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December 18, 2012

Hospital failed to document indigence determination, intermediary's disallowance of bad debt expense reversed

By Jay Nawrocki, MA

A hospital did not properly document patient indigence and did not follow its own policy in determining the indigent status of the patients in question, and the decision of the Provider Reimbursement Review Board (PRRB) reversing the decision of the intermediary was reversed (In the Case of: Doctors Hospital v Blue Cross Blue Shield Association/CGS Administrators, LLC, CMS Administrator Decision, Review of PRRB Decision No. 2012-D18, September 11, 2012). CMS' Chronic Care Policy Group requested reversal of the PRRB's decision. Medicare allows bad debt to be claimed on a cost report to prevent cross-subsidization, but the provider has to follow proper procedures to establish that the debt is uncollectible. In this case the provider did not properly document that it followed those procedures in determining that the patients were unable to pay and relied on patient statements that they were unable to pay their deductibles and coinsurance.

Bad debt. Bad debt is defined at 42 C.F.R. sec. 413.89 as debts attributable to deductibles and coinsurance amounts that are considered to be uncollectible. Bad debts are reimbursable on a cost report as the Medicare program prohibits cross-subsidization or prohibits monies received from non-Medicare patients paying for care provided to Medicare beneficiaries, as well as prohibiting monies received from Medicare for paying for care provided to non-Medicare patients. Regulations at 42 C.F.R. sec. 413.89(d) state that "the failure of beneficiaries to pay the deductible and coinsurance amounts can result in the related costs of covered services being borne by other than Medicare beneficiaries."

To claim Medicare deductibles and coinsurance amounts not paid by a patient, a provider must demonstrate according to 42 C.F.R. sec. 413.89 that (1) the debt was related to covered services and derived from deductible and coinsurance amounts, (2) the provider is able to establish that reasonable collection efforts were made, (3) the debt was actually uncollectible when claimed as worthless, and (4) sound business judgment established that there was no likelihood of recovery at any time in the future. In addition, the Provider Reimbursement Manual, Part 1, at sec. 312 states that "the provider's collection efforts should be documented in the patient's file," and that the patient's indigence must be determined by the provider and not the patient. A signed declaration by the patient of his or her inability to pay his or her medical bills cannot be considered proof of indigence.

Lack of documentation. The CMS Administrator found that the hospital in this case did not provide adequate documentation to establish the indigence of a number of patients. The use of patient account histories from computer generated and stored logs did not provide adequate documentation which could be verified to prove a patient's indigence. In some instances, the claims of bad debts of certain accounts were later claimed as charity and courtesy allowances which cannot be claimed and reimbursed on a provider's cost report as bad debt. Charity and courtesy allowances are to be subtracted from a provider's revenue.

Policy improperly followed. The provider did not follow its own policy for determining Medicare bad debt. The provider's policy does provide for self-reported income verification in some instances, but the provider did not document such in this case. The policy required proof of income such as pay stubs, tax returns or other items, or charity application or notes from computer systems that documented phone conversations. Because proof of income may be difficult to obtain when a patient is homeless, illiterate, or resides a long distance from where the hospital is located, verbal declarations are considered by the provider as acceptable when validated. Even then, the debt has to be considered for charity classification according to the provider's policy. The provider did not document that any of these requirements occurred. Even if the provider had lived up to its own requirement, there is some question as to whether its policies were acceptable to Medicare.

Cost reporting period ending June 30, 2004.

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