Missed Medicare bad debt from prior years: how the three-year reopening window works

By Salim Nice and Janice Imrich · Published October 20, 2026 · Reimbursement Recovery Partners

A settled cost report is not the end of the story for Medicare bad debt. If allowable deductible and coinsurance write-offs were left off the listing, your hospital can ask its Medicare Administrative Contractor (MAC) to reopen that year and pay the difference, at 65% of the allowable amount under the Code of Federal Regulations (42 CFR 413.89(h)). The window is three years from the date of the Notice of Program Reimbursement (NPR) that settled your bad debt, which for most years is the original NPR. For a hospital that files one cost report a year, that can leave two or three settled years open to correction. Before you read on, pull the original NPR for each recent year, plus any revised NPRs. Unless a revised NPR changed your bad debt, the original NPR’s date is the one that decides which years are still open.

Why bad debt is missed in a closed year

The accounts a reopening recovers were usually there all along. They were missed because the systems that feed the bad debt listing were never designed to find them.

• Write-off codes. Deductible and coinsurance balances written to a small-balance, administrative or generic adjustment code never reach the bad debt report, even though the hospital made the collection effort.
• Collection agency timing. Accounts returned from the agency after the cost report was filed were uncollectible in that year, but nobody went back to add them.
• Crossover claims. Dual-eligible accounts were never billed to the state Medicaid program, or are still waiting on a remittance advice, so the state never adjudicated them and the balance was never claimed. A crossover counts only after the state adjudicates it, so the first step is to see which accounts can still be billed within the state’s filing limits.
• Out-of-state crossovers. Patients whose Medicaid is from another state are often missed, because those claims tend not to hit the system edits that move accounts to the bad debt listing. In areas with many seasonal residents, the volume can be significant.
• System conversions. A new patient accounting system maps old transaction codes imperfectly, and a year or two of history goes dark.
• Staff turnover. The person who knew how the listing was built left, and the next preparer claimed only what the report showed.
• Caution. Facing a possible audit, a preparer left out every account that looked uncertain, including accounts that were allowable with the right documentation.

Each of these leaves money in a year that has already been settled. Our walkthrough of the Medicare bad debt listing and Exhibit 2A shows what a complete listing contains, so you can see which of these your own listing missed.

Why it cannot go on this year’s cost report

A Medicare bad debt is recognized in the cost reporting period in which the hospital determined the account was worthless and wrote it off (Provider Reimbursement Manual, Part 1 (PRM-1) §314). An account written off in a closed year belongs to that year. Adding it to the current listing invites a disallowance, and MAC auditors check write-off dates for exactly this reason. The route to the money is a reopening of the year the account belongs to.

Not sure which year an account belongs to? That is the first thing we sort out in a no-cost review; call (425) 930-9874.

The three-year window

Under 42 CFR 405.1885, a MAC may reopen its own determination, including an NPR, within three years of the date on it, on its own motion or at the hospital’s request. Three points matter in practice.

• The clock runs from the NPR that settled bad debt. A revised NPR is a separate determination, but only for the matters it specifically revised (42 CFR 405.1889(a) and (b)). If a revised NPR adjusted something else but left bad debt alone, the original NPR date still controls for bad debt. A request is timely only if the MAC receives it within the three years; mailing it on time isn’t enough. Don’t wait for the last month: a late request can’t be acted on.
• Reopening is at the MAC’s discretion. A decision not to reopen is not subject to further administrative or judicial review (42 CFR 405.1885(a)(6)), a point the Supreme Court also settled in Your Home Visiting Nurse Services v. Shalala (1999). The request has to make it easy for the MAC to say yes: specific, complete, and tied to the worksheets.
• A reopening is not an appeal. An appeal is for amounts the hospital claimed and the MAC disallowed; it has its own, much shorter filing deadline and is generally limited to items claimed or protested on the cost report. Bad debt that was never claimed goes through a reopening.

The Centers for Medicare & Medicaid Services (CMS) manual guidance on reopenings is in PRM-1, Chapter 29, §§2931 and 2932 (“Reopening and Correction”). Pull your last three or four years of NPRs, original and revised. For each year, note the date of the original NPR, or of a revised NPR if it changed bad debt, and count forward three years. Review first any year whose window closes within the next twelve months, and ask us for a no-cost review of the open years.

What a reopening request contains

A MAC acts on a written request from the hospital. If a consultant submits it, MACs generally require a letter from the hospital authorizing the request. A complete package includes:

• The provider name, CMS Certification Number (CCN), the cost reporting period, and the date of the NPR (original or revised) that last settled bad debt for that year.
• The item being reopened (Medicare bad debt), the amount originally settled, the revised amount, and the resulting change to Worksheet E, Part A, lines 64 and 66, with revised worksheets attached.
• The revised bad debt listing for that year, in the listing format that applied to that period (Exhibit 2A for cost reporting periods beginning on or after October 1, 2022).
• The reconciliation that shows where each added account came from: the Provider Statistical and Reimbursement (PS&R) report, the 835 electronic remittance, and the patient accounting history.
• Account-level support ready for sampling: the Medicare remittance, the Medicaid remittance advice or alternate documentation for crossover accounts, billing and collection history, agency placement and return dates, indigence determinations, write-off dates, and any recoveries.
• The signature of a hospital official.

Two things to expect. The MAC may review the whole bad debt claim for that year, not only the accounts you add, so the support for the original accounts should be ready too. And a reconciliation sometimes turns up recoveries on accounts already claimed, or accounts claimed in error; those are corrected in the same request, because recoveries of bad debt previously reimbursed reduce the claim (42 CFR 413.89(f)).

Before you assemble the package, read our lessons from Office of Inspector General (OIG) Medicare bad debt audits; they list what auditors disallowed in exactly this kind of support.

What the MAC will test

A reopened year is audited to the rules that applied to that period. Only the 120-day deadline for the first bill is limited to cost reporting periods beginning on or after October 1, 2020 (42 CFR 413.89(e)(2)(i)(A)(3)). The rest of 42 CFR 413.89(e), including the 120-day collection effort, codified long-standing policy and applies to earlier periods too (42 CFR 413.89(e)(2)(i)(A)(5); 85 FR 58993), and the MAC will also test those years against PRM-1 §§308 through 322. Under either version, every account must clear the four tests in 42 CFR 413.89(e): covered services, a reasonable collection effort or a documented indigence determination, actually uncollectible when claimed, and no likelihood of recovery.

Crossover accounts get their own test. The state Medicaid program must have adjudicated the claim. Most states pay cost sharing only up to what Medicaid would have paid as the primary payer (a “lesser-of” rule), and because Medicare has often already paid more, the remittance advice frequently shows the state owes nothing. In that case the full deductible and coinsurance can be claimed, as long as the account was written off as bad debt.

The findings that recur in reopened years are the same ones that recur everywhere:

• Agency accounts claimed before they were returned and all collection effort stopped.
• Crossover accounts with no Medicaid remittance advice or alternate documentation, billed to the state after its filing deadline, or with the state’s liability not deducted.
• Indigence resting on the patient’s statement rather than an asset and income review under a written policy.
• Deductible and coinsurance amounts that do not tie to the remittance.
• Recoveries never reported.

The Exhibit 2A listing walkthrough explains the 120-day rule and the indigence requirements in plain terms; check your support against it before the MAC does.

Is a look-back worth your time?

A look-back costs the hospital a data pull and some approvals. The analysis is our work, and on contingency nothing is due until the MAC pays. The years most likely to repay the effort share a few traits:

• A sizable dual-eligible population, with crossover claims that depend on the state’s automatic claim processing.
• A patient accounting conversion inside the last three years.
• Agency inventory that comes back in bulk after year-end.
• Turnover in the reimbursement or patient financial services function.
• Bad debt claimed on the cost report that looks small next to the hospital’s Medicare volume.

If two or more of these describe a year still inside the window, that year is worth a review. Call (425) 930-9874 and we’ll tell you, at no cost, whether it is.

How we run a reopening

We start with a no-cost review of the years still inside the window and tell you plainly whether there is enough there to pursue. From there, our team reconciles every deductible and coinsurance dollar on the PS&R to where it ended up, builds the listing in the format for that period, and assembles the support behind every line. Nothing is filed without your approval and a hospital official’s signature. The senior person who started the review answers the MAC’s questions until the revised NPR is issued, and you have a direct line to the Partner on your case throughout. Before any file moves, we sign a Business Associate Agreement (BAA) with your hospital, and patient data never travels through this website. Our fee is paid only from what we recover, after your hospital is paid. See how our Medicare bad debt recovery service works.

Request a no-cost review of your open years or call (425) 930-9874.