Re: CMS-1126-P Medicare & Medicaid Programs: Provider Bad Debt Payment Proposed Changes (68 Federal Register 33), February 10, 2003

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Friday, April 11th 2003

Thomas A. Scully, Administrator
The Centers for Medicare & Medicaid Services
200 Independence Avenue, S.W.
Room 445-G, Hubert H. Humphrey Building
Washington, DC 20201

Dear Administrator Scully:

On behalf of our nearly 5,000 hospitals, healthcare systems, networks, and other provider members, the American Hospital Association (AHA) appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services (CMS) proposed rule that would reduce the amount of allowable Medicare bad debt for selected providers. 

Currently, Medicare pays the full bad debt cost for critical access hospitals (CAHs), skilled nursing facilities (SNFs), and rural health clinics (RHCs).  Under the proposal, however, CMS would reduce the amount of allowable bad debt to 70 percent over a three-year phase-in period for these providers.   CMS states the proposed rule would provide an incentive for efficient bad debt collection and create consistency among all providers eligible to receive bad debt reimbursement.  Currently, bad debt in the inpatient and outpatient hospital settings is paid at only 70 percent of cost.  A reduction in bad debt payments threatens these providers' ability to maintain viable operations and, ultimately, could hinder access to healthcare for Medicare beneficiaries, especially in rural communities.

Providers have developed appropriate collections programs for all patients.  In addition, as small operations with limited cost-shifting opportunities, CAHs and RHCs must efficiently manage all operations, including collections, in order to survive.  CMS' proposed rule gives an incentive for more aggressive collection policies aimed at fixed-income Medicare beneficiaries who may have limited resources for co-pays and deductibles.

Skilled Nursing Facilities.  Hospital-based SNFs cannot withstand another financial setback.  These facilities face significant stress due to the fundamentally flawed prospective payment system (PPS).  This flawed PPS, especially its underpayment of medically complex cases, is particularly burdensome for hospital-based SNFs that treat disproportionate numbers of high acuity patients.  In addition, the October 2002 expiration of the 4.0 percent overall and 16.66 percent nursing component payment add-ons to the SNFs PPS is generating further fiscal strain on distressed hospital-based SNFs.  These pressures have led to an alarming pattern of closures - 26 percent closed since 1998 - and steadily declining Medicare margins that reached a low of negative 57 percent in 2000.  

Critical Access Hospitals and Rural Health Clinics.  In impoverished rural areas, rural providers may experience a higher percentage of bad debt, contributing to a fragile financial condition for CAHs and RHCs.  For many of these providers, the reduction of bad debt reimbursement rather than reimbursement for full Medicare costs would result in negative Medicare margins.  One of the proposed rule's intents is to create consistency among all providers eligible to receive bad debt reimbursement.  This however is not applicable to CAHs, which have been deemed by Congress to be eligible for special payment policy treatment.  Recognizing that rural healthcare providers differ from non-rural providers, Congress granted exceptions to ensure that Medicare beneficiaries in rural and frontier areas have access to health care services.  This recognition included the assurance that CAHs would be fully reimbursed on a reasonable cost basis for Medicare Part A and Part B services.  Therefore, the proposed rule is incomprehensible in that it would directly contradict the intent of Congress to pay Medicare's full cost to critical access hospitals. 

We urge CMS to reverse the proposed reduction in bad debt reimbursement based on the financial hardship it would cause. 

Thank you for consideration of the above concerns.  If you have any questions about these comments, please contact me or Rochelle Archuleta, senior associate director for policy, at (202) 626-2320.


Rick Pollack
Executive Vice President



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