Review of Medicare Part A Bad Debts at Kindred Healthcare - Bay Area for Fiscal Year Ended August 31, 2005

Kindred Health Care - Bay Area (Kindred) claimed bad debts on its fiscal year 2005 hospital cost report that were allowable under Medicare regulations and were reduced by bad debt recoveries. Therefore, we are making no recommendations.

For all 95 of the bad debts reviewed (1) the bad debts were related to Medicare covered services and derived from unpaid deductible and coinsurance amounts, (2) Kindred made reasonable collection efforts, (3) the debts were actually uncollectible when claimed as worthless, and (4) sound business judgment established there was no likelihood of recovery at any time in the future. In addition, Kindred reduced its bad debts by amounts recovered from previously written- off bad debts.