Medicare Bad Debt and the OIG – A New Focus

The Office of Inspector General (OIG) for the Department of Health and Human Services (HSS) has a new focus in 2023: Medicare bad debt.

From 2016 to 2018, medical providers sought reimbursement for nearly $10 billion for Medicare bad debts on their cost reports. In 2022 the OIG conducted an audit on Medicare bad debt claims made by healthcare providers during this period, and in December of 2022 they released a report claiming that providers were not always complying with the Federal requirements when claiming Medicare bad debts.

The Audit

The OIG had two goals entering the audit. The first was to find whether providers complied with Federal requirements when claiming Medicare reimbursement for Medicare bad debt. The second was to verify providers’ policies and procedures for collecting complied with Federal requirements.

For the first goal, the OIG used Healthcare Cost Report Information System (HCRIS) data to identify all cost reports provided from the selected covered providers reported during Federal fiscal years 2016 through 2018 and that claimed reimbursement for Medicare bad debts. This resulted in 65,621 cost reports. From those cost reports, the OIG randomly selected 67 based on provider type and dollar amount of bad debt. From the lists of bad debts providers submitted with the 67 cost reports, the OIG selected the largest and smallest bad debts on each list. They also selected an additional 14 large bad debts from providers whose policies and procedures they believed to be at high risk for error. This resulted in a review of 148 bad debts in total.

The OIG then reviewed the providers’ documentation of the collection efforts performed for these bad debts. As you are aware, for unpaid Medicare deductible and coinsurance amounts to qualify as Medicare bad debts eligible for reimbursement, the provider must be able to establish that reasonable collections efforts were made, the debt was actually uncollectible when claimed as worthless, and there was no likelihood of future recovery based on sound business judgement.

For the second goal the OIG obtained the sampled providers’ policies and procedures for collecting Medicare bad debts and reviewed them to ensure that the policies and procedures included reasonable collection efforts. They also selected 15 non-Medicare bad debts with dollar amounts that were comparable to the dollar amounts for Medicare bad debts and reviewed the associated documentation to ascertain whether the providers’ collection efforts on Medicare bad debts were similar.

The Findings

Of the 148 Medicare bad debts that the OIG reviewed, more than half (86 bad debts) were connected to beneficiaries that providers had found to be indigent and for whom no reasonable collection efforts were required. Of the remaining 62 Medicare bad debts that providers claimed for reimbursement and that required reasonable collection efforts, the OIG found that providers did not comply with Federal requirements when claiming 18 Medicare bad debts. Of those, 16 were flagged because the providers were unable to provide supporting documentation to establish reasonable collection efforts had been made. This means that everything may have been done correctly and met Federal requirements, but they did not have the proper documentation needed to pass the audit. For the other two Medicare Bad Debts, the provider in question acknowledged not performing any of the required reasonable collection efforts.

It should also be noted that in addition to the 18 bad debts discussed above, an additional four bad debts were identified for which the amounts that providers claimed did not match the amounts owed by the beneficiaries.

In regards to the second goal, the OIG found that although the providers audited treated Medicare and Non-Medicare bad debts the same, they did find instances where although the providers complied with Federal requirements regarding claiming Medicare bad debts, they did not follow their own internal policies and procedures. The issue here is that the OIG states “Providers that do not comply with their own stated policies and procedures are at an increased risk that they will not comply with Federal requirements.” This means that the OIG may use discrepancies between your internal policies and procedures and your actual processes to flag providers for further audits.

The OIG’s Recommendations

The recommendations that the OIG made after this audit include that the Centers for Medicare & Medicaid services consider issuing instructions or guidance to the MACs that require or encourage more review of Medicare bad debts claimed in cost reports.

What are Your Next Steps?

Documentation is key when facing a review or potential audit. We highly recommend that you review your published policies and procedures to ensure they align with your current practices regarding collections of bad debt. It is also important that you partner with a self-pay organization like Americollect who truly understands the Medicare bad debt process and the requirements and documentation needed to stay compliant.

Contact Americollect today and discover how we can help you maintain compliance with your Medicare bad debt collections process and let you focus on what you do best – care for your patients!