OIG Identifies Provider Noncompliance when Claiming Medicare Bad Debts

A handful of providers did not comply with federal requirements when claiming Medicare bad debts, leading to nearly $30,000 in unallowable Medicare reimbursement, a report from the Office of Inspector General (OIG) found.

Medicare is required to reimburse providers 65 percent of deductible and coinsurance amounts that remain unpaid by Medicare beneficiaries, provided that the situation meets certain standards. Providers must have made a reasonable effort to collect, determined the debt was uncollectible, and concluded that there was no likelihood of future recovery based on sound business judgment.

Between fiscal years 2016 and 2018, providers sought reimbursement of nearly $10 billion for Medicare bad debts on their cost reports.

The OIG report aimed to determine if providers complied with federal requirements when claiming this reimbursement and if their policies and procedures for collecting debt from beneficiaries were on par with federal standards.

OIG used the Healthcare Cost Report Information System (HCRIS) data to identify all provider cost reports from 2016 to 2018 that claimed reimbursement for Medicare bad debts. The agency randomly selected 67 cost reports and 148 samples of bad debts that totaled $450,687.

OIG reviewed the providers’ documentation of collection efforts performed for the bad debts and assessed their policies and procedures for collecting bad debts.

The report found that not all providers complied with federal requirements when claiming Medicare reimbursement for bad debts. Among the 148 bad debts, 86 were associated with beneficiaries deemed indigent and did not require any collection efforts from providers.

Of the 62 remaining bad debts, providers did not comply with federal requirements when claiming 18 of the bad debts. Four additional bad debts had amounts that did not reflect the amounts owed by the beneficiaries.

The 22 bad debts resulted in CMS incorrectly reimbursing providers $29,787. According to the report, CMS reimbursed these amounts because the Medicare administrative contractors (MACs) did not concentrate on reviewing bad debts when performing audits of cost reports.

“Although federal regulations and CMS Manuals address provider and MAC responsibilities with respect to collection efforts for Medicare bad debts and audits of Medicare cost reports, our findings suggest that more specific requirements or guidance could provide enhanced, and feasible, stewardship of federal healthcare dollars,” OIG wrote.

The agency found that all selected providers’ policies and procedures for collecting Medicare bad debts complied with federal requirements and did not differ from policies for collecting non-Medicare bad debts.

To address non-compliance with bad debts claimed in cost reports, OIG recommended that CMS issue instructions or guidance to MACs that encourage more review of Medicare bad debts. For example, the agency could define thresholds beyond which individual Medicare bad debts would trigger an audit, directing the MACs to revise their cost report audit work accordingly.

CMS agreed with the recommendation and said it would consider OIG’s finding when issuing guidance to MACs about reviewing Medicare bad debts while recognizing budgetary constraints and competing priorities for MACs.