For many facilities, Medicare patients are responsible to pay a daily copay, which is a fixed amount determined yearly by Medicare. If patients do not pay the copay, then, after following specific rules, facilities are eligible to claim reimbursement from Medicare for this unpaid bad debt. Medicare will generally pay 65% of the reimbursement less sequestration.

The bad debt reimbursement gets claimed on the cost report and is paid back to the facility filing the cost report. Part of the rules for claiming bad debt are that the facility must wait 120 days from the first time a non-indigent patient is billed before they write off the bad debt on their books and, subsequently, can claim it on their cost report. Bad debt may only be claimed on the cost report when the write-off date falls within the cost report period.

Because of the above rules, complications may arise if there is a change of ownership (CHOW). The prior owners are often not eligible to write off bad debt until after the facility is sold, due to the time window. As such, the bad debt, which was owed to them, will only be allowed to be claimed on the subsequent cost report, which the new owners will be filing. Since the monies get paid to the facility, the reimbursement will be paid, essentially, to the new owners.

Due to the above, when the contract is written for the sale, the standard procedure is to include a clause wherein the new owners will claim the bad debt for the prior owners on the cost report which they, the new owners, file. Once reimbursed by their contractor, they will pass the monies for the period during which the prior owners owned the facility back to them.

It is imperative to discuss this with the lawyers and with both sets of owners, so there are no misunderstandings.

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Disclaimer:  This blog does not contain legal advice. What it does contain are our best
explanations, advice, and suggestions to help facilities and cost report preparers to understand the cost report forms and reporting process and offer suggestions for their preparation. Progressive Provider Services assumes no legal responsibility for the content of this blog, nor for cost reports or other reports prepared based on the content herein.