By Jeffrey H. Brochin, J.D.
A Medicare provider who failed to meet all of the regulatory requirements for reimbursement of bad debts was not allowed to claim the bad debts on its cost report, the CMS Administrator ruled. The provider could not claim Medicare and Medicaid crossover bad debts for reimbursement without billing the appropriate state agency even though the bad debts were uncollectible as worthless when claimed and there was no likelihood of recovery at any time in the future, and the provider was unable to obtain remittance advices (RAs) in order to comply with the "must bill" policy (La Cheim School, Inc. v. Noridian Healthcare Solutions, CMS Administrator Decision, Review of PRRB Dec. No. 2017-D13, May 26, 2017).
Background. La Cheim School, Inc.(provider) is a community mental health center (CMHC) located in Concord, California which operates a free-standing partial hospitalization program (PHP.) For fiscal year ending June 30, 2008 (FY 2008), its Medicare contractor, Noridian Healthcare Solutions, LLC (Noridian), issued a Notice of Program Reimbursement (NPR) in which it disallowed all of the provider’s bad debt expense for individuals who were eligible for both Medicare and California’s Medi-Cal Medicaid program—a status known as dual eligibles. The provider appealed the notice to the Provider Reimbursement Review Board (PRRB) which held that the provider had met the requirements for a reasonable collection effort related to eligible beneficiaries, and that an exception to the "must bill" policy should be applied to the providers in this case (see ‘Unique circumstances’ allow CMHCs to bill for bad debts, May 12, 2017). The PRRB remanded the matter back to Noridian to pay for the provider’s bad debts related to the dual eligible beneficiaries, and Noridian petitioned the Administrator for a final administrative decision, which resulted in a reversal of the PRRB decision.
Reasonable cost reimbursement. Under Sec. 1861(v)(1)(a) of the Social Security Act, providers are to be reimbursed for the reasonable cost of providing services to Medicare beneficiaries. The section defines "reasonable cost" as the cost actually incurred, and an underlying principle of the act is that Medicare shall not pay for costs incurred by non-Medicare beneficiaries, and vice-versa; meaning that Medicare prohibits cross-subsidization of costs. Consistent with these principles, 42 C.F.R. Sec. 413.89(a) provides that bad debts, which are deductions in a provider’s revenue, are generally not included as allowable costs under Medicare. However, there are circumstances under which providers may be reimbursed for their bad debts.
Bad debts reimbursement criteria. The circumstances under which a provider may be reimbursed for the bad debts derived from uncollectible deductibles and coinsurance amounts are recited at 42 C.F.R. Sec. 413.89 (e) which states as follows:
- 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; and
- sound business judgment established that there was no likelihood of recovery at any time in the future.
PRM guidance. The Provider Reimbursement Manual (PRM), Pub. 15-1, provides further guidance for providers with respect to what constitutes reasonable collection efforts of bad debts, including the issuance of a bill on or shortly after the discharge or death of a beneficiary to the party responsible for the patient’s personal financial obligations. When the state is obligated either by statute or under the terms of its plan to pay all or any part of the Medicare deductible or coinsurance amounts, those amounts are not allowable as bad debts under Medicare.
However, any portion of such deductible or coinsurance amounts that the state is not obligated to pay can be included as a bad debt under Medicare provided that the requirements of the PRM are met. Section 322 of the PRM concludes by explaining that if neither the title XIX plan nor the state or local law requires that a welfare agency pay the deductible and coinsurance amounts, then there is no requirement that the state be responsible for the amounts, and such amounts are includable in the provider’s allowable bad debts—provided that the requirements of the PRM have been met.
No exceptions to the "must bill" policy. Noridian appealed from the PRRB decision based on the contention that there are no exceptions to the "must bill" policy and that reimbursement of Medicare bad debt can only occur after the provider has billed the state Medicaid program and received a remittance advice (RA) indicating the state’s cost sharing liability. It is a long-standing requirement that providers bill the state for unpaid coinsurance and deductibles for Medicaid dual eligible individuals and have such claims adjudicated by the state as reflected in an RA before claiming Medicare bad debt reimbursement.
Failure to bill Medi-Cal. The Administrator noted that the "must bill" policy is consistent with the general statutory and regulatory provisions relating specifically to the payment of bad debts, and generally to the payment of Medicare reimbursement. The provider contended that it could not bill Medi-Cal because the state did not enroll CHMCs and did not cover their PHP services. It further argued that the Medi-Cal Eligibility Verification System provided all of the needed information on dual eligible patients except the amount of the state’s liability for a QMB patient, and those patients were omitted in the providers bad debt listings.
The Administrator found that the provider failed to meet all of the regulatory requirements and the PRM guidelines for reimbursement of the contested amounts as Medicare bad debts, and that therefore the bad debts claimed by the provider on its cost report should be disallowed. The provider failed to determine whether the state was liable for any cost sharing amounts, and therefore failed to determine that the debt was actually uncollectible when it claimed the debt as worthless under the regulations and PRM.
Cost reporting periods ending June 30, 2008; June 30, 2009; and June 30, 2010.
Companies: La Cheim Schools Inc.; Noridian Healthcare Solutions, LLC
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