CMS Final Rule on Bad Debts
All Health Care Providers
The Centers for Medicare and Medicaid Services (CMS) proposed to prohibit all health care providers from writing off bad debt to a contractual allowance account, as well as clarified that providers must comply with longstanding Medicare bad debt requirements, and bad debts must be charged to an expense account for uncollectible accounts (Accounting Standards Board (FASB) Topic 606; FY 2021 Inpatient Prospective Payment System (IPPS) proposed rule). The proposed rule was to be applied on a prospective basis only.
In the final rule, the CMS said it would not codify the clarification on bad debt write off retroactively, “because we believe that all providers should have equal understanding and footing as we move forward with the standardized definitions, accounting and reporting practices, and the intersection with the new implicit price concession standards.”
For cost report periods beginning on or after October 1, 2020, “bad debts” are amounts considered to be:
- Uncollected from patient accounts that were created or acquired in providing services
- Categorized as implicit price concessions for cost reporting purposes
- Recorded in the provider’s accounting records as a component of net patient revenue
Medicare bad debts must not be written off to a contractual allowance account, but must be recorded as an implicit price concession that results in a reduction in revenue.
Other key FY 2021 IPPS final rule bad debt takeaways:
- Codification of the definition of non-indigent, indigent non-dual eligible, and indigent dual eligible beneficiaries
- Non-indigent beneficiaries, or the party responsible for the beneficiary’s personal financial obligations, must be issued a bill on or before 120 days after: 1.) the date of the Medicare remittance advice; or 2.) the date of the remittance advice from the beneficiary’s secondary payer, if any; whichever is latest
- Clarification that collection efforts must last 120 days from the date of initial bill before accounts can be written off as a bad debt and that the 120-day clock resets when a payment is received
- Further definition of what constitutes a genuine, rather than a token, collection effort
- The CMS discusses provider comments on the FY 2021 IPPS proposed rule and provides clarification for the FY 2021 IPPS final rule beginning on page 1737
- Revised regulatory language on the changes to Medicare’s bad debt policy begins on page 1861
