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No Medicare Reimbursement for Bad Debts Referred to and Active with a Collection Agency

By on August 11, 2015 in Uncategorized with 0 Comments

In a decision sure to raise the eyebrows of health care system CFOs all the way down to the accountants of sole practitioners, the United States District Court for the District of Washington D.C. recently upheld the Department of Health and Human Services’ (HHS) interpretation of 42 C.F.R. 413.89(e), as preventing providers from claiming a debt is “worthless” and “uncollectible,” and thus subject to Medicare reimbursement, if said debt has been referred to an outside collection agency and remains active.[1]

Notably, the court determined that HHS’ position was not violative of the statutory “Medicare Bad Debt Moratorium,” which precluded HHS from making changes to its bad-debt reimbursement policies in effect as of August 1, 1987. The court explicated that the bad-debt moratorium was not intended to bar HHS from prohibiting bad-debt reimbursements to the extent that the claim denials were consistent with the policies in place at the time the moratorium took effect.

Generally in order to obtain reimbursement for bad debts, a provider must demonstrate certain criteria under 42 C.F.R. 413.89(e), including making “reasonable collection efforts,” showing that the “debt was actually uncollectible when claimed as worthless,” and demonstrating “sound business judgment established there was no likelihood of recovery at any time in the future.”  In any event, a “presumption of noncollectibility” is assumed for debts that remain unpaid after more than 120 days from the initial bill.

With regard to the case at hand, the plaintiff health system claimed bad-debt reimbursements for several of its hospitals totaling over $16 million, of which all amounts were past due by more than 120 days and had been sent to outside collection agencies for recovery.

After being denied at the agency level, the health system filed a lawsuit, alleging the agency decision was not in line with the applicable regulatory provisions (as well as other statutory provisions governing HHS’ regulation-making process) and violated the bad-debt moratorium.

The District Court disagreed, stating that “[t]hus, the agency’s interpretation of the regulation to mean that sending a debt to a collection agency disqualifies that debt from reimbursement so long as the provider persists in that referral, is reasonable and, until all collection efforts have ceased, the debt is not ‘worthless’ under 42 C.F.R. 413.89(e)(3).”[2]

Given the District Court’s decision, providers of all sizes, and their accounting departments, should be cognizant that although a presumption of bad debt exists for debts outstanding for 120 days, so long as the debt has been referred to a third party for collection – and remains active – the success of a claim for bad-debt reimbursement is unlikely.

[1] Cmty. Health Sys. v. Burwell, 2015 U.S. Dist. LEXIS 87510 (D.D.C. July 7, 2015).

[2] The District Court likewise determined the presumption of noncollectibility after 120 days is rebuttable, stating that same “is a discretionary presumption and does not foreclose the possibility that a debt may still be deemed collectible after 120 days.” Cmty. Health Sys. v. Burwell, 2015 U.S. Dist. LEXIS 87510, at *26 (D.D.C. July 7, 2015).


Questions regarding this article may be sent to Publications@Capehart.com. 


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