Get paid for the Medicare bad debt you’re already carrying
Allowable Medicare bad debt is reimbursement your hospital is owed. Accounts in other write-off codes, agency returns, charity care and missed Medicaid crossovers are easy to miss. RRP starts with every deductible and coinsurance dollar on the detailed Medicare Provider Statistical and Reimbursement (PS&R) report, reconciles each one to its final disposition, documents every allowable account, and supports the filings through Medicare Administrative Contractor (MAC) review, sampling, and final Notice of Program Reimbursement (NPR). You have a direct line to a senior RRP leader on your engagement.
No upfront fee. RRP is paid based on what your hospital is paid.
What is Medicare bad debt?
Medicare bad debt is unpaid Medicare deductible and coinsurance for covered services. For hospitals, Medicare reimburses allowable bad debt after a 35% reduction, so the hospital recovers 65% of the allowable amount (42 CFR 413.89(h)). The rules are in the Code of Federal Regulations (42 CFR 413.89) and the Provider Reimbursement Manual, Part 1 (PRM-1), Chapter 3, chiefly §§308–322.
The four tests for allowable bad debt
A compliant listing has to satisfy each of the documented requirements below, account by account; the citations show where each one comes from.
- Covered services: the debt comes from deductible and coinsurance on Medicare-covered services. (42 CFR 413.89(e)(1); PRM-1 §308)
- Reasonable collection effort: the hospital can show genuine collection efforts, or a documented indigence determination. (42 CFR 413.89(e)(2); PRM-1 §§308, 310, 312)
- Actually uncollectible: the debt was uncollectible when claimed as worthless. (42 CFR 413.89(e)(3); PRM-1 §308)
- No likelihood of recovery: sound business judgment established there was no likelihood of future recovery. (42 CFR 413.89(e)(4); PRM-1 §308)
Self-pay (non-indigent) accounts: what Medicare requires
- Same policy as everyone else: the collection effort must be similar to what the hospital does for comparable non-Medicare balances, under a written collection policy that covers both. (42 CFR 413.89(e)(2)(i)(A)(1) and (A)(6)(i); PRM-1 §310; 85 FR 58994)
- Agency referrals treated alike: if the hospital sends comparable non-Medicare balances to a collection agency, it must send Medicare deductible and coinsurance balances of like amount too. (PRM-1 §310.A; 85 FR 58994–58995)
- First bill on time: for cost reporting periods beginning on or after October 1, 2020, within 120 days of the latest of the Medicare remittance advice, the secondary payer’s remittance advice, or its notice of non-coverage; for earlier periods, on or shortly after discharge. (42 CFR 413.89(e)(2)(i)(A)(2)–(3); PRM-1 §310; 85 FR 58991–58993)
- Real follow-up: more than one bill, such as later statements, letters, phone calls, emails, texts, or personal contact, making a genuine rather than token effort. (42 CFR 413.89(e)(2)(i)(A)(4); PRM-1 §310)
- At least 120 days of effort: collection continues at least 120 days after the first bill before write-off, and each payment received starts a new 120-day period. (42 CFR 413.89(e)(2)(i)(A)(5); PRM-1 §310.2; 85 FR 58993–58994)
- Agency accounts back first: if an outside collection agency works the account, it must be returned and all collection effort stopped before the debt is claimed. Amounts the agency collects are credited in full to the account, and its fee is an administrative cost. (42 CFR 413.89(e)(2)(i)(B)(1)–(3); PRM-1 §310.1; 85 FR 59024)
- Proof: the collection policy, the account history showing the date of each collection action, and copies of the bills and notices. (42 CFR 413.89(e)(2)(i)(A)(6); PRM-1 §310.B; 85 FR 58996)
Indigent (charity) accounts: what Medicare requires
- A real determination: the patient’s statement alone isn’t enough. The hospital reviews income and assets (only those convertible to cash and not needed for daily living), and may consider liabilities and expenses when that review isn’t conclusive. Presumptive eligibility scoring tools can’t substitute for this review. (42 CFR 413.89(e)(2)(ii)(A)(1)–(3); PRM-1 §312.A–B; 85 FR 58996–58998)
- No one else responsible: the hospital confirms no other source, such as a legal guardian or the state Medicaid program, is legally responsible for the bill. (42 CFR 413.89(e)(2)(ii)(A)(4); PRM-1 §312.C)
- Written policy and patient-level proof: an indigence policy and documentation for each patient, available to the MAC on request. (42 CFR 413.89(e)(2)(ii)(A)(5); PRM-1 §312.D)
- No collection effort needed once indigent: a properly determined indigent account may be deemed uncollectible without the 120-day effort. (42 CFR 413.89(e)(2)(ii)(B); PRM-1 §312)
- Medicaid patients: patients eligible for Medicaid may be deemed indigent, but the crossover rules below still apply. (42 CFR 413.89(e)(2)(iii); PRM-1 §§312, 322)
Write-off rules for both
- Only Medicare deductible and coinsurance on covered services can be claimed; charity allowances themselves are not allowable costs. (42 CFR 413.89(d), (e)(1), (g); PRM-1 §§302.2, 308)
- The balance must be written off as bad debt, not as a contractual allowance: before October 1, 2020 to an expense account for uncollectible accounts, and from then on as an implicit price concession. (42 CFR 413.89(c)(1)(ii), (c)(2)(ii); 85 FR 59004–59006)
- It is claimed in the cost reporting period in which it is found to be worthless, with records for each account. (42 CFR 413.89(f); PRM-1 §314)
- A payment received after write-off but before the period ends reduces the amount claimed; a recovery in a later year reduces reimbursement in the year it is received. (42 CFR 413.89(f)(1)–(2); PRM-1 §316)
Not sure your policies and records meet these rules? Ask for a no-cost review of your bad debt support, or call (425) 930-9874.
Where missed bad debt turns up
- Medicaid crossovers adjudicated but never on the listing, matched to each Medicaid remittance advice
- Missed Medicaid remittances across in-state and out-of-state Medicaid, fee-for-service and managed, plus unbilled crossovers and retroactive Medicaid eligibility
- Medicaid misclassified to the wrong write-off code
- Accounts in known and unknown write-off codes, and agency returns written off during the year
- Full and partial charity care write-offs, with documented asset and income review
- Non-indigent Medicare patients under the 120-day collection rule
- Prior years that can still be reopened or amended
Write-off codes miss accounts. RRP reconciles every deductible and coinsurance dollar to its final disposition, so every allowable account makes your listing.
What the MAC will check
The 120-day rule
For cost reporting periods beginning on or after October 1, 2020, the first bill must go out within 120 days of the latest of the Medicare remittance advice, the secondary payer’s remittance advice, or the secondary payer’s notice of non-coverage, and collection must continue at least 120 days, restarting with each payment.
Indigence and Medicaid
Indigence can’t rest on the patient’s word; it requires an asset and income review. For dual-eligible patients, the hospital must bill the state Medicaid program and have the claim adjudicated. Most states pay cost sharing only up to what Medicaid would have paid as the primary payer (a “lesser-of” rule). Medicare has often already paid more than that, so the state owes nothing and the full deductible and coinsurance can be claimed, but only with the Medicaid remittance advice in hand and the balance written off as bad debt.
Exhibit 2A and rejection risk
For cost reporting periods beginning on or after October 1, 2018, a cost report submitted without a listing that matches the bad debt claimed is rejected (42 CFR 413.24(f)(5)(i)(B)). For periods beginning on or after October 1, 2022, the listing uses Centers for Medicare & Medicaid Services (CMS) Exhibit 2A.
Sources: 42 CFR 413.24(f)(5)(i)(B); Provider Reimbursement Manual, Part 2 (PRM-2), Chapter 40, §4004.2. Details in RRP’s guide to the Medicare bad debt listing and Exhibit 2A. For closed years, see how the three-year reopening window works.
If your hospital is a Sole Community Hospital (SCH) or Medicare-Dependent Hospital (MDH), a bad debt review is also the right time to check Volume Decrease Adjustment (VDA) eligibility.
Every PS&R dollar and cent, reconciled to its final disposition
- 2835 remittance filesSorted intoMedicaid payers identified: in-state and out-of-state, fee-for-service and managed
- 3Write-off codesSorted intoCharity care and self-pay accounts
- 4Other payments toward deductible and coinsuranceRemovedPaid by the patient, other insurance or the state
- 5Non-allowable write-offsRemovedSmall-balance write-offs
- 6Medicare fee-schedule rulesRemovedNon-allowable fee-schedule coinsurance
- 7Match to your listingRemovedAlready on your listing
The review starts with the full bad debt universe: every deductible and coinsurance dollar on the detailed Medicare PS&R report. The team reconciles each dollar to its final disposition, across known and unknown write-off codes, accounts returned from collection agencies, full and partial charity care, missed Medicaid remittances across in-state and out-of-state Medicaid, fee-for-service and managed, unbilled crossovers, retroactive Medicaid eligibility, and Medicaid misclassified to the wrong write-off code.
Payments, non-allowable write-offs, non-allowable fee-schedule coinsurance and accounts already on your listing are set aside. What remains is the increment: allowable bad debt not yet on your listing, for this year’s cost report and for prior years that can still be reopened or amended.
How the review works
- 1Reconcile the universeEvery PS&R deductible and coinsurance dollar, reconciled to its final disposition.42 CFR 413.89
- 2Test every accountCovered services, collection effort or indigence, and write-off timing.42 CFR 413.89(e)
- 3Build the listingIn Exhibit 2A format, tied to your cost report. Your hospital signs the filing.42 CFR 413.24(f)
- 4Support through settlementRRP supports the filings through MAC review, sampling, and final NPR.PRM-2 §4004.2
When the MAC audits, RRP is there
Audit-ready support
For each sampled account, the team assembles the remittances, billing and collection history, indigence or Medicaid documentation, and write-off dates the auditor asks for, so your staff isn’t searching for them under deadline.
Lessons from federal audits
RRP builds listings around the issues Office of Inspector General (OIG) auditors have disallowed: missing collection evidence, accounts still at an agency, and unreported recoveries. Read the lessons from OIG Medicare bad debt audits.
The same face at audit
The person who built your listing answers the MAC, backed by RRP’s audit-support team.
Before any file moves, RRP signs a Business Associate Agreement (BAA) with your hospital, and patient information never passes through this website.
Laura Kortokrax’s Medicare audit experience
Laura has spent decades in hospital operations and reimbursement. She has worked with every MAC and has completed and defended well over a thousand Medicare audits, taking each through review to final settlement.
These figures cover Laura’s full career, including prior firms.
Primary sources
- 42 CFR 413.89, Bad debts, charity, and courtesy allowances (eCFR)
- CMS Provider Reimbursement Manual, Part 1 (Pub. 15-1), Chapter 3, Bad debts, charity, and courtesy allowances, §§300–334 (download from CMS)
- FY 2021 hospital inpatient final rule, section IX.C, Revisions of Medicare Bad Debt Policy, 85 FR 58432, 58989–59006 and 59023–59025 (Federal Register, September 18, 2020)
- 42 CFR 413.24(f)(5), Cost report acceptability (eCFR)
- CMS Provider Reimbursement Manual, Part 2 (Pub. 15-2), Chapter 40, §4004.2: Exhibit 2A instructions
Sources checked October 20, 2026. This page is general information, not legal or reimbursement advice for a specific hospital.
“Our ongoing partnership with the RRP team has saved us a great deal of time. They prepared the Medicare bad debt listing for our cost report and are still working on recovering prior years. They found pockets of bad debt we were missing and helped us fix broken processes. It helps to have an experienced group we know and trust as our partners on this.”
Who you’ll work with on Medicare bad debt
Salim Nice or Laura Kortokrax runs your engagement personally, with RRP’s reimbursement team on the day-to-day work.
How RRP estimates. RRP keeps Healthcare Cost Report Information System (HCRIS) cost report data for every hospital, every cost report and every version, going back more than two decades. For bad debt, the team analyzes utilization, trends and reimbursement effects to produce a realistic recovery estimate.
Is your hospital claiming all the bad debt it’s owed?
Get a free Medicare bad debt assessment. Complete our short form with your hospital’s Medicare provider number, and we’ll review your prior years and reply within one business day with a straight answer on what’s worth pursuing. We don’t need any patient data.
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