Court ruling opens door for providers to seek reimbursement for Medicare bad debts

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Providers may be reimbursed for Medicare beneficiaries' bad debts even after sending them to a collection agency, a U.S. District Court judge has ruled.

At issue was the question of whether bad debts for Medicare beneficiaries, usually related to copayments and deductibles, could be considered “uncollectible” if they have been referred to a collection agency. In a suit brought against the government, George Washington University Hospital and 28 other hospital groups argued that Medicare should pay these debts.

Because costs for services provided to Medicare patients cannot be shifted onto non-Medicare patients, providers can collect payment for beneficiaries' bad debts from the Medicare program under certain circumstances. However, the Centers for Medicare & Medicaid Services said that bad debts sent to a collection agency are automatically presumed to be collectible, and therefore are not reimbursable from Medicare coffers.

The hospitals argued that bad debts sent to an agency were not considered automatically collectible prior to 1987. Therefore, any CMS decision to the contrary would break a moratorium imposed by Congress preventing any change in CMS bad debt policies from those in effect as of Aug. 1, 1987.

Judge Gladys Kessler of the U.S. District Court for the District of Columbia agreed with the hospitals and granted their motion for summary judgment. The government failed to produce any persuasive evidence showing that debts sent to collection agencies were considered collectible prior to 1987, Kessler wrote. The decision potentially opens the door for other healthcare providers to collect on bad debts in similar situations.

In fact, the judge stated, the 1987 moratorium “tacitly” supports the providers' position. The moratorium states that a debt is considered uncollectible after 120 days if “reasonable and customary attempts” at collection have been made, and it does not exclude debts sent to a collection agency, Kessler noted.

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