted by Congress, the Provider Reimbursement Review Board, and the courts. For example, CMS has stated that the agency’s longstanding policy was to prohibit considering as an allowable bad debt an unpaid  Medicare account which is in collection, including at a collection agency. It has been CMS’ policy, therefore, not to reimburse hospital and non-hospital providers for Medicare bad debts while an account is at a collection agency.

The Proposed New Policy

As part of the “Middle Class Tax Relief and Job Creation Act of 2012″ (P.L. 112-96), Congress repealed the bad debt moratorium, freeing CMS ir revisit its bad debt policy. The first look at the new policy is part of the proposed rule updating Medicare reimbursement rates for end-stage renal facilities.

Under the proposed rule, hospitals and SNFs would see their bad debt reimbursement cut to 65 percent beginning in 2013, down from the current level of 70 percent. Critical access hospitals (CAHs) would see their Medicare reimbursement reduced to 65 percent, down from the current level of 100 percent. (The changes in CAH bad debt reimbursement would be phased in over three years.) CMS said the change will save the Medicare program $10.9 billion over 10 years.