Hospitals and healthcare providers that accept Medicare should be bracing to receive significantly less money from the federal government to cover bad debts, according to a report that was commissioned by The Federation of American Hospitals and the American Hospital Association. Through the end of the next decade, the amount of federal reimbursement is projected to drop by $5.7 billion largely due to federal legislation and regulatory changes.
Overall, the legislative and regulatory changes are due to trim more than $252 billion that is paid out to hospitals between 2010 and 2029, according to the report, which was prepared by Dobson | DaVanzo and Associates and is available by clicking here.
The one piece of legislation affecting the amount of bad debt reimbursement to providers is the Middle Class Tax Relief and Job Creation Act of 2012, which lowered the reimbursement rate to 65% from as much as 100%. The reduction in the reimbursement rate is projected to save the federal government $6.9 billion through 2022, but will cost hospitals an additional $5.7 billion, according to the report.
When collecting on bad debts from Medicare patients, there are several requirements that must be followed:
1. The debt must be related to covered services and derived from deductible and coinsurance amounts.
2. The provider must be able to establish that reasonable collection efforts were made.
3. The debt was actually uncollectible when claimed as worthless.
4. Sound business judgment established that there was no likelihood of recovery at any time in the future.
With respect to reasonable collection efforts, providers are required to use the same efforts on collecting debts from Medicare patients that they use when collecting from non-Medicare patients, including using third-party collection agencies.
For hospitals and healthcare providers, this means they will have to be more efficient in their revenue cycle management and more diligent in recovering unpaid debts from individuals who either have no insurance or whose insurance does not cover all of their medical bills. A proactive and dynamic collection effort is needed, to not only cover the projected shortfall in Medicare reimbursements for bad debts, but to manage a population where the number of individuals with health insurance is declining. The amount of bad debt that hospitals will be facing in the coming years is only going to go in one direction, as this report illustrates, and providers should not delay in acting to shore up their finances, before it’s too late.
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