Medicare Bad Debt Reimbursement: Avoiding the Pitfalls

Thoughtware Article Published: May 01, 2019
Long-Term Care professional helping a senior

With Medicare’s transition to prospective payment system (PPS) reimbursement for most provider types, Medicare bad debts have become a topic of increasing scrutiny by CMS and the Medicare Administrative Contractors (MAC) that review and reimburse for these claims through the Medicare cost report process.

Under 42 CFR Section 413.89, Medicare is to reimburse deductible and coinsurance amounts for Medicare beneficiaries that remain unpaid after the provider has made a reasonable effort to collect. This provision is to assure that the covered costs of Medicare beneficiaries aren’t indirectly borne outside the Medicare program. For hospital entities, the Medicare bad debt reimbursement is calculated as 65 percent of the uncollectible amount. This reimbursement varies by provider type.

This article focuses on the requirements for claiming Medicare reimbursement for bad debts, as well as some common pitfalls providers often face.

Requirements for Allowable Bad Debts Under 42 CFR §413.89

  1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
  2. The provider must be able to establish that reasonable collection efforts were made.
  3. The debt was actually uncollectible when claimed as worthless.
  4. Sound business judgment established that there was no likelihood of recovery at any time in the future.

Covered Services

The amounts requested on a Medicare cost report for reimbursement must be related to charges allowable on the cost report. In general, this refers to any charge billed to Medicare on a UB-04 form that’s not reimbursed on a fee schedule. This will exclude any charges for professional services, which are billed on a CMS-1500 form and generally aren’t includible on the Medicare cost report.

In general, the amount of charge eligible for bad debt reimbursement will be the coinsurance and deductible amount after the primary portion is paid by Medicare on a remittance advice.

Reasonable Collection Efforts

Medicare requires that a provider perform reasonable efforts to collect deductible and coinsurance amounts from the responsible party, usually the patient. The primary requirement is the provider must put forth the same effort to collect from Medicare patients as non-Medicare patients. To show reasonable collection efforts, the following criteria must be met:

  1. Timely billing – The provider must bill the deductible/coinsurance amount to the patient within 90 days of receiving the Medicare remittance advice.
  2. Collection agencies – If the provider uses collection agencies to attempt collection on any patient claim, the agencies must be used for Medicare claims as well.
  3. Time period – The minimum amount of time the provider must attempt collection is 120 days, starting with the date of first billing to the patient.
  4. Indigent without Medicaid – If the patient is deemed indigent, the requirements for reasonable collection efforts have been met and collection isn’t required to be attempted from the patient. The patient is considered indigent if classified as charity in accordance with the provider’s policy. The provider must follow its established policy for indigency.
  5. Medicaid crossovers – If the patient is dual eligible (eligible for Medicare and Medicaid), the patient is presumed indigent. The provider must bill Medicaid before any unpaid deductible or coinsurance can be claimed as Medicare bad debt.


Once the criteria of reasonable collection efforts have been met and the bad debt is either returned from the collection agency or otherwise deemed uncollectible, the provider must charge off the bad debts to a general ledger account specifically noted as bad debts. In the period this determination is made and recorded, the provider may claim the bad debts for reimbursement on the Medicare cost report.

On April 4, 2019, CMS issued instructions clarifying that unpaid deductible amounts claimed as bad debts must be written off to a bad debt expense account, not a contractual allowance account, to be considered for reimbursement. Effective for cost reporting periods beginning on or after October 1, 2019, providers must comply with these long-standing Medicare bad debt requirements. BKD published a Thoughtware alert regarding the recent CMS guidance that provides more information and clarification on this topic.


If an amount claimed as bad debt in a prior period is recovered in a later reporting period, the recovery must be claimed as a reduction in bad debts reimbursed during the period the recovery occurred.

Common Pitfalls

1. Not Providing the Listing in Accordance with CMS Standards

CMS has specified the columns required in a Medicare bad debt listing. Each column must be filled out as directed to obtain reimbursement for the bad debts.

The following are the required columns and a brief description of the data, if necessary:

  • Patient name
  • HIC number – Patient’s Medicare ID number
  • Dates of service from – Admission date
  • Dates of service to – Discharge date
  • Indigency & welfare recipient (check if applicable) – If the patient meets the requirements of indigency listed above, indicate in this column
  • Medicaid number – If the patient meets indigency requirements by participating in the state’s Medicaid program, provide the patient’s unique Medicaid identifier in this column
  • Date first bill sent to beneficiary – The date a bill was sent to the patient, after the provider received the Medicare remittance advice. If the patient is a Medicaid participant, enter the date billed to the Medicaid program; if the patient is indigent and not a Medicaid participant, this date isn’t required
  • Date collection efforts ceased – The date the bad debt was deemed uncollectible in accordance with the above requirements
  • Medicare remittance advice dates – The date of the final remittance advice received from Medicare on a claim, issuing final payment
  • Deductible – The uncollected deductible amount
  • Coinsurance – The uncollected coinsurance amount
  • Total – The total amount claimed—amount must total the coinsurance and deductible columns

2. Timely Billing Not Documented Properly

To be considered for Medicare reimbursement, the deductible and coinsurance amounts must be billed to the patient within 90 days of the Medicare remittance advice and these dates must be presented on the bad debt listing.

If a claim is presented on multiple remittance advices, for payment correction purposes, the hospital should include the last remittance advice date on the listing. If the claim is billed to a secondary insurance provider after Medicare, this also may delay billing to the patient. Medicare may require documentation to prove secondary insurance was the reason for the apparent untimely billing. This documentation should be reviewed at the time of bad debt listing preparation to help with audit readiness.

3. Incorrect Use of “Date Collection Efforts Ceased” Column

To be considered for Medicare reimbursement through the cost report, the column labeled “date collection efforts ceased” should correspond to the date the bad debt was:

  1. Deemed uncollectible
  2. Written off the hospital’s general ledger system in a bad debt expense account or returned as uncollectible from an outside collection agency, whichever date is later
  3. Requested for Medicare reimbursement through the cost report

This date generally corresponds to the date the bad debt was returned from the collection agency and written off the hospital’s general ledger system as uncollectible. The provider should ensure this date also corresponds to the fiscal year in which the bad debts are being claimed on the cost report for reimbursement. The auditor assigned by the MAC will likely do testing related to this date to check the proper cost reporting year and verify the hospital performed reasonable collection efforts (120 days of attempted collection) upon receiving the bad debt listing.


Medicare bad debts can be an important part of a hospital’s reimbursement strategy, providing a hospital with a significant cash flow for claims that otherwise wouldn’t be paid. The primary challenge when requesting reimbursement for Medicare bad debts is ensuring that documentation is kept and presented to the MAC in the required format so these claims don’t get denied.

For assistance with recouping Medicare bad debt or more information on BKD’s reimbursement expertise, click here or complete the Contact Us form below and a BKD trusted advisor will be in touch with you shortly.

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