OIG calls for tighter scrutiny of providers' Medicare bad debt reimbursement claims

The Centers for Medicare & Medicaid Services (CMS) and its contractors should be taking a closer look at providers’ bad debt reimbursement claims to cut down the frequency of “inappropriate” payouts, a federal watchdog told the agency in a report published Monday.

To measure provider compliance with federal collection and reimbursement requirements, the U.S. Department of Health and Human Services' Office of Inspector General (OIG) conducted an audit of the nearly $10 billion in Medicare bad debt reimbursement claims made by providers during the 2016-18 federal fiscal years.

Medicare reimburses providers for 65% of the deductible and coinsurance amounts that Medicare beneficiaries are unable or unwilling to pay. To receive the money, however, providers “must be able to establish that reasonable collection efforts were made, the debt was actually uncollectible when claimed as worthless, and there was no likelihood of future recovery based on sound business judgment,” according to the report.

OIG’s review randomly selected 67 2016-18 cost reports from hospitals, skilled nursing facilities and other provider types as well as 81 other bad debt reports “judgmentally selected” from providers deemed at high risk for error. This yielded a nonstatistical sample of 148 bad debts totaling about $450,000 (of which nearly $293,000 was Medicare reimbursable).

Among these, OIG said it found 18 bad debt claims in which providers did not comply with federal requirements and an additional four bad debts for which the amount claimed by providers did not reflect what the beneficiaries owed. These 22 bad debt claims led to just under $30,000 in Medicare reimbursements that should not have been allowed, the office concluded.

"CMS inappropriately reimbursed these amounts because the [Medicare administrative contractors (MACs)] did not concentrate on reviewing bad debts when performing audits of cost reports during our audit period,” OIG wrote in the report. “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’s report also included a second analysis of policies and procedures providers followed to collect from beneficiaries Medicare deductible and coinsurance amounts later claimed as bad debt. Here, all sampled providers complied with federal requirements and had policies similar to those for collecting non-Medicaid bad debts.

Based on its findings, OIG recommended that CMS issue guidance to MACs that requires or encourages additional review of providers’ Medicare bad debts claims, “such as defining thresholds beyond which individual Medicare bad debts would trigger an audit.”

“CMS concurs with this recommendation,” CMS Administrator Chiquita Brooks-LaSure wrote in a November letter to OIG published alongside the report. “CMS will consider the findings in the OIG’s report when issuing future guidance to the MACs regarding the review of Medicare bad debts, taking into account budgetary constraints and competing priorities for the MACs.”