Medicare Bad Debt
Presentation prepared for Western Reserve
Chapter of AAHAM
December 2008
Presenter:
Gemma Brooks, Manager, Indianapolis, IN
Office: 317-280-3771; gemma.brooks@ey.com
Agenda
► Introduction
► Medicare Bad Debt Environment in Ohio
► Medicare Bad Debt Nationwide Issues
► A Best Practice Medicare Bad Debt Approach
► Q & A Session
Page 2 Medicare Bad Debts
Observations in the Market Place
► Increased audit scrutiny on Medicare Bad Debts
► Audit Adjustments relating to Medicare Bad Debts
increasing
► Expect this number to continue to rise
► Many providers changing policies to comply with CMS
May 2nd, 2008 clarification
Page 3 Medicare Bad Debts
What Role Does Medicare
Bad Debt Play in Ohio?
Page 4 Medicare Bad Debts
Total Claimed Bad Debt for Ohio Hospitals
with a Bed Size Greater than 200
3,500,000
University Hospital
3,000,000
2,500,000
Total Claimed BD
2,000,000
Ohio State University
1,500,000
Cleveland Clinic Akron General Metro Health
1,000,000
Parma Community
500,000
Mercy Medical Center
Southwest General
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00
SSI %
Average Claimed Amount - $750,000
Page 5 Medicare Bad Debts
Total Claimed Bad Debt for Ohio Hospitals
with a Bed Size Between 100 and 200
1,600,000
Southern Ohio Medical Center
1,400,000
University Hospital East
Total Claim ed BD
1,200,000
1,000,000
800,000
600,000
Union Hospital
Lakewood Hospital
400,000
200,000 Medina General
Glenbeigh Hospital of Rock Creek
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00
SSI %
Average Claimed Amount - $375,000
Page 6 Medicare Bad Debts
Total Claimed Bad Debt for Ohio Hospitals
with a Bed Size Less Than 100
600,000
Clinton Memorial
500,000
Total Claimed BD
400,000
Fisher-Titus Medical East Ohio Regional
300,000
200,000
Obleness Memorial
100,000
Madison County
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
SSI %
Average Claimed Amount - $100,000
Page 7 Medicare Bad Debts
Who is Involved in the Development of
Medicare Bad Debt Logs?
Information
Technology
Patient Financial Reimbursement
Services Department
Collection
Agencies
Page 8 Medicare Bad Debts
Average Claimed Bad Debt FFY 2005-2007
UNIVERSITY HOSPITAL
$2,290,685
CHRIST HOSPITAL $1,381,053
THE CLEVELAND CLINIC $1,293,857
OHIO STATE UNIVERSITY HOSPITAL $1,179,718
METRO HEALTH MEDICAL CENTER $972,652
MOUNT CARMEL WEST $778,863
AKRON GENERAL MEDICAL CENTER $504,420
PARMA COMMUNITY GENERAL HOSPITAL $415,055
MERCY MEDICAL CENTER CANTON $373,943
SOUTHWEST GENERAL HEALTH CENTER $305,672
LAKEWOOD HOSPITAL $246,132
MERCY MEDICAL CENTER SPRINGFIELD $155,362
FAYETTE COUNTY MEMORIAL HOSP $97,112
UNION HOSPITAL $90,158
HIGHLAND DISTRICT HOSPITAL $85,952
MEDINA GENERAL HOSPITAL $80,082
$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000
Page 9 Medicare Bad Debts
Medicare Bad Debt – What is Allowable?
► Allowable
► Unpaid deductible and coinsurance for Medicare covered services
► Must follow appropriate Medicare regulations
► Must have reasonable collection efforts
► Must issue bills, collection letters, and phone calls which constitute
genuine, rather than token collection efforts
► Must be uncollectible when claimed as worthless and there is no
likelihood of future recovery
► Must treat Medicare and non-Medicare accounts alike
Page 10 Medicare Bad Debts
Medicare Bad Debt – What is Non-Allowable?
► Non-Allowable
► Deductible and coinsurance amounts related to fee schedule
payments
► Therapy services, ambulance, and lab fee schedule payments
► Deductible and coinsurance from professional fees such as CRNA
& physician services
► Billed on a 1500
► Deductible and coinsurance resulting from non-allowable services
► Accounts not following Medicare regulations
Page 11 Medicare Bad Debts
Recent Audit Focus on Medicare Bad Debt
$128,466,927*
*Medicare Bad Debt FI audit adjustments over last 90 days
Page 12 Medicare Bad Debts
Recent CMS Clarification on Medicare
Bad Debt Moratorium
► May 2nd, 2008 Joint Signature Memorandum
► Require Medicare contractors to disallow Medicare Bad Debts for
accounts that are being collected upon at an external agency
► Internal and external efforts must cease in order for the
accounts to be claimed on the Medicare cost report
► Medicare contractors should not reopen cost reports to apply
this policy
► Change from the previous interpretation of the Omnibus Budget
Reconciliation Act of 1987 (OBRA of 1987) which allowed
accounts to be claimed at the time of agency placement
Page 13 Medicare Bad Debts
Recent Legal Activity
► Foothills case
► Court found in favor of provider
► Can claim an allowable bad debt if the only obstacle is that it is
still being worked by a collection agency
► CMS appealed the Foothills decision
► CMS dropped its appeal
► CMS has not modified its policy to Fiscal Intermediaries
that was published May 2nd, 2008
Page 14 Medicare Bad Debts
What Does this Mean for Your Hospital?
► Stand firm with current policies and procedures
► Change policies and procedures to adapt to CMS memo
Page 15 Medicare Bad Debts
Implications of Standing Firm on Policy
► Be prepared for NO Medicare Bad Debt reimbursement on
traditional bad debts until providers have favorable court
rulings that forces CMS to change its position
► File timely appeals after NPR’s are settled excluding
traditional bad debts
► Work with legal team who understands Medicare
regulations
► Be prepared for a lengthy and costly
appeal process
Page 16 Medicare Bad Debts
What is the Best Strategy if a Provider
Decides to Change its Policy?
► Work to create collection and charity policies that will
satisfy Medicare requirements
► Who should be involved?
► CFO and critical financial staff
► Appropriate business office staff
► Reimbursement department
► Representatives from the collection agencies
► Compliance Officer
► Identify scale of traditional MBD accounts with potential
for FI to determine non-allowable
Page 17 Medicare Bad Debts
Observed Approaches to Agency Returns
► Across the country, E&Y has observed four policy
approaches to the Fiscal Intermediary’s new clarification
► Return from Bad Debt Agency
► Reduce Collection Time In-House or at Early-Out Agency
► Eliminate Bad Debt Agency
► Letter or Purge Status Report from Bad Debt Agency
Page 18 Medicare Bad Debts
Critical Factors to Examine Prior to
Changing Collection Policy
► All accounts (Medicare and non-Medicare) must be
treated the same
► Evaluate appropriate criteria to isolate as many
Medicare patients as possible for return
► Work with collection agency to make sure that the
agency is aware of the Medicare Bad Debt rules and
regulations
Page 19 Medicare Bad Debts
Potential Opportunity from CMS Clarification
► Evaluate the potential of claiming additional Medicare
Bad Debts that may have been previously excluded when
transferred to bad debt
► May have lacked 3 letters internally
► May have lacked 120 days of collection internally
► Inclusion of agency information may allow accounts to
meet Medicare regulations
► At least 3 letters
► At least 120 days of collection since last payment
Page 20 Medicare Bad Debts
Increased Charity Care Scrutiny
Page 21 Medicare Bad Debts
Charity Care Classifications
► Traditional Charity Patient
► Completes charity application
► May qualify on sliding scale
► Qualifies to receive charity under hospital’s charity policy
► Bankrupt Patient
► Deceased Patient
Page 22 Medicare Bad Debts
Charity Care Evaluations
► Key observations
► A hospital must follow its charity care or financial assistance
policy
► Income verification must be performed and a signed attestation
by the patient should be provided in the file
► Asset testing should be performed
► Some Fiscal Intermediaries looking at income and expense level
details (in addition to assets and liabilities)
Page 23 Medicare Bad Debts
Charity Care Regulatory Guidance
► CMS Pub. 15-1, §312 Indigent or Medically Indigent Patients
► The patient’s indigence MUST be determined by the provider, not by the
patient
► The provider SHOULD take into account a person’s total resources
which would include, but are not limited to, an analysis of assets,
liabilities and income and expenses.
► The provider MUST determine that no source other than the patient
would be legally responsible for the patient’s medical bill.
► The patient’s file SHOULD contain documentation of the method by
which indigence was determined in addition to all backup information to
substantiate the determination.
Page 24 Medicare Bad Debts
How Can Your Hospital Overcome the
Increased Focus on Medicare Bad Debt?
Page 25 Medicare Bad Debts
Perform Check-up on Current Process for
Creating Medicare Bad Debt Listing
§ Timely and consistent collection efforts
Traditional
Medicare
Charity Dual Eligible
Bad Debt
§ Following appropriate § Valid EOB Edit code
guidelines and maintaining
documentation
Other
§ Remaining deductible
and coinsurance dollars
Analytics & Strategy Design/Implementation Future State
Page 26 Medicare Bad Debts
Create Diagram of Current Process Flow
Hospital
Internal
Collection
Activity Information
Technology
Placement
Requirements
Patient Reimbursement
Account Placed Financial Department
with Agency
Services
Return Retain
Requirements Requirements
Collection
Agencies
Close & Hospital
Return system
documented
Page 27 Medicare Bad Debts
Impact of the Effects of Improving Your
Process – One Hospital’s Story
2006 2007 2008
$150,000 Missed Opportunity
$250,000
Insufficient Internal Efforts (Missing at Agency)
Charity Write-off (Lacking Documentation)
$100,000
$100,000 $650,000
Questionable Opportunity
Good Internal Efforts (Confirmed at Agency)
$400,000 Insufficient Internal Efforts (Confirmed at Agency)
$300,000
Potential Opportunity
Good Internal Efforts (Efforts Ceased at Agency)
Valid Charity Documentation Available
$650,000 $650,000 $650,000
Page 28 Medicare Bad Debts
Best Practice in Optimizing Medicare Bad Debt
§ Hospital’s systems
Data Sources § Governmental data
§ Collection agency data
Audit Automated Analytics &
Approach Automation
§ Prepare for FI audit and § Determine eligible
have appropriate audit balances on Medicare
support accounts with
Testing &
Final Listing outstanding deductible
& coinsurance amounts
Completion
§ Validate practices are in
place to meet Medicare
regulations for accounts
submitted
Page 29 Medicare Bad Debts
Why is an Automated Approach Important
to Hospitals Today?
1. Volume of data for the system
2. Reduce risk exposure to regulatory review
3. Resource deployment and focus
4. Reduce risk of prior year reviews and possible adjustments (audits
not completed) leading to a reduction in reimbursement
opportunity
5. Standardized listing format: consistently prepared into Exhibit 5
format
6. Validate annual progress in procedure changes targeted to
ultimately optimize Medicare Bad Debt recoveries
Page 30 Medicare Bad Debts
Q&A Session
Questions?
Page 31 Medicare Bad Debts