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IPPS Proposed Medicare Bad Debt Changes in 2021

April 17, 2020

Changes may be coming in relation to Medicare bad debt

The FY21 IPPS proposed rule devotes over 30 pages to changes related to Medicare bad debt.  A significant number of these changes are described as “codifications of long-standing rules”.  This description, in general, means that many of the changes will be effective for cost reporting periods beginning before, on, and after the effective date of the final rule (i.e., effective retroactively).  The American Hospital Association issued formal feedback on many of the changes in a letter dated July 10, 2020.  Their comments focused on specific changes that are proposed and in general, they pushed back on any retroactive implementation of these changes.  Providers should closely monitor these proposed changes, CMS responses and the final rules.  A short summary of the proposed changes is highlighted in the sections below.

Updates to Reasonable Collection Efforts for Non-Indigent Beneficiaries

  • Issuance of a bill “shortly after” discharge has been viewed as too vague by many. Proposed changes would require the issuance of a bill to the beneficiary of the party responsible for the beneficiary’s personal financial obligations on or before 120 days after: (1) the date of the Medicare remittance advice; or (2) the date of the remittance advice for the beneficiary’s secondary payer, if any; whichever is latest.
  • The 120-day collection rule would be clarified to formerly note that each time a payment is received the 120-day collection cycle would restart. In addition, a formal requirement to report recoveries would be codified.
  • “Similar collection efforts” would be codified to clearly state that all policies and procedures must be the same for all payers (i.e., no Medicare only policies) for “like accounts and amounts”. The “like” provides flexibility for providers.  Use of collection agencies is clarified to note that an account is not deemed to be bad debt until formally returned from the collection agency.  The exclusion of fees charged by collection agencies are also clarified.
  • Documentation requirements for bad debts are detailed to include collection policies, and requirement for an account history that includes a log of “all efforts” of collection (e.g., bills, letters, calls and other personal contact).

Indigency Determination Requirements Clarified (non-Medicaid beneficiaries)

  • Determination criteria proposed to be further codified to require provider determination of indigence, a required asset test (in addition to income tests), and responsibility to confirm that no other source of payment was available (e.g., a legal guardian).
  • Requirements to maintain documentation (e.g., a Policy of Determination of Indigence) describing the method by which indigence was determined would be required.

Remittance Advice Requirement for Dual Eligible (Crossover) Beneficiaries

  • Requires that a State Medicaid Remittance Advice be obtained to show documentation that any State Medicare cost sharing liability has been properly deducted from Medicare Bad Debt. This policy clarification/codification to “must bill” language continues to “harden” CMS policy to now include actual acknowledgement of the bill through a remittance advice back to the provider. (Many states do not accept or acknowledge secondary bills to their Medicaid program and do not process.)
  • Related to above, the proposed rule opens a window for “alternate documentation” to a remittance advice in situations where states that do not comply with federal statutory requirements to have a billing and cost-sharing calculation system (i.e., no remittance advices). Alternate documentation must accurately verify that the beneficiary was eligible for Medicaid on the date of service.

Accounting Standard Update including Accounting for Medicare Bad Debt

  • Regulations will be amended to formally recognize and incorporate ASU Topic 606 terminology. Specifically, bad debts are recognized as “implicit price concessions” that represent reductions in revenue.
  • The “no contractual allowance” issue would be formally codified. Medicare bad debts must formally be written off to an expense account for uncollectible accounts (bad debt or implicit price concession) and not to a contractual allowance account.

Commentary and Next Steps

The proposed rule codifies and tightens guidance on many Medicare Bad Debt areas that continue to have significant Fiscal Intermediary (FI) audit/review activity.  

Many FI’s have applied some of these items in their procedures without codification.  Providers should be optimistic that further codification will provide greater clarity to somewhat “arbitrary” procedures that FI’s sometimes inconsistently apply.  Providers should also take these proposed changes, whether adopted or not, as continued guidance on the direction of CMS in this area.  Policies and procedures should be structured to comply with the guidance that CMS continues to offer and best practices (that have withstood FI scrutiny) should be implemented.


About F2 Healthcare –  

F2 Healthcare uses proprietary, best in class methodology and technology to provide Net Revenue Analytics, Recovery, Reporting, Consulting, and Outsourcing for enterprising healthcare organizations to maximize net revenue.

F2 works with over 200 healthcare organizations across the country in the area of Medicare Bad Debt.  For more information on the FY21 IPPS proposed rule, questions/discussion on entity specific policies and procedures, FI viewpoints around the country, implementation utilizing best practices and other, please contact us to discuss!

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