Exploring Dialysis Facility Cost Reports as a Revenue Stream

By Sarah Tolson - Last Updated: March 27, 2023

From the Field

You read that right. The Medicare cost report that dialysis facilities submit each year can be an opportunity to capture revenue for certain bad debts. At a time when costs to run a dialysis facility are outpacing revenue, maximizing every available revenue source is more important than ever. With that in mind, I thought it would be helpful to provide some basic information about the dialysis facility cost report for those who are new to the renal industry or newly responsible for their facility’s Medicare cost report.

The current form used to submit a cost report for freestanding dialysis facilities is the CMS-265-11. The Centers for Medicare & Medicaid Services (CMS) uses the cost report to gather data on treatment counts across all modalities, medication and supply utilization, costs to provide treatment and run the dialysis facility, as well as revenue and uncollected bad debt. If you are a dialysis facility administrator, you are likely familiar with collecting this information each year to pass on to whomever prepares your cost report. Filing a cost report could be likened to filing taxes; both are complex, can have serious financial and legal implications if done incorrectly, and are commonly outsourced to professionals who specialize in their preparation and submission.

Prior to the End-Stage Renal Disease Prospective Payment System (ESRD PPS) that was implemented in 2011, to receive any reimbursement from the cost report, a dialysis facility had to have uncollected bad debt that meets CMS criteria and had to have lost money in the cost-reporting period. When dialysis reimbursement shifted from the composite rate to the ESRD PPS, CMS also modified who qualified to receive reimbursement for bad debt on a cost report as well as how the allowable amount is determined. Since the implementation of the ESRD PPS, all freestanding dialysis facilities whose cost reports include bad debt that met CMS criteria qualify to receive reimbursement for the bad debt at a rate of 65% that pertains to the composite rate portion of the dialysis treatment.

So what exactly does CMS consider to be allowable bad debt? Medicare-assigned coinsurances and deductibles that were determined to be uncollectible during the cost-reporting period are generally considered to be allowable bad debts by CMS. There are also some requirements regarding how much time can pass between the coinsurance being assigned to the patient and when the coinsurance is deemed to be uncollectible. Familiarity with these requirements is key to ensuring the bad debts claimed on your cost report meet the CMS guidelines.

When claiming a bad debt amount on the cost report, CMS requires dialysis facilities to include an itemization of each bad debt whose totals comprise the total bad debt claimed on the cost report. It is helpful to keep in mind that the Medicare Administrative Contractor (MAC) that your cost report is submitted to will perform an audit of the bad debts at some point in the future. Compliance with CMS requirements, accuracy, and keeping complete records to substantiate any bad debts will benefit you immensely when it is time for the audit.

In order to get all available reimbursement for uncollectible Medicare-assigned coinsurances and deductibles, facilities should ensure that the individuals who handle bad debts are well educated on the criteria that must be met to qualify each balance as an allowable bad debt. Additionally, a standardized process for documenting and tracking potentially allowable bad debts should be implemented, followed, and periodically audited for compliance. As cost reports for dialysis facilities are incredibly complex and require a significant amount of expertise in dialysis facility reimbursement, I would recommend working with a cost report preparer who is familiar with and has experience filing dialysis facility cost reports. In addition to being well versed in the data needed to complete the cost report, they may also assist you in determining what kinds of things are generally reviewed in desk audits from your specific MAC.

Sarah Tolson is the director of operations for Sceptre Management Solutions, Inc., a company specializing in billing for outpatient ESRD dialysis programs, nephrology practices, and interventional nephrology. Your questions are welcome, and she can be reached at [email protected], 801.775.8010, or via Sceptre’s website, www.sceptremanagement.com.  

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