"The following information is designed to clarify the Centers for Medicare & Medicaid Services' (CMS') long-standing policy concerning the disallowance of bad debts related to deductible and coinsurance on services paid on a fee schedule on the Medicare cost report. This CMS policy is discussed in the December 1, 2006 Federal Register, beginning on page 69712.

More on Medicare Bad Debt Audits...

Bad debts are unrecovered costs attributable to uncollectible deductible and coinsurance amounts. CMS has clarified that bad debts are not recoverable with respect to services paid under the Medicare fee schedules because the payment is not based on incurred costs. Allowable bad debt for cost reporting purposes only applies to services paid under reasonable cost (or developed from reasonable cost, such as a prospective payment system [PPS]). Refer to Section 1861 (v)(1)(a) of the Social Security Act, as implemented in the regulations at 42 C.F.R. Section 413.89.

Section 4541 of the Balance Budget Act (BBA) of 1997 requires that outpatient rehabilitation services furnished on or after January 1, 1999, by hospitals, skilled nursing facilities, and other providers, be paid the lesser of either the charge or a fee schedule payment (as determined under the Medicare physician fee schedule). Critical access hospitals (CAHs) and community mental health clinics (CMHCs) are exempt and continue to be reimbursed on a reasonable cost basis. Bad debts for uncollected deductible and coinsurance amounts relating to outpatient services that are reimbursed under a fee screen payment are not allowable for Medicare cost reporting purposes.

When preparing bad debt lists, providers will be able to differentiate between deductibles and coinsurance relative to outpatient services paid on the fee screen and other non-fee schedule services as reflected in the Fiscal Intermediary Standard System (FISS). Information on how this can be done follows this article. Payments made by beneficiaries toward their deductible and coinsurance should be prorated to both fee screen and non-fee screen deductible and coinsurance amounts. Further, National Government Services expects that in the future, providers will not be claiming bad debts related to services paid on the fee screen as reimbursable bad debts. If providers are unable to identify the portion of the bad debt related to fee screen payments before their cost reports are required to be filed, disclosure should be made in the cover letter accompanying the cost reports. Once the bad debts relating to services paid on the fee screen are identified, providers may request to file amended cost reports. Providers are being given the opportunity to revise their bad debt lists through cost report reopening requests…"

"CMS uses different fee schedules for various provider types. Providers generally reimbursed under outpatient PPS (OPPS), can look at Addendum B (Federal Register Final Rule published annually by CMS) for a list of services that are paid with a status indicator "A" (denoting fee schedule services). Services that may be paid on a fee schedule, depending on your provider type, include the following:

  •   Ambulance
  •   Comprehensive outpatient rehabilitation facility/outpatient rehabilitation facility
  •   Medicare physician fee schedule
  •   Durable medical equipment, prosthetics, orthotics, and supplies
  •   Certain drugs
  •   Certain clinical diagnostic laboratory
  •   Certain screening services

If you provide services reimbursed under any of these fee schedules, please ensure that bad debts are not claimed for any unpaid deductible and coinsurance.


Publication Date: Thursday, January 08, 2009