Medicare Bad Debts – Use Technology

There is an old joke. A man asks another man to send him a fax. The man responds, “I can’t do that because of where I live.” The first man then asks, “where do you live?” The other man responds with a snicker, “the 21st century.” Sadly, this joke applies to the way most providers and even consultants gather Medicare bad debt data.

When I first started working in healthcare, if you couldn’t collect the Medicare deductible or coinsurance from a patient, Medicare used to pay you for it, provided you had documentation. Even wilder, the Medicare outpatient coinsurance was 20 percent of the charges, not the payment. The good old days were great.

Providers wanting to claim Medicare bad debts on their cost reports back then kept something called a “bad debt log.” When a Medicare claim was written off to bad debts, one person would write the basic information for the claim in a log and make copies of the Medicare remittance advice, the three letters sent to the patient and, if applicable, a copy of the Medicaid remittance advice for patients that had both Medicare and Medicaid.

Most of the general ledger vendors sought to improve this process by creating bad debt reports based on the transaction codes used to write off claims to bad debts. While this was easier, if the person writing off the account used the wrong transaction code, the Medicare bad debt would not end up on the computerized report. Claims got missed because they were written off to contractual allowance in error-or showed as a bad debt with a financial class other than Medicare.

Medicare auditors terrorized providers by selecting a sample of bad debts from the bad debt report and using the results to disallow some or all the bad debts. The biggest reason for disallowance was that providers simply could not find the Medicare and Medicaid remittance advices to support bad debts included in the list.

About 20 years ago things got a little better. Once a year Medicare started offering providers a special report called a “detailed” Provider Statistical and Reimbursement Report or “PSR.” On this report was a list of every Medicare inpatient and outpatient account for that year with the related deductible or coinsurance. This was a great help in case you missed including a claim on your bad debt log. You still had to match this report up against claims you wrote off, however and find the Medicaid remittance advice if it was required.

Finally, in the mid 1990’s a complete solution appeared on the horizon. Since claims including Medicare, Medicaid and managed care were all paid electronically, you could use electronic claims data to create most of the supporting data for your Medicare bad debt listings. One of the most difficult parts of compiling debt listings is usually matching up Medicare and Medicaid remittance advices for patients that have both Medicare and Medicaid coverage. Using electronic claims data, providers could easily accomplish this.

There was a fly in the ointment. The electronic paid claims data was hard to read. You needed a computer programmer to read the electronic payment files. Rather than get a programmer and use electronic payment data to get all the Medicare bad debts providers should claim, the majority of providers use one of the methods above and miss huge amounts of reimbursement.

So get rid of your fax machine. Use electronic data and get the reimbursement your supposed to get. Call us if you want us to show you how to do it.

Timothy Powell, CPA CHCP

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