Medicare Bad Debts

medicare bad debts

kirk delperdang, healthcare director


Over the years, there have been minimal actual changes to the regulations, manuals, instructions, or other guidance concerning what is allowable and what should or can be claimed for Medicare Bad Debts (MBD) on the Medicare Cost Report (MCR). Hospitals have experienced the reductions that started with fiscal years beginning on/after October 1, 2012. Providers have been subject to the implementation of various interpretations and have tried to keep up. There is new guidance via the IPPS 2021 Federal Register Final Rule to implement immediately related to MBD as you move forward.

CMS has established three types of Medicare Bad Debt categories.

  • Non-indigent beneficiary: A beneficiary who has not been determined to be categorically or medically indigent by a State Medicaid Agency to receive medical assistance from Medicaid and has not been determined to be indigent by the provider for Medicare Bad Debt purpose.
  • Dual eligible beneficiary: A beneficiary who is enrolled in both Medicare (Part A, Part B, or both) and “full Medicaid” and/or the Medicare Savings Program (MSP), including the Qualified Medicare Beneficiaries (QMB) program.
  • Indigent by provider: A beneficiary who is non-dual eligible and has been determined to be indigent under the provider’s methods for determining indigency, using the evaluation criteria in the PRM §312 A through D.

To claim bad debts on the MCR, the following processes and steps must be taken to ensure that any bad debts claimed on the cost report will stand up to a CMS audit.


Non-indigent bad debts

Collection effort must consist of the following:

  • Consistency – Medicare and non-Medicare accounts must have a similar collection effort
  • Billing of accounts:
    • For MCRs beginning before October 1, 2020, – Provider must issue a bill to the beneficiary or the party responsible shortly after discharge or death of the beneficiary
    • For MCRs beginning on/after October 1, 2020, – Provider must issue a bill to the beneficiary or the party responsible on/before 120 days after the latter of the following:
      • Medicare Remittance Advice (RA) date
      • Secondary payer RA date, if applicable, and
      • Date of notification from the Secondary Payer that the service is not covered
    • Additional billing efforts: In addition to the first billing – A provider must include other collection actions in their process (Examples: Subsequent billings, collection letters, telephone calls or other personal contacts)
    • 120-day collection effort:
      • Provider’s collection effort must last at least 120 days from the date of the initial bill before being written off
      • 120-day Restart – The 120-day collection effort starts over each time a payment is made
    • Use of Collection Agencies (CA):
      • Similar collection efforts must be used by any CA for Medicare/non-Medicare accounts
      • Any account still with the CA cannot be claimed as MBD
      • CA Fees – If CA collection efforts are not consistent between Medicare/non-Medicare, the collection fees are not allowable
    • Documentation:
      • The following documentation must be available to the MAC:
        • Bad Debt collection policy, describing the collection process for all payers/accounts
        • Patient account history – Must include the dates of the various aforementioned collection actions
        • Beneficiary’s file with copies of the bill(s) and follow-up notices.


Dual Eligible Bad Debts

Collection effort must consist of the following:

  • A provider must submit a bill to the State Medicaid agency for the Medicare cost sharing and submit the Medicaid RA received to Medicare (must bill policy).
    • Any amount the state is obligated to pay cannot be included as an MBD, whether the state pays the amount or not.
  • Must-bill/Medicaid RA exception – A Provider can document a reasonable collection effort for dual eligible beneficiaries when the following alternative documentation to the Medicaid remittance advice is submitted. A provider must submit all the following:
    • The state’s Medicaid notification stating that the state has no obligation to pay or notification that illustrates the provider’s inability to enroll in Medicaid for purposes of processing a crossover cost sharing claim,
    • Documentation establishing the state’s liability, or lack thereof, for the Medicare cost sharing; and
    • Documentation verifying the beneficiary’s eligibility for Medicaid for the date of service.


Indigent by Provider

Collection effort must consist of the following:

  • Provider must determine patient indigence via the requirements of CMS PRM §312 A – D.
    • Patient must not be eligible for Medicaid as categorically or medically indigent,
    • Provider cannot accept a beneficiary’s declaration of their inability to pay their medical bills as the only proof of indigence
    • Provider’s analysis of indigency must include BOTH the beneficiary’s assets and income (MAY consider an analysis of liabilities and expenses if indigence cannot be determined using assets and income).
    • Determination by the provider that there is no other legally responsible party
    • Maintain an Indigence Determination Policy describing your process
  • For MCR beginning on or after October 1, 2020
  • CMS recognizes that the determination of indigency for Medicare Bad Debts may be different from that for other internal determinations or payers such as internal policies that allow the “presumptive” eligibility using income only, credit score, zip code, demographics, etc. These may still be used, but the unpaid Medicare deductible and coinsurance may not be claimed as a Medicare Bad Debt.


Other considerations – Accounting Perspective and Handling

All the provisions above have addressed the revenue cycle collection processes and requirements to claim the MBD on the cost report. However, within the 2021 IPPS Final Rule, CMS has also addressed the accounting treatment for MBD.

  • For MCRs beginning before October 1, 2020, – MBDs must not be written off as a contractual allowance but must be charged to an expense account for uncollectible accounts
  • For MCRs beginning on/after October 1, 2020, – Bad Debts, Charity, and Courtesy Allowances represent reductions in revenue.
  • For MCRs beginning on/after October 1, 2020, – MBDs must not be written off to a contractual allowance account but rather charged to an uncollectible receivables account that results in a reduction of revenue.

As always, the only amounts that can be claimed as MBD are Part A Medicare deductibles and coinsurance. Deductibles and coinsurance derived from “fee schedule” amounts, i.e., professional fees, are not eligible. Please contact us if you have any questions.





Kirk Delperdang is a Healthcare Director at Lutz with over 28 years of experience. He provides healthcare enrollment services to clients with a focus on Medicare providers and reimbursement analyses. In addition, he is responsible for leading Lutz's cost report service line.

  • Healthcare Financial Management Association - Nebraska Chapter, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • BA in Accounting, University of Northern Iowa, Cedar Falls, IA
  • St. Vincent de Paul, Knights of Columbus, Member
  • Active in various youth sports leagues: Aldrich Elementary, Millard Athletic Association, Millard North Schools, Omaha FC, Skutt Catholic High School and YMCA


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