Lessons from OIG Medicare bad debt audits

Published October 16, 2026 · Reimbursement Recovery Partners

The HHS Office of Inspector General (OIG) has audited Medicare bad debt claims at both the industry and individual-hospital level. The findings show where listings fail. Two reports illustrate the pattern.

1. Industry-wide review (A-07-20-02825, December 2022)

OIG noted that providers sought nearly $10 billion in Medicare bad debt reimbursement on cost reports for periods ending in federal fiscal years 2016 through 2018. In a nonstatistical sample of 148 bad debts:

• 86 were for beneficiaries the providers had deemed indigent (82 based on Medicaid eligibility), so no collection effort was required.
• Of the remaining 62, providers could not support 18: in 2 cases the provider acknowledged it had made none of the required collection efforts, and in 16 the providers could not produce documentation that reasonable collection efforts were made. After the 35% reduction, that was $29,124 in unallowable reimbursement.
• 4 more claimed amounts didn’t match what the beneficiary owed (one provider said an amount was mis-keyed), for a net $663 in unallowable reimbursement.
• OIG attributed the overpayments to MACs not concentrating on bad debts in cost report audits, and recommended CMS consider guidance requiring or encouraging more MAC review of bad debts, such as dollar thresholds that trigger an audit. CMS concurred and said it would consider the findings in future guidance.
• Under “Other Matters,” OIG found that for 29 of the 148 sampled debts, the collection efforts performed didn’t match the provider’s own written policy, for example a policy requiring phone calls with only mailed statements on file.

2. Single-hospital review (A-04-09-00055, June 2010)

At one large hospital’s FY 2005 Part A claim, OIG found 37 unallowable bad debts in its sample totaling $39,877:

• 31 ($36,669) were accounts still with a collection agency when written off, so not yet uncollectible.
• 5 ($2,958) had not received reasonable collection efforts.
• 1 ($250) was for non-covered services rather than deductible or coinsurance.
• Separately, 11 accounts had $650 in bad debt recoveries that were not reported on the cost report.

Because CMS guidance at the time told contractors not to reopen earlier years for the collection-agency issue, OIG did not recommend recovering the estimated amounts tied to accounts at an agency. Today’s regulation is explicit that accounts must be returned from the agency, and all collection effort must stop, before the debt is claimed (42 CFR 413.89(e)(2)(i)(B)(3)).

Lessons for your next listing

1. Documentation is the claim. In the 2022 review, 16 of the 18 unsupported debts failed for lack of documentation, not necessarily lack of effort. Keep each account’s bill dates, follow-up history, and copies of notices retrievable.
2. Follow your own policy. Auditors compare what you did with what your policy says. If the policy says you call, keep the call log, or revise the policy.
3. Agency accounts must come back first. Capture the agency return date (Exhibit 2A column 15) and make sure the Medicare write-off date is on or after it.
4. Report recoveries. Build a routine to catch payments on accounts already claimed (columns 18–19).
5. Check the arithmetic. Tie each line’s deductible and coinsurance to the remittance advice; keying errors are findings too.
6. Document indigence properly. Most sampled debts in 2022 were indigent or dual-eligible accounts. Keep the Medicaid remittance or alternate documentation, and the asset and income review for non-Medicaid indigence.
7. Expect more scrutiny. OIG recommended more MAC review of bad debts, and CMS concurred. Prepare as if every listing will be sampled.

Related: The Medicare bad debt listing and Exhibit 2A.