Maximizing Medicare Reimbursement:

Understanding the Three Types of Medicare Bad Debt

Fully understanding the three types of Medicare Bad Debt (MBD) can help your hospital maximize reimbursement and provide affordable, high-quality care to patients.

Many hospitals struggle to optimize MBD reimbursement because of the differences in billing processes across the three types of MBD. Understanding these differences can help your hospital identify all available MBD opportunities.

Healthcare Payment Specialists Director of Client Development Joe Gumbert breaks down
the three types of Medicare Bad Debt, and best practices to maximize reimbursement.

1. Crossovers

The first type of MBD captures a population of patients that are dually eligible for Medicare and Medicaid. A Medicare bad debt opportunity arises as Medicaid often will not cover the entire Medicare coinsurance or deductible and, as Medicaid is the payor of last resort, the hospital should not bill the patient, leaving the balance as a hospital bad debt. Nationwide, about 60% of MBD cases fall into this category.

It is crucial for crossover bad debts to be analyzed on a state-by-state basis.

While other types of bad debt generally follow the same Medicare regulations, crossover bad debts follow state-specific rules. This means you need to understand how your state’s Medicaid program pays secondarily to Medicare.

If you’re not receiving correct explanation of benefits, or if you’re looking at a denial in terms of an adequate bad debt, you might be out of compliance for the crossover section—leaving money on the table.

2. Traditional Bad Debts

The second type of MBD is often referred to as traditional or “valid effort” bad debt. This might include patients who have Medicare as their primary insurer, with no secondary insurer. Many of the patients included in this type of MBD are those who might have been sent to a collection agency.

In valid effort cases, it is crucial that your organization’s collection policies and business office procedures are in lockstep with each other. If you aren’t closely following your policies, a Medicare Administrative Contractor (MAC) will likely notice issues as they review your MBD submission.

There are two important takeaways to remember when dealing with traditional bad debt cases:

Timely billing to the patient is crucial because MACs will closely examine your billing process. You need to be regularly sending bills to the patient with progressively stronger language regarding the need for payment.

Consistently collecting against Medicare and non-Medicare patients is important for succeeding with valid efforts. You must return accounts back from collections and deem them uncollectable on your patient accounting system for both types of patients for them to be considered valid bad debts.

3. Indigent Bad Debt

The third type of MBD includes patients who simply cannot pay and are broadly referred to as charity, or indigent bad debts. There are three main subsections of indigent bad debt patients.

The first subsection includes people on financial assistance programs. It is important to test for assets that can be converted to cash (and aren’t necessary for the patient’s daily living), as well as liabilities, expenses, and income, before the hospital signs off on the patient’s application.

Make sure to review these applications annually to verify that the financial situation of the patient has not changed.

The second subsection of indigent bad debt covers patients who are bankrupt. In these scenarios, you might not need a financial application depending on what your policy says. Those can be considered potential bad debts.

The third subsection of indigent bad debt includes people who are deceased but don’t have an estate. If the deceased does have an estate, you must bill the estate in accordance with CMS regulations.

If they don’t have an estate, you will need verification from the probate court to prove that the estate does not exist. At that time, these scenarios will potentially be eligible for Medicare bad debts.

How Do I Know if I’m Claiming All That is Owed to Me?

Like many hospital CEOs, CFOs, and directors of reimbursement, you might have a gut feeling that you aren’t identifying all of your MBD opportunities, but lack an effective way to quantify and capture missed bad debts. Many hospitals, for instance, rely on a canned report from the IT department to aggregate their bad debts. This approach can exclude important information—taking potentially eligible accounts out of consideration for MBD.

Understanding the three main types of MBD is an important component of maximizing your total Medicare reimbursement. Coupling a holistic view of MBD with regularly scheduled examinations of your patient accounting data will help your hospital identify more opportunities to receive reimbursement for bad debts.

Taking a periodic reconciliation of Medicare claims that have entered your system is essential for maximizing MBD opportunities.

The more often you regularly examine what’s happening to coinsurance and deductible amounts after Medicare has paid claims, the more effectively you’ll be able to take advantage of the MBD program.

It is also helpful to stay informed about what your peer groups are claiming for bad debts. Other hospitals in your city, county, or state can serve as markers for how much you may be able to claim and how to understand your hospital’s overall performance in managing MBD opportunities.

With the constantly changing landscape of Medicare and Medicaid reimbursement policies and different state-by-state regulations, getting a grasp on MBD can be quite complex. But you don’t have to do it all alone.

Healthcare Payment Specialists is dedicated to helping hospitals manage Medicare reimbursement issues that require the integration and analysis of large, disparate data sets. Learn how our data-driven approach can enable you to maximize reimbursement across all three types of Medicare Bad Debt.

Healthcare Payment Specialists

Healthcare Payment Specialists

Founded in 2002, Healthcare Payment Specialists (HPS) provides technology enabled solutions for health care eligibility, government reimbursement and compliance to hospitals and healthcare systems across the country. Using its STINGRAY software platform, HPS delivers solutions on a software-as-a-service (SaaS) basis or through outsourced service engagements.
Healthcare Payment Specialists