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Industry Insights

Accounting for Dual-Eligible Contractual Adjustments as Medicare Bad Debt

March 7, 2020

Changes in Crossover Write-offs

The Healthcare Financial Management Association (HFMA) recently released a concise operational overview of accounting changes embedded in the Centers for Medicare and Medicaid Services (“CMS”)  issued guidance on accounting for Medicare-Medicaid crossover (also known as dual eligible) write-offs. In a MLN Connects® publication issued April 4, 2019, CMS clarifies that for a provider to claim a crossover bad debt for an unpaid Medicare deductible and coinsurance amount, the amount must be written off to a bad debt expense account as opposed to a contractual revenue account. These requirements became effective October 1, 2019 for September 30 fiscal year-ends and will continue to become effective by fiscal year through 2020.  Much of these new requirements are in contrast to standard accounting practices in the healthcare industry.

The HFMA summary does a great job of tying in Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers.  This Topic and CMS’s new requirements have been a bit confusing to pull together.  As we have noted in previous commentaries on this topic, internal financial reporting will sometimes differ from external GAAP-based financial statements due to requirements mandated by other regulatory authorities such as this instance from CMS.  In addition to understanding the broader topic, additional considerations interrelated to this topic include:

  • Transaction Codes and Transaction Descriptions (in name and underlying detail mapping)
  • Transaction Type Mapping (e.g., debit/credit; contractual/bad debt/other)
  • Automated components integrated into accounting – clearinghouse, automated system (e.g., EPIC) processes
  • Reporting/Decision-support Tool Mapping
  • Internal Financial Statement Mapping/Reporting
  • External (GAAP) Financial Statement Mapping/Reporting
  • External (GAAP/other) Reporting (e.g., Moody’s, key ratios impacts)
  • Link with Uncompensated Care Reporting (cost reporting; 990s; State filings; community benefit reports)
  • Policy(s) acknowledging CMS requirement, GAAP and compliance of processes across multiple reporting channels

A starting point “policy” may begin with a memo documenting all the integrated components of this issue and how compliance is achieved across multiple reporting components.  For many providers, crossovers written off to contractual allowances and/or otherwise mapped financially to contractuals is a large issue that providers cannot afford to learn about during an FI audit on the topic.

HFMA’s write-up on this topic can be accessed here:  https://www.hfma.org/content/dam/hfma/Documents/policies-and-practices/pp-medicare-medicaid-crossover-bad-debt-accounting.pdf

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