Medicare Bad Debt 101

Medicare offers important financial protection by providing health insurance coverage to 67 million people in the U.S., including adults age 65 or older and younger adults with long-term disabilities.

Unsurprisingly, Medicare and Medicaid reimbursements are crucial, comprising about 32% of hospital revenue.

As healthcare organizations face the challenge of narrowing margins and decreasing government reimbursement rates, exploring Medicare Bad Debt presents a promising opportunity for additional reimbursements.

What is Medicare Bad Debt?

Medicare Bad Debt arises when hospitals and providers can’t collect out-of-pocket payments from patients. These unpaid amounts become known as bad debt.

Medicare has a history of covering some of this debt for fee-for-service beneficiaries. Specifically, the uncollectible cost-sharing amounts for services provided to Medicare beneficiaries are termed allowable bad debt.

For dual-eligible beneficiaries—those enrolled in both Medicare and Medicaid—any out-of-pocket obligations unpaid by Medicaid also count towards Medicare’s allowable bad debt. Currently, Medicare reimburses 65% of this allowable bad debt to eligible facilities, including hospitals, skilled nursing facilities and centers treating end-stage renal disease.

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Allowable vs Non-Allowable Medicare Bad Debt

To be considered an allowable Medicare Bad Debt, it must meet the following criteria, including:

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

Conversely, amounts related to the following are non-allowable Medicare Bad Debt:

• Medicare Advantage Plans: The Medicare Bad Debt log requirements clearly state bad debt amounts claimed should only relate to Medicare Part A and Medicare Part B
• Non-Medicare Recipients: Medicare Bad Debt amounts should only relate to where Medicare is the primary on the account
• Physician fees or professional fees aren’t reimbursable
• Presumptive charity is most likely not allowed if there isn’t income and asset testing
• If patients are responsible for Medicaid share of cost or required to meet a spend-down amount for Medicaid, those amounts are not allowable for Medicare Bad Debt

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What is the current challenge for finance leaders?

Medicare Bad Debt is costly – according to HCRIS data and CMS, hospitals claim more than $3 billion in Medicare Bad Debt on their cost reports each year, accounting for 15% of Medicare recipients’ out-of-pocket responsibility.

Medicare-certified institutional providers must submit an annual cost report to a MAC. This is a complicated process that includes identifying potential coinsurance and deductible amounts, eliminating non-eligible amounts and matching the remainder against the hospital’s own bad debt write-off information. Many providers lack the internal resources and/or technology to complete the steps, accurately determine eligible Medicare Bad Debt reimbursement and file the report.

Multiple departments are responsible for actions on claims, which means a high margin of error in the form of:

• Incorrect insurances captured or identified
• Inability to properly process 835 claims data
• Items incorrectly written off
• Collections or charity policy not followed
• Not claiming accounts in the correct year
  
  

How can finance leaders solve the common challenges associated with Medicare Bad Debt reimbursement?

Since there is still opportunity to be reimbursed for a portion of any amount unpaid by a patient, it’s important to be proactive in managing any Medicare Bad Debt.

Let’s look at how healthcare leaders can solve some common challenges related Medicare Bad Debt reimbursements to recover more revenue:

1. Lack of Expertise and Internal Resources

Hospitals often struggle to accurately identify claims eligible for Medicare Bad Debt reimbursement due to the need for specialized expertise and dedicated resources. Many healthcare facilities lack the necessary staff and knowledge to effectively manage the complex processes and reporting requirements associated with Medicare Bad Debt, which is part of the Hospital and Health Care Complex Cost Report. As a result, many may miss out on recouping additional dollars to maintain a healthy bottom line.

What can be done

Hospitals can collaborate with third-party experts who possess the experience and technology to simplify the reimbursement process and assist with parts of annual cost reports. Outsourcing consulting services is advantageous when staffing is limited and there’s a knowledge gap. This approach can be more budget-friendly than investing in new technology or hiring additional staff.

2. Lack of Automation

Technological advancements are transforming revenue cycle management in healthcare. However, some hospitals are slow to adopt these innovations, especially in automating Medicare Bad Debt processes.

What can be done

Adopting AI and automated systems can boost accuracy and efficiency, streamlining the complex task of managing Medicare Bad Debt data. Seek technology solutions that can pinpoint available Medicare Bad Debt and offer actionable analytics and summary reports.

Whether opting to outsource reimbursement projects or deploying in-house software solutions, it’s crucial to utilize advanced technology with intelligent algorithms to maximize efficiency, optimizing both time and budget resources effectively.

3. Data Intake and Human Error Issues

Errors during data intake can jeopardize RCM teams with inaccuracies in Medicare Bad Debt reimbursement. Even small mistakes can result in missed revenue recovery opportunities or potential compliance issues.

What can be done

Hospitals should focus on improving data collection processes and implement rigorous quality control measures. By ensuring data accuracy and conducting regular audits, hospitals can minimize the risk of errors and maximize reimbursement potential. Third-party consulting services that utilize advanced software can also solve inefficiencies and boost accurate reporting.

Accurately identifying Medicare Bad Debt represents a significant revenue opportunity for hospitals. By recognizing the hurdles and implementing appropriate solutions, such as partnering with a third party, providers can optimize their reimbursement outcomes.

Learn how to untangle complex government reimbursement challenges or read our guide to see how FinThrive’s unique processing and data integration capabilities can help you accurately and efficiently figure out reimbursable bad debts.