Court Throws Out Medicare Bad Debt Reimbursement for Dual Eligibles

It’s a version of the old, “if a tree falls in the forest is there sound?” argument, only in this case, it’s “If you file a Medicaid claim to the state of California and it doesn’t respond, does the debt really exist?”

California hospitals find themselves caught in one of those government bureaucracy eddies that has prevented them from collecting what they believe is their fair share of Medicare reimbursement for bad debt. A federal court in Washington, DC, recently threw out an action brought by several California providers against the US Department of Health and Human Services to collect reimbursement for bad debt incurred by treating so-called “dual eligibles” (those who qualify for both Medicare and Medicaid).

In most states, providers are reimbursed by both Medicare and Medicaid for dual eligibles — Medicare pays the bulk of care costs, and Medicaid pays a portion of outstanding deductibles or co-insurance payments. In those states or circumstances in a state where it does not reimburse for deductible/co-insurance payments, the provider can declare the amount owed as bad debt and receive reimbursement from Medicare. In 2004′s Joint Signature Memorandum 370, CMS ruled that “in those instances where the State owes none or only a portion of the dual-eligible patient’s deductible or co-pay, the unpaid liability is not reimbursable to the provider by Medicare until the provider bills the state, and the State refuses payment (with a State Remittance advice).” To receive Medicare bad debt reimbursement, the provider has to prove that it billed the state and then demonstrate that the state declined.

California’s Medicaid program, called Medi-Cal, paid 100 percent of dual eligible’s co-pays and deductibles until 1994, when it unilaterally decided to not pay them. This started a domino effect, culminating in Medicare’s refusal to reimburse dual eligibles’ bad debt to California hospitals, who then filed suit against the state of California.

The matter was “resolved” when the state of California and the Secretary of Health and Human Services agreed to cap dual eligible reimbursements; no longer would the state reimburse for 100 percent of deductibles and co-payments, but thenceforth it would only reimburse the difference between what Medicare reimbursed for a service and Medi-Cal’s rate for the same service. Providers were then allowed to seek additional reimbursement under Medicare’s bad debt reimbursement program.

For the five years between 1994 and 1999 that it took to fully resolve this conflict, the state agreed to retroactively pay for its reimbursement share based on the new formula. State authorities calculated the difference between Medicare and Medicaid reimbursements for that five year period and issued lump sum payments to providers. Providers, however, thought the state’s calculations were too low and failed to fully compensate the providers for the costs incurred by dual eligibles.

The providers asked the state to review its calculations, but the state took no action on the request. In 2008 he providers then charged the amount owed by the state as bad debt and forwarded it to Medicare’s Provider Reimbursement Review Board, which determined that the bad debt was valid and authorized reimbursement. The CMS administrator, however, overturned that decision in 2010, propelling the providers and HHS into court.

Last month the court threw out the providers case, ruling in summary judgment in favor of CMS and HHS because the providers failed to properly bill the state of California and never received formal notice from the state that it had rejected the claim. In essence, because California ignored the claim by the providers, the providers could not sue CMS.

The California hospitals will now be forced to once again sue the state of California to recover debts that in some cases are nearly 20 years old.