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Friday, 15 July 2016


There are some providers who do not claim bad debts on the Medicare cost report.  Whether due to a lack of personnel to track and report bad debts or a lack of full understanding of how to claim bad debts, many providers are not recouping bad debt reimbursement that is due them.  The purpose of this blogpost is to help providers to understand how bad debts can be claimed on the cost report and how to obtain the maximum reimbursement allowed under CMS regulations.


An allowable bad debt is a bad debt that results from uncollectible Medicare deductible and coinsurance amounts from the provider's Medicare beneficiaries.  Medicare bad debts can be classified as Medicare only (non-crossover) bad debts for beneficiaries who have Medicare coverage only, dual eligible (crossover) bad debts for beneficiaries who also qualify for Medicaid, or charity bad debts which the provider determines as indigent.  Per CMS Pub. 15-I, Section 314, uncollectible deductibles and coinsurance amounts are recognized as allowable bad debts in the reporting period in which the debts are determined to be worthless.  Uncollectible deductible and coinsurance for Medicare Advantage (i.e., Part C) beneficiaries cannot be claimed on the Medicare cost report.  Additionally, anything paid under a fee-schedule (i.e., Ambulance, therapies) cannot be included on the Medicare bad debt listing.

Four Criteria

Per CMS Pub. 15-II, Section 1102.3, to be considered as allowable, the Medicare only (non-crossover) bad debts must meet the following four criteria:

  1. The debt must be related to Medicare covered services and derived from Medicare deductible and coinsurance amounts.
  2. The provider must be able to establish that reasonable collection efforts were made.  Providers must issue bills, collection letters, and telephone calls or personal contacts which constitute a genuine, rather than a token, collection effort.
  3. The debt was actually uncollectible when claimed as worthless.  If after the provider applied reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.
  4. Sound business judgement established that there was no likelihood of recovery at any time in the future.

Reasonable Collection Efforts

The second of the four criteria for Medicare only (non-crossover) bad debts relates to reasonable collection efforts.  Reasonable collection efforts begin by issuing a bill shortly after the discharge or death of the patient.  This bill should be followed by subsequent billings, collection letters, and telephone calls or personal contacts.  These efforts should amount to a genuine, rather than token, effort to collect the debt.  The provider must employ the same level of effort that it puts forth to collect comparable amounts from non-Medicare patients. 

A bill is deemed uncollectible if reasonable collection efforts have been pursued for more than 120 days.  If the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may then be claimed on the bad debt listing.  For bad debts that are claimed in 120 days or less from the date of first bill, the provider must be prepared to demonstrate that the debt was genuinely uncollectible.

For every Medicare only (non-crossover) bad debt claimed, a provider must be able to document that it pursued reasonable collection efforts.  The provider must also document that a debt is actually uncollectible when claimed 120 days or less after the date of the first bill.  This documentation must decidedly support that the debt was uncollectible and would remain uncollectible even if collection efforts were sustained for more than 120 days from the first bill.

CMS deems the use of a collection agency to be part of the provider's ongoing collection effort, and as long as the debt remains with a collection agency (even if more than 120 days), the debt cannot be deemed as uncollectible.  Therefore, the bad debt must be returned from the collection agency before the bad debt may be claimed on the Medicare cost report.  In short, all collection efforts must have ceased before you can claim the Medicare bad debt on the cost report. 

Further information on reasonable collection efforts may be found in CMS Pub. 15-I, Section 310.

Indigent Patients

Bad debts claimed on the cost report for Medicare beneficiaries who also qualify for Medicaid are considered to be "dual eligible" or "crossover" bad debts.  Because a Medicaid patient is considered indigent automatically, reasonable collection efforts for these bad debts may be waived.

The provider may also develop a methodology for determining indigence for those Medicare beneficiaries that do not qualify for Medicaid.  The bad debts for these beneficiaries may be written off and claimed upon discharge or upon the determination of indigence, whichever is later.  Information to support the indigence determination should be available for the audit, if requested. 

See CMS Pub. 15-I, Section 312 for the factors which should be incorporated into the provider's indigence guidelines.

Audit Documentation

Bad debts cannot be considered for reimbursement unless the provider submits a bad debt listing with the cost report submission that contains the following criteria:

  1. Beneficiary Name
  2. Beneficiary HIC Number
  3. Dates of Service (Admit Date and Discharge Date)
  4. Indigence Indicator for Indigent and Medicaid beneficiaries (included Medicaid number)
  5. Date of First Bill
  6. Medicare Paid Date (Medicare Remittance Advice Date)
  7. Date of Write-off and/or date the collection efforts cease
  8. Amount of Debt
  9. Medicare Deductible and Coinsurance Amount
  10.  Other patient payment amounts (i.e., Medicaid, other insurance, patient payment. 

Inpatient and outpatient bad debts are reported on separate cost report worksheets and there are separate lines on these worksheets for identifying, for informational purposes, bad debts related to dual eligible beneficiaries.  Therefore, we recommend completing separate bad debt logs for each bad debt type, e.g., a Medicare only (non-crossover) inpatient log, Medicare dual eligible (crossover) inpatient log, and an indigent inpatient log.  Separate logs should also be maintained for outpatient beneficiaries.  In like manner, separate logs should be kept to identify Medicare bad debt recoveries.  For an example bad debt listing blank form click here.  Also, please feel free to contact us at any time if you need help with bad debt determinations or data collection.

For more information on reporting bad debts, see Chapter 3 of CMS Pub. 15-I on the website by clicking on the "Regulations & Guidance" tab.

For more information please contact us at


Posted on 07/15/2016 9:56 AM by Ronald K. Neal
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