Medicare payments for bad debt are projected to reduce federal reimbursement to hospitals by $5.7 billion by 2029, according to a report released Oct. 15 by the health economics consulting firm Dobson | DaVanzo and Associates.
The report — commissioned by the Federation of American Hospitals and the American Hospital Association — examined 12 legislative acts as well as regulatory changes by CMS that are estimated to reduce federal payments to hospitals by $252.6 billion from 2010 through 2029.
One examined legislative act was the Middle Class Tax Relief and Job Creation Act of 2012. Before the act, Medicare reimbursed hospitals, skilled nursing facilities, federally qualified health centers, dialysis centers and other providers between 70 percent and 100 percent of beneficiary bad debt, according to the report. However, the act reduced Medicare bad debt reimbursement for providers to 65 percent, beginning in fiscal year 2013 for some providers and was phased in over three years for critical access hospitals.
The Congressional Budget Office projected that the bad debt provision of the act would cut healthcare spending by $6.9 billion by 2022.
To identify the estimated reduction in federal payments to hospitals due to Medicare payments for bad debt, researchers at Dobson | DaVanzo and Associates examined Medicare hospital cost report data from 2013 to 2017, assuming total Medicare bad debt costs would increase from 2017 to 2029 at the same rate as Medicare spending for hospital care over that period as projected earlier this year by the CBO. They calculated the bad debt reimbursement reduction for hospitals using separate formulas accounting for the provision being phased in for critical access hospitals.
Overall, the researchers said they estimate that Medicare payments for bad debt will reduce federal reimbursement to hospitals by $5.7 billion over the 2013 to 2029 period.
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