CMS recently issued guidance on accounting for Medicare-Medicaid crossover (also known as dual eligible) write-offs. In an 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.
CMS states this clarification isn’t a new requirement, but it complies with the preexisting regulations outlined in Chapter 3 of the Provider Reimbursement Manual (PRM). Section 320 of the PRM includes the following:
… The amounts deemed to be uncollectible are charged to an expense account for uncollectible accounts. The amounts charged to the expense account for bad debts should be adequately identified as to those which represent deductible and coinsurance amounts applicable to beneficiaries and those which are applicable to other than beneficiaries or which are for other than covered services. Those bad debts which are applicable to beneficiaries for uncollectible deductible and coinsurance amounts are included in the calculation of reimbursable bad debts.
CMS states that effective for cost reporting periods beginning on or after October 1, 2019, providers must comply with these long-standing Medicare bad debt requirements.
The criteria for allowable bad debt remain the same, as detailed in 42 CFR 413.89, including that the unpaid deductible or coinsurance amount must be related to covered Medicare services, the bad debt was deemed uncollectible and there is no likelihood of recovery.
It has been common practice for providers to write off crossover balances to contractual allowance accounts. It’s recommended that providers evaluate how they’re recording these write-offs in the general ledger and ensure the write-off of crossover balances is being recorded in a bad debt expense account to comply with this clarification in CMS policy so as not to affect Medicare bad debt reimbursement.
An additional factor to consider is how the provider is changing its internal accounting to comply with the adoption of FASB Topic 606 revenue recognition standards. Topic 606 standards provide guidance on how an organization must report revenue in its audited financial statements, but they don’t affect how an organization tracks such information in its general ledger. Providers should ensure their general ledger accounts are set up to allow for tracking information as required by CMS as well as mapping those accounts to the proper financial statement line item as required by FASB.
For more information on how this clarification in policy may affect your organization, contact Erin, Michael or your trusted BKD advisor.