CMS Posts Proposed Rule Addressing Bad Debt Reimbursement Reduction

The federal government requires that beneficiaries who receive care in a skilled nursing facility (SNF) must pay their Medicare co-pay on the 21st day of a Medicare-qualified stay. These beneficiaries are either seniors solely on Medicare, or seniors who qualify for both Medicare and Medicaid, known as dual eligibles. Very rarely are these beneficiaries financially able to cover the co-pay. In particular, dual eligibles, by definition underprivileged, account for more than 90 percent of the bad debt incurred in SNFs. This leaves a gaping hole for SNFs that must recover the costs of providing care to these vulnerable seniors.

Currently, the Medicare program allows SNFs to turn to the government to recoup some of the cost. When dealing with dual eligibles, the federal government allows the state Medicaid program to provide a reimbursement for the unpaid co-payment. However, the Medicare statute allows the states the ability to pay an amount less than the full co-payment or even refuse to reimburse the co-pay entirely. Because the vast majority of bad debt is directly related to this failure of the government to cover the cost of the federally mandated copay, SNFs would be forced to provide billions of dollars in uncompensated care without any legal recourse due to Medicare and Medicaid protection under federal law.

Recognizing this imbalance, the federal government has traditionally provided a remedy to allow SNFs to make up much of the cost associated with patients’ bad debt. Currently, Medicare reimburses SNFs the remaining copay that the states fail to provide for dual eligibles, and reimburses a portion of the copay that seniors solely on Medicare are unable to pay. This has been a key element in ensuring SNFs can continue providing care to vulnerable seniors on both Medicaid and Medicare.

Earlier this week, the Centers for Medicare and Medicaid Services (CMS) put on display a proposed rule to update the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year 2013.  As part of the rule, CMS indicates that it is codifying the provisions of section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012 that requires reductions in bad debt reimbursement to all providers, suppliers, and other entities eligible to receive bad debt reimbursement.  The portion of the proposed rule related to bad debt reimbursement is available here.  The advance version of the entire rule is available here.  The official Federal Register version will be published on July 11.  

CMS notes that the bad debt provisions are specifically prescribed by statute and thus are self-implementing (except for certain technical corrections). There will be an estimated $10.9 billion in savings to the program over 10 years resulting from these self-implementing reductions in bad debt reimbursement.

CMS proposes to revise §413.89(h)(2) to add paragraphs (h)(2)(i) and (h)(2)(ii). Paragraph (h)(2)(i) would set forth the percentage reduction in reimbursable bad debt payments required by section 1861(v)(1)(V)(ii) of the Act for SNFs and swing bed hospitals for cost reporting periods beginning during fiscal year 2006 and subsequent fiscal years for a patient that was not a dual eligible individual. Paragraph (h)(2)(ii) would set forth the reduction in reimbursable bad debt payments for SNFs and swing bed hospitals, for cost reporting periods beginning during fiscal year 2013, fiscal year 2014, fiscal year 2015, and subsequent fiscal years, for a patient that was a dual eligible individual.

The following chart, extracted from the proposed rule, summarizes the bad debt levels as required by statute.

  Allowable Bad Debt Amount for Cost Reporting Periods Beginning in Fed FY 2012 Allowable Bad Debt Amount for Cost Reporting Periods Beginning in Fed FY 2013 Allowable Bad Debt Amount for Cost Reporting Periods Beginning in Fed FY 2014 Allowable Bad Debt Amount for Cost Reporting Periods Beginning in Fed FY 2015
SNFs: Non-Full Dual Eligibles 70% 65% 65% 65%
SNFs: Full Dual Eligibles 100% 88% 76% 65%

The estimated fiscal impact for Virginia SNFs is $5.9 million reduction in the first year (federal fiscal year 2013), $11.9 million reduction in the second year and $17.8 million reduction in year three.  The year three amount represents payment reduction for the fully-phased in provision and is expected to continue in federal fiscal years 2016 and after.