What to Know About Medicare Bad Debt

With thinning margins and decreasing government reimbursement rates, an area of opportunity to uncover additional reimbursement lies in a provider’s Medicare bad debts.

Medicare bad debt is a provider's bad debt resulting from Medicare deductible and coinsurance amounts which are uncollectible from Medicare beneficiaries.

These amounts are considered in the Medicare program's calculation of reimbursement to the provider if they meet the criteria specified in Title 42 Code of Federal Regulations (CFR) 413.80 Subpart F and Provider Reimbursement Manual–Part 1 (PRM-1) chapter 3, Sections 306–324. Medicare reimburses providers 65% of their allowable Medicare bad debt amounts that remain unpaid, according to current federal regulations.

Allowable Medicare Bad Debt

The criteria for an allowable Medicare bad debt include:

  • The debt must be related to covered services and derived from deductible and coinsurance amounts
  • The provider must be able to establish that reasonable collection efforts were made
  • The debt was actually uncollectible when claimed as worthless
  • Sound business judgment established there was no likelihood of recovery at any time in the future

Categories of Medicare Bad Debt​

There are three types of categories that bad debts can be grouped into:

  • Indigent dual eligible
  • Indigent non-dual eligible
  • Non-indigent

Indigent Dual Eligible

A name most used across all providers for the Indigent dual eligibles are Medicare Crossovers. Other names that can be used are medi-medi, duals, and Medicare and Medicaid write offs.

To claim patients in the category of indigent dual eligible, the provider must bill Medicaid or the Medicaid HMO for the coinsurance and deductible of Medicare. The provider then must receive a Medicaid Remittance Advice or a notice from Medicaid to meet the requirements to be reported as a Medicare bad debt.

Qualified Medicare Beneficiary (QMB)

Medicare beneficiaries who enrolled in the QMB program have no legal obligation to pay Medicare Part A or Part B deductibles, coinsurance, or copays for any Medicare-covered items and services. QMB patients are established by Medicaid, not Medicare.

It’s against federal law for providers to bill patients for the amounts related to Medicare coinsurance and deductible when they’re eligible for the QMB program. Therefore, indigent non-dual claims would never contain any patients eligible for this program.

Indigent Non-Dual Eligible

Indigent non-dual eligible is basically what most providers call Medicare charity or Medicare indigent. A patient’s indigence is determined by the provider, not the patient. The requirements of indigent non duals would mean a review of assets, liabilities, and expenses. Once indigence is determined, bad debt can be deemed uncollectible without applying a collection effort.

Through the eyes of the auditors, indigence doesn’t mean charity—auditors don’t want these to be called charity, as there could be some assumption these could have been reported within your Line 20 on worksheet S-10 for charity care.


Non-indigent accounts are where Medicare is the primary payor and then the final responsibility of the Medicare coinsurance and deductible fall to the patient. For these types of patients to be reported on the Medicare bad debt report, the rules and regulations state providers must show a reasonable effort of collections on these claims.

The only exception would be if these patients are eligible beneficiaries of the QMB program we discussed earlier where patients aren’t responsible for the coinsurance and deducible.

Reasonable Collection Efforts

One of the criteria for non-indigent bad debt amounts to be reimbursed is that the provider must be able to establish that reasonable collection efforts were made.

For providers to complete reasonable collection efforts, Medicare accounts must also follow the same processes as all other payors and can’t be treated differently.

The minimum requirement to establish a reasonable collection effort is a combination of eight collection efforts that should include five letters or statements and three calls.

Most providers have collection agencies in which they send bad debt accounts to, to be collected upon. For non-indigent claims, hospitals should ensure the purist of collections will be discontinued for patients before they’re allowable to be included on the Medicare bad debt reports.

For providers who have multiple collection agencies, it’s important to know that as long as these claims are sitting at a collection agency and being pursed, then they can’t be included on the Medicare bad debt reports until they have been returned and the account is truly deemed uncollectible.

Medicare Bad Debt 120 Day Rule

To touch on claims that may have a secondary insurance to Medicare, the 120-day time frame would restart from the date of the bill to the secondary insurance. If the secondary insurance pays a portion of the amount billed, then the clock resets and the provider would then need to bill the patient for any remaining responsibility. The 120 days would then start from the first bill date sent to the patient.

To sum up these Medicare non-indigent claims, or also known as Medicare self pay or patient claims, they must be collected upon for a minimum of 120 days. If a payment is received, the clock resets, and the provider should no longer be seeking collections. The facility would also need to ensure that when the amount written off is mapped to a bad debt expense account, the provider is zeroing out the account balances for these claims.

Non-Allowable Medicare Bad Debt

Amounts related to the following are not allowable.

  • Medicare Advantage Plans: The Medicare bad debt log requirements clearly state bad debt amounts claimed should only relate to Medicare Part A and Medicare Part B
  • Non-Medicare Recipients: Medicare bad debt amounts should only relate to where Medicare is the primary on the account
  • Physician fees or professional fees aren’t reimbursable
  • Presumptive charity is most likely not allowed if there isn’t income and asset testing
  • If patients are responsible for Medicaid share of cost or required to meet a spenddown amount for Medicaid, those amounts are not allowable for Medicare bad debts

Medicare Bad Debt Recoveries

When reporting recoveries, providers should look at any payments received during the cost reporting period in which a Medicare bad debt was reported on a prior year’s log.

If there are recoveries being received in the same year the Medicare bad debt write off is reported, the Medicare bad debt write off total should be already net of any payments received.

Medicare Bad Debt Reporting Requirements

Providers report unpaid Medicare coinsurance and deductibles to get reimbursed at a 65% rate annually on their Medicare cost report. This report has many regulations and guidelines that must be followed to remain compliant. These prepared reports allow for providers to receive reimbursable dollars from CMS to help cover the cost of uncompensated care.

The prepared Medicare bad debt report is driven by patient level detail, and, for the amount of rules and regulations that have to be followed, makes the report very time consuming. It’s extremely rare that a provider can generate a report to fit all the criteria that has to be met into an automated report to extract from their patient accounting or electronic medical record (EMR) system. Therefore, it requires dedication to comb through the data and validate that what’s being reported is compliant.

Cost Report Supporting Documentation

CMS requires all Medicare bad debt amounts filed on the hospital cost report to be supported by patient level detail. As a result of CMS Transmittal 18, CMS has published a standardized template with the minimum required fields that need to be supplied.

Medicare Administrative Contractor (MAC) Audits

During the Medicare bad debt audits, auditors will select a sample of patients from the listings and request the following supporting documentation.

  • Patient account histories
  • Patient account notes
  • Medicare remits
  • Medicaid remits
  • Insurance remits

From the support that’s supplied, the auditors then review to determine if these patients were compliant to the rules and regulations during that cost reporting period.

If there are issues found upon audit, the auditor can choose to remove that specific account, pull an additional sample, or apply an extrapolation to the total population for error, depending upon the findings and the particular auditor.

We’re Here to Help

Learn more about Medicare bad debt and related topics that surfaced when you listen to the Medicare Bad Debt: Reporting and Identifying Reimbursement webcast and get answers to related questions to help hospitals navigate reporting. You can also contact your Moss Adams professional.

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