Advanced Medicare Cost Reporting

1. Advanced Medicare Cost Reporting Mike Nichols Chad Krcil Managing Director Director

2. Mike Nichols 28+ years of Healthcare Experience Cost Reporting (auditing, preparing, reviewing) Contractual Allowance and Settlement Analysis Determinations Reimbursement Opportunities and Strategies RSM McGladrey Healthcare Advisory Services Managing Director (consulting partner) Regulatory Reporting and Recovery Service Line Great Lakes Health Care Consulting Leader Healthcare Financial Management Association First Illinois HFMA Chapter Past Chapter President Advanced Member (FHFMA) 2

3. Chad Krcil 18+ years of Healthcare Experience Cost Reporting Contractual Allowance and Settlement Analysis Determinations Reimbursement Strategies for all provider types and sizes RSM McGladrey Healthcare Advisory Services Consulting Practice Director Regulatory Reporting Quality Assurance Reviewer Healthcare Financial Management Association Colorado HFMA Chapter Reimbursement Committee 3

4. Synopsis PPS Hospital Medicare Margin Calculation Cost Report Update Charity Care Connection to Cost Report 4

5. What is the Hospital’s Medicare Margin? 5

6. Medicare Margin Analysis: General Definitions Margin/(Deficit) Reimbursement > Cost: Margin Reimbursement < Cost: (Deficit) 6

7. Medicare Margin Analysis Comparison of Medicare Cost Report Information Charges Medicare Defined Fully Allocated Cost Reimbursement Reports Contractual Allowance Margin or Deficit High Level Executive Summary Senior Financial Executives Corporate Governance Education 7

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11. Great Question: (The Answer) Understanding the key reimbursement drivers will identify many potential opportunities Asking the right questions will create a strategy for implementing change Communicating results to constituencies will influence their behavior and thought process 11

12. What opportunities exist to (legally) improve the hospital’s Medicare margin? Cost Pricing Strategy Reimbursement Opportunities 12

13. Patient Days: Medicaid Fraction Medicare’s long standing policy is to count both Medicaid & Total days based on discharge date, but realize Medicaid data from States comes in varied formats FFY 2010: – Utilize 3 diff methodologies for Medicaid days in the Numerator: date of admission, date of discharge, & dates of service. Effective for CR periods beginning on/after 10/01/2009 Hospital would have to notify their FI\MAC in writing 30 days prior to the cost reporting period it is to apply if they wish to change their methodology If Hospital changes its methodology, CMS has the authority to adjust for “double counting” in subsequent periods CMS would expect changes between years to be “rare” 13

14. Patient Days: Labor Room Days Medicare’s long standing policy is to exclude L&D days from both Medicaid & Total Days FFY 2010 Inpatient Rule – include in DSH calc L&D days in both Medicaid & Total Days effective for CR periods beginning on\after 10/01/2009 LRDs generally payable under IPPS; Therefore, days SHOULD be counted in DPP once the patient has been admitted as an inpatient: May be considered in settling prior year cost reports or other “open” cost reporting periods. LRDs now reported on S-3 pt 1, Line 29 (Although reported separately, patient day totals should still agree to census totals) Refer to CR instructions for LRDs and Observation 14

15. Patient Days: Observation Days Medicare’s long standing policy is to treat observation services as ancillary versus routine services Pre CRP< 10/1/2004: Days not included in DSH and IME Calculation For CRP 10/1/2004><10/1/2009 Admitted observation ADDED to numerator and denominator of DSH Calculation For IME non-admitted days REDUCE available beds Pre CRP> 10/1/2009: Days not included in DSH and IME Calculation 15

16. Worksheet C Issues Objective is to improve how hospitals categorize Medicare charges, total charges and total costs into departments Mismatch with the CCR and/or mismatch between CCR and Medicare charges Mismatch between how hospitals categorize on the cost report and how CMS categorizes on MedPAR file 16

17. Cost Report Changes Provider CCRs will vary from national. Values: Mark-up formula. Cost center groupings. CMS groupings outlined . Why is EEG grouped w/Lab? Can this information be used to evaluate pricing strategy beyond Medicare? 17

18. Charge Compression Higher % markup over costs to lower cost items; lower % markup over costs to higher cost items. Cost based weights undervalue high cost items and overvalue low cost items. Potential distortions to the cost-based weights resulting from inconsistent reporting between the cost reports and the Medicare claims. 18

19. Medical Supplies v Implantable Devices Medical Supplies (UB 270-274; 621-623) (Line 55/71) Implantable Devices (UB 275-278; 624) (Line 55.30/72) Classify all billable supply cost and charges based on UB codes Accommodate through general ledger or through an A-6 reclassification based on volume or charges in the revenue usage report Highly recommended for CRP> 5/1/09 Mandated CRP>2/1/2010 19

20. Medicare Bad Debts Unpaid deductible and coinsurance amounts related to covered hospital services Reimbursed @ 70% of the amount (100% for CAH) Reasonable collection efforts consistent among all payers Debt actually uncollectible when claimed as worthless Cannot be claimed as bad debt until returned from collection agency, unless subject to OBRA ’87 Moratorium 20

21. Medicare Bad Debts Collection effort must be documented in patient file Collection may include use of a collection agency in addition to or in lieu of subsequent billings 120 day rule – beginning on the date of the first bill sent to the patient “Presumed uncollectible” after 120 days 21

22. Medicare Bad Debts Medicare/Medicaid crossover patients (must bill requirement) Indigent patients (Hospital must establish indigence) Deceased patients (Must document lack of estate) Bankrupt patients (Must document court filings etc) May all be claimed without collection effort (no 120-day rule) (varies with intermediary) 22

23. Medicare Bad Debts Recoveries must be netted against bad debt expense claimed – even if the claim was originally included in a prior year bad debt submission Prorate recoveries not specifically identified as payment for covered/non-covered services 23

24. Medicare Bad Debts • May 2, 2008 CMS memorandum • Contractors to disallow bad debts if not returned from collection agency • Settlements issued after May 2, 2008 24

25. Documentation/Listing 25

26. Interns & Residents Direct graduate medical education (GME) Indirect graduate medical education (IME) 26

27. Simplified DGME Calculation 1996 allowable FTEs 15 Current (3-year average) FTEs 20 Current allowable FTEs 15 Per resident amount (PRA) x $60,000 Medicare utilization x 40% Medicare GME reimbursement = $360,000 Amount is allocated to inpatient and outpatient based on total Medicare costs (generally about 80% Part A; 20% Part B) Current period Medical Education costs not considered Special Rules apply for: New Programs Dental & Podiatry Residents Residents Redistributed 27

28. IME Formula 1.32 x [(1 + (I&R Count/Available Beds)).405 - 1] = IME Factor Intern-to-bed ratio is limited to the lesser of the current year or prior year Rolling average count of residents (current year, plus two previous years)/3 Available beds adjusted for observation services Multiplier changes reflected in Final PPS rule update Different factors may apply to portion of cost reporting period) Special Treatment for: New Programs Dental & Podiatry Residents Residents Redistributed The IME factor is then multiplied by the DRG payment, excluding any outliers to calculate reimbursement for IME (includes “simulated DRG” for MC enrollees) 28

29. IME Rule Updates Amending Patient Days / Available bed counting impacting Intern-to-bed ratio. CMS/MedPac finds little correlation between statutory IME formula and incremental operating costs incurred by having a medical education program. MedPAC asserts that the current level of the IME adjustment factor, 5.5 % for every 10% increase in resident-to-bed ratio, overstates IME payments by more than twice the empirically justified level, resulting in approximately $3 billion in overpayments. The empirical level of the IME adjustment is estimated to be 2.2 percent for every 10 percent. 29

30. Counting Residents (How) Must be part of an approved program Count no resident as more than one FTE Count the resident as a partial FTE in proportion to the time spent in an allowable setting GME only – residents not within the initial residency period and certain foreign medical graduates must be appropriately weighted Information captured in IRIS (filed with cost report) 30

31. Counting Residents (When/Where) Hospital Rotations: Related to Patient Care (includes didactic time and patient specific research) PPS component (IME) Non-provider setting (clinics, private physician offices) provided that: Patient care activities are undertaken Written agreement with the outside entity and hospital pays the resident’s stipend and fringe benefit Teaching compensation is identified 31

32. Counting Residents (Issues) Reimbursement Issues: Double counting of residents (related to new programs and slots vacated from one program to the other). Counting residents rotating to off-site locations. Matching compensation agreements to resident time-sharing arrangements. Rural Hospital Exception – Allows cost reimbursement for medical rotations to Critical Access Hospitals. May obtain new program exemption at any time (for new programs). New Programs – New programs are exempt from 1996 Resident count limitation. 32

33. “New Programs” Characterization by accrediting body (CMS says receiving initial accreditation for the first time). New Program director. New Faculty (teaching staff). Only New Residents. Relationship between hospitals. Degree to which the hospital with the original program continues to operate its own program in the same specialty. 33

34. “Affiliated” “New Programs” (new provider agreement). Temporary adjustment to cap for programs that begins other than July 1. Temporary adjustment cannot be applicable prior to effective date of new provider agreement. Requires hospital to submit a new affiliation agreement before end of cost reporting period. Requires other hospitals in affiliated group to also file amended affiliation agreements. 34

35. Disproportionate Share (DSH) Hospitals may qualify for an additional payment per discharge for serving a disproportionate share of low income patients: DSH patient percentage defined as: Medicaid utilization (based on patient days) + Supplemental Security Income (SSI) percentage (obtained from CMS) = DSH percentage 35

36. IPPS: DSH Medicaid utilization: Medicaid paid days (per provider or state records) Medicaid HMO paid days Out-of-state Medicaid paid days Additional eligible days (in and out of state) SSI Component recalculation Based on provider fiscal year Based on internal verification/validation process (compared to CMS calculation) 36

37. SSI 37

38. IPPS: DSH Hospitals > 100 beds - Little correlation between statutorily required DSH add-on adjustment and implied higher-cost of treating low-income patients. Hospitals < 100 beds - No correlation… Future Considerations – Currently frozen by statue, but could incorporate DSH payment into DRG payment for larger hospitals and eliminate payment for smaller hospitals. Suggested payment formula would represent a material reduction in payments to large DSH hospitals. MedPAC found that costs per case increase about 0.4 percent for each 10 percent increase in the low income patient percentage. (According to MedPAC, in RY 2004, about $5.5 billion in DSH payments were made above the empirically justified level.) 38

39. New Rules for PRRB Appeals www.cms.hhs.gov/PRRBReview/Downloads/PRRBRules2008.pdf Effective Date: For appeals pending or filed on or after Aug. 21, 2008 Reasons for change: 1. Update 30 year old regulations 2. Reduce PRRB case backlog 3. Codify existing PRRB practices 39

40. New Rules for PRRB Appeals:Process Due Dates (Group Appeals-Time from group being fully formed) Provider’s Preliminary PP: 2 months Intermediary’s Preliminary PP: 6 months Provider’s Rebuttal (Optional): 9 months Position Paper Process: Provider’s Final PP: 90 days prior to hearing Intermediary’s Final PP: 60 days prior to hearing Provider’s Final Rebuttal: 30 days prior to hearing Appeal Criteria (Generally the same): 1. Provider dissatisfied with final determination 2. Timing-Within 180 days from the NPR 3. Amount in controversy $10,000 or more for individual appeal and 50,000 or more for group appeal 40

41. New Rules for PRRB Appeals: Add/Change Adding issues to Appeal: 1. Request must be received by the Board no later than 60 days after the expiration of the initial 180 day filing period instead of prior to hearing date 2. For appeals pending as of Aug 21, 2008 the deadline is the later of: a . 60 days after the expiration of the 180 day filing period (240 days) or b. Oct. 20, 2008 Changes to Initial Filing: For cost reports ending on or after 12/31/08, providers will not be able to appeal an item unless they can show an audit adjustment or demonstrate they followed applicable procedures for filing a cost report under protest. (Little Company of Mary…) Timeliness: Board must receive the appeal no later than 180 days after NPR. 41

42. Cost Report Update ACA Rural Hospital Changes 2552-96 to 2552-10 Crosswalk Cost report Connection to Charity Care 42

43. ACA Rural Hospital Changes OP hold harmless (TOPS) through 12/31/10 All SCH (now includes SCH>100 beds) Small rural providers (<100beds) Cost reimbursement for certain clinical diagnostic lab services for hospitals in rural areas MDH program through 10/1/2012 (rural<100 beds; 60%) Low volume payment (sliding scale ; rural hospitals<1600 total discharges) CAHs paid @ 101% of reasonable cost for all services 43

44. Other Cost Report Items/Update General CR periods beginning 5/1/10 New redesigned cost report 2552-10 Obsolete lines/columns and worksheets deleted and renumbered Standard subscripts eliminated (wage index, settlement etc) New or revised worksheets added S-2 reorganized to group info together (i.e. All CAH questions will be in one section) S-2 PT II incorporates Exhibit 1 of CMS 339 (part of ECR) All SNF Info will be on S-7 instead of S-2 and S-7 44

45. 2552-96 to 2552-10 Changes 45

46. 2552-96 to 2552-10 Changes 46

47. 2552-96 to 2552-10 Changes 47

48. 2552-96 to 2552-10 Changes 48

49. 2552-96 to 2552-10 Changes 49

50. Uncompensated Care Discussion • What percentage of uncompensated care does your organization incur annually? • What percentage of your organization's uncompensated care is charity?