Recent CMS Decision Serves as Notice to Review "Bad Debt" Collection Policies

A recent decision by a Centers for Medicare & Medicaid Services ("CMS") Administrator serves as a reminder to providers regarding "bad debt" collection efforts.

Medicare providers can be reimbursed for "bad debts," which are "uncollectible" amounts attributable to the deductible and coinsurance responsibilities of Medicare beneficiaries. Bad debts can be reimbursed if the debt remains unpaid for more than 120 days from the date the first bill is mailed to the beneficiary and if the following conditions are met:

  • the debt arose from deductible or coinsurance amounts;
  • the provider made reasonable collection efforts;
  • the debt is actually uncollectable; and
  • sound business judgment indicates that collection is not likely in the future.

In St. John Health v. BlueCross BlueShield Association, a CMS Administrator issued a final decision that clarifies that bad debts which remain active at a collection agency cannot be considered uncollectible, even though they were pending for more than 120 days.

In this case, the intermediary, BlueCross BlueShield Association, denied reimbursement to St. John Health for unpaid Medicare beneficiaries' deductible and coinsurance amounts more than 120 days after the issuance of the first bill but while the debts remained active at a third party collection agency.

St. John Health had a bad debt policy and procedure wherein it utilized in-house collection efforts together with referral to an outside collection agency. If it determined that an account was uncollectible after completion of the in-house collection efforts for a period of 120 days, it wrote-off the uncollected amount as a bad debt, but still referred it to an outside collection agency where it remained unless eventually collected.

The Administrator determined that the intermediary correctly disallowed St. John Health's debt because if a provider continues collection efforts at an outside collection agency, then the provider 1) has not established reasonable collection efforts have been made, 2) the debt was actually uncollectible when claimed as worthless, and 3) that there is no likelihood of recovery, in accordance with the requirements set forth above. The Administrator also pointed out that a means of measuring the reasonableness of a hospital's efforts to collect Medicare accounts is to compare them to the action the hospital takes when its own money is at stake (i.e., a provider's effort to collect Medicare amounts must be similar to the effort the provider puts in to collecting comparable amounts from non-Medicare patients).

Finally, the bad debt Medicare rules must be read in light of the "moratorium" imposed by Section 4008(c) of the Omnibus Reconciliation Act of 1987, on any changes to an intermediary's Medicare bad debt policy that was in effect on or before August 1, 1987. As a result of the moratorium, intermediaries could not begin to deny bad debts that they considered allowable prior to August 1, 1987. The Administrator held that the bad debt moratorium did not apply in this case.

This case serves as a reminder for providers to review their bad debt collection policies and procedures and cease outside collection efforts prior to deeming a claim "uncollectable," or face an almost certain denial from the intermediary and consequently, no reimbursement for amounts which you should otherwise be entitled.

If you have questions about this issue or other health care-related issues, please call Attorney Jillian Jagling at 401.824.5100 or email jjagling@pldolaw.com. We welcome your comments, questions and suggestions.

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