Get paid for the Medicare bad debt you’re already carrying
Allowable Medicare bad debt is reimbursement your hospital is entitled to, and it is easy to miss when accounts sit in the wrong write-off code, stay at a collection agency, or wait on a Medicaid remittance. We find what was missed, document every account so it holds up, and defend it if the Medicare Administrative Contractor (MAC) pushes back. You have a direct line to the Partner running your engagement.
No recovery, no fee.
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 claim; 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
- Dual-eligible (crossover) accounts the state Medicaid program adjudicated, matched to each Medicaid remittance advice
- Out-of-state crossovers: patients whose Medicaid is from another state, which often miss the system edits that feed the bad debt listing
- Indigent non-dual-eligible patients, with documented asset and income review
- Non-indigent Medicare patients under the 120-day collection rule
- Prior-year reopenings and accounts missed by write-off codes
Write-off codes miss accounts. We trace every deductible and coinsurance dollar to where it actually ended up, so the allowable ones get claimed.
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
A cost report submitted without a listing that matches the bad debt claimed is rejected. 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 our 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 or Medicare-Dependent Hospital, a bad debt review is also the right time to check Volume Decrease Adjustment eligibility.
One senior contact, start to finish
Bad debt is won or lost one account at a time at audit. The same senior person stays with your listing from the first data request to the final settlement, so nothing is lost in a hand-off.
Our reimbursement team does the heavy lifting, so your staff isn’t pulled away from their own work.
- No-cost reviewWe meet with your CFO or reimbursement director, pick the years worth reviewing, and give you a straight answer on whether it’s worth pursuing.You know what to expect before any work begins.
- Data reconciliationWe match Medicare Provider Statistical and Reimbursement (PS&R) and 835 remittance data to patient accounting, Medicaid remittances, and collection agency records, account by account, so the listing captures every allowable account the records support.Your lead reviews every account it turns up.
- Listing preparationWe build a patient-level Medicare bad debt listing in the CMS Exhibit 2A format, with documentation behind every line.Nothing leaves our office without your lead’s sign-off.
- Submission with your authorizationWith your approval, we file the listing with your cost report or request a reopening of prior years with your MAC.We walk you through it before anything is filed.
- Audit defense through settlementWhen the MAC samples accounts, we pull the support together and answer every question until the Notice of Program Reimbursement (NPR) is final.The same person who started the work defends it.
When the MAC audits, we’re there
Audit-ready support
For each sampled account we assemble 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
We build 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 our audit-support team.
Before any file moves, we sign 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 our reimbursement team on the day-to-day work.
Is your hospital claiming all the bad debt it’s owed?
We’ll review your current and prior-year bad debt at no cost. If we don’t recover anything, you don’t pay.
Request a no-cost review