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How FY 2021 Hospital Inpatient PPS Proposed Rule Impacts Medicare Bad Debt

Centers for Medicare & Medicaid Services (CMS) released FY 2021 Hospital Inpatient PPS Proposed Rule on May 11, 2020. Included in the proposed rule are various clarifications related to CMS’s Medicare Bad Debt policy.

While there are many rules around properly claiming reimbursement for Medicare Bad Debt, CMS is attempting to clarify four specific areas with this proposed rule.

1. Reasonable Collection Effort, Non-Indigent Beneficiaries

a. Issuance of a bill — A beneficiary must be issued a bill on or before the later of 120 days from Medicare remittance advice or 120 days from secondary insurance remittance advice, if applicable.

b. There’s a 120–day collection effort and reporting period for writing off bad debts — If a partial payment is made during the 120-day collection period, then the 120-day ‘clock’ starts over at the partial payment date.

c. Similar collection effort required, including collection agency use, PRM Section 310 — Collection agencies must maintain reasonable and consistent policies as with non-Medicare patients. CMS further explains how collection fees should be treated.

d. Documentation required, reasonable collection effort for non-indigent beneficiaries — Collection efforts must be documented and furnished upon request and required documentation includes, collection policy and patient account history documenting collection attempts.

2. Reasonable Collection Effort, Beneficiaries Determined Indigent by Provider Using Required Criteria

a. Further clarification on required criteria and documentation necessary for the provider’s determination of indigence.

3. Reasonable Collection Effort, Dual Eligible Beneficiaries and the Medicaid Remittance Advice

a. Providers must bill Medicaid in order for a crossover to be considered for reimbursement. However, CMS does understand that not all states may cooperate or the hospital may not contract with the state (often seen in out-of-state patients). CMS is seeking feedback from the community on alternatives to must-bill policy where states can’t be billed.

4. Accounting Standard Update Topic 606 and Accounting for Medicare Bad Debt

a. Discussion of new terminology for bad debts from Topic 606 and explains the justification for writing off bad debts to an expense account for uncollectible accounts, rather than a contractual allowance account.

i.Accounting Standard Update Topic 606

ii.Medicare Bad Debt and Contractual Allowances

(A more detailed breakdown can be found in the Federal Register starting on page 32,867).

TransUnion Healthcare perspective
According to CMS, these proposals provide clarification to longstanding CMS Medicare Bad Debt policies. Additionally, the clarifications appear to be in line with CMS’ strategy to scrutinize accounting treatment of Medicare bad debts as an expense (the 2020 finalized rule clarified crossover bad debts must be written off to bad debt expense and not a contractual adjustment). In our experience helping customers with Medicare Bad Debt reviews, we have seen and helped resolve inconsistent interpretation by auditors of these policies. If these clarifications are finalized, they should provide more consistency at audit across Medicare Audit Contractors (MACs).

Best practice tips
For most hospitals we expect the proposed clarifications to have minimal impact. However, in order to ensure compliance and streamline your reimbursement efforts, it’s recommended you:

  1. Review your Financial Assistance Policy to ensure your policies are in line with Medicare regulations.
  2. Consult with your revenue cycle and accounting teams to ensure your Medicare Bad Debt procedures will be in compliance with the proposed clarifications.
  3. Direct any comments toward CMS regarding this proposed rule by July 10, 2020.

It’s important to note that this is just a proposed policy. The final version will be not be published until August or September, 2020.

The materials available on this page are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.


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