North Carolina Desk Reviews, Field Reviews and O/P Settlements Presentation for the North Carolina Healthcare Financial

1. North Carolina Desk Reviews, Field Reviews and O/P Settlements Presentation for the North Carolina Healthcare Financial Management Association Clifton Gunderson LLP November 9, 2006

2. Who is Clifton Gunderson? • 13th largest CPA and consulting firm • Over 1,600 total personnel • Offices in 15 states and Washington, DC

3. Who is Team Health Care? Team Health Care (THC) is the health care compliance and consulting practice of CG which focuses on services delivered to federal and state government agencies.

4. Who is Team Health Care? THC offices include: • Baltimore, MD • Richmond, VA • Raleigh, NC • Indianapolis, IN • Austin, TX • Des Moines, IA

5. Areas of Expertise • Compliance Services • Health Care Consulting • Fraud and Abuse

6. Services Performed • Cost report audits/reviews (all provider types) • Cost settlements • Performance audits (MCOs) • MMIS audits (IT based) • DSH audits • Litigation support (DOJ/FBI) • Other consulting

7. Clients We serve clients in each of the states in which we have THC offices (MD, VA, NC, IN, IA, TX). In addition, we count the following among our clients: • CMS • Department of Justice • Federal Bureau of Investigation • Ohio Medicaid • Illinois Medicaid • Mississippi Medicaid • South Carolina Medicaid

8. Raleigh Office: Key Staff Bob Bullen, Contract Partner • Based in Baltimore Chuck Smith, Senior Manager-in-Charge • Based in Raleigh • Also oversee hospital reviews

9. Raleigh Office: Additional Staff • David McMahon, Manager • Raymond Johnson, Manager • Cheryl Morant, Senior Associate • Vivian Shi, Associate • Evelyn Massey, Associate

10. Staff from Other Offices • Tim Forry, Sr. Manager, Baltimore • Lucille Devore, Manager, Baltimore • Betty Morgan, Manager, Baltimore • Marcia Cole, Manager, Richmond • Others may assist depending on scheduling needs.

11. Staff from Other Offices All individuals from other offices have been/will be trained on North Carolina specifics. In addition, all work is reviewed by Raleigh office prior to issuance.

12. Review Process: Desk Reviews Desk Reviews (Issuing Agreed Upon Procedures Report) • DMA notification • CG initial request for information • Perform procedures on submitted information • Develop follow questions and requests

13. Review Process: Desk Reviews • Communicate follow up questions and requests • Incorporate additional information into desk review/complete procedures • Develop draft adjustments and communicate to provider • Give provider time to respond • Communicate changes to provider

14. Review Process: Desk Reviews • Management Review process • Detailed review performed by Manager or Senior Manager • Second review performed by Senior Manager or Partner • Sometimes lead to requests for additional information. • Any changes to adjustments will be communicated with opportunity to respond. • Prepare draft report and submit to DMA

15. Review Process: Desk Reviews • DMA reviews • DMA review could require further procedures. • In most instances, draft report “cleared” for final product. • Final report issued

16. Review Process: Field Reviews Field Reviews (Issuing Agreed Upon Procedures Report) • DMA notification • CG scheduling • Dina Pickens • Attempt to be a two/three months ahead • CG scheduling letter/initial documentation request

17. Review Process: Field Reviews • Contact from in-charge auditor • A week or two prior to fieldwork start date • Set-up time for arrival • Give information regarding audit team • Request GL detail (and AP if necessary) for accounts selected for substantive testing • Objective is to be able to select GL transactions for vouching (reviewing invoices) prior to arrival so those items may be available on the first day of field work.

18. Review Process: Field Reviews 5. Fieldwork • Will range from one-week to two weeks depending on complexity of procedures • Audit team will consist of one in-charge auditor and one or two assistants

19. Review Process: Field Reviews 6. Exit Conference • Typically to be held on the last day of field work • At times the exit conference may be delayed if significant test work has not been completed during the course of our on-site visit. • Arrangements will be made for alternate date based on circumstances. • Will discuss each proposed adjustment

20. Review Process: Field Reviews • Will provide you with copies of workpapers supporting adjustments or will send them the next working day • Will provide you a list of outstanding information requests • Will agree on a date when outstanding information is due

21. Review Process: Field Reviews 7. Upon receipt of outstanding information, will incorporate into workpapers, making any necessary changes. • Revised adjustments will be communicated, with an explanation of why any adjustment for which information was sent was not changed. • Will give a period of time to review and offer any additional evidence - typically two weeks

22. Review Process: Field Reviews 8. Any additional submissions will be incorporated • If adjustments changed, the revised adjustments will be communicated.

23. Review Process: Field Reviews 9. Final Steps • Draft report issued to DMA • DMA reviews workpapers • DMA review could require further procedures. • In most instances, draft report “cleared” for final product. • Final report issued

24. Review Process: Field Review Goal is to complete this process 2-3 months after exit conference • Depends on schedule of in-charge auditor • Depends on any outstanding information to be considered. • Unpredictable items

25. Desk Reviews: Materiality Investigation Threshold • Used to determine what changes from the prior year are material • Will request an explanation from provider as to why there was a material change • Will review explanation for reasonableness

26. Desk Reviews: Materiality Adjustment Threshold • Used as a guide on what questionable accounts need to be pursued further • Also used as a guide to determine which as-filed A-6 reclassifications and A-8 adjustments require further review.

27. Desk Reviews: Reconciliation Reconcile w/s A to WTB • Will ask for both summary WTB grouped by cost center and a detailed WTB Reconcile w/s C to WTB • Will ask for both summary WTB grouped by cost report cost center and a detailed WTB • Any material reclassifications of charges between cost centers will be reviewed to ensure proper matching of costs and charges

28. Desk Reviews: Reconciliation Reconcile w/s A and w/s C to audited financial statements • Purpose – To identify any costs that should not have been included on the cost report, and/or any cost items that should have been included as a NRCC. To identify any charges to have been omitted from the cost report. • We may request this be performed by the provider if we are unable to reconcile within tolerable limits.

29. Desk Reviews: WTB Review Will review the WTB for the following: • Any questionable material departments. • Inquiries will be made regarding the nature of these departments • Response to inquires will be reviewed for reasonableness • Further information may be requested

30. Desk Reviews: WTB Review • Any questionable accounts • Inquiries will be made regarding the nature of these accounts • Response to inquiries will be reviewed for reasonableness • Further information may be requested

31. Desk Reviews: Cost-to-Charge Ratios • Will question any cost-to-charge ratios that either very high or very low that have large Medicaid charges associated with them • May inquire, or may perform additional procedures • Will perform an analysis of a sample of cost centers to ensure that costs and charges are matched • This is done utilizing department numbers and/or descriptions • May lead to questions

32. Desk Reviews: Worksheets A-6, A-8, and A-8-1 • Material reclassifications and adjustments will be reviewed • Will trace to supporting workpaper • Supporting workpaper will be reviewed for mathematical accuracy, traced to WTB, and reviewed for overall reasonableness

33. Desk Reviews: Worksheets A-6, A-8, and A-8-1 • Inquires will be made regarding any significant discrepancies • The prior year adjustments and reclassification will be compared against current year to determine if there are any material items that were not made in the current year

34. Desk Reviews: Other Income • Other income from WTB, or other listing, will be reconciled to audited financial statements to ensure completeness • Any material items not offset on as-filed cost report for which the reason is not clearly evident will be questioned

35. Desk Reviews: Other Income • Responses to inquiry will be reviewed for reasonableness • This includes investment income - CMS Pub. 15-1: Section 202.2(C): • “Investment income for offset is the aggregate net amount realized from all investments of patient care funds in non-patient care related activities and may include interest, dividends, operating profits and losses, and gains and losses on sale or disposition of investments.”

36. Desk Reviews: Statistics • Any material changes from the prior year will be questioned • Response to inquiry will be reviewed for reasonableness

37. Desk Reviews: W/S A-8-2 • Will reconcile total remuneration to the WTB to ensure that all physician fees have been accounted for • Will inquire as to why certain accounts that appear to be physician fees have been excluded • Will review response for reasonableness. May request additional documentation such as Medical Director Agreement

38. Desk Reviews: W/S A-8-2 • Any splits between professional and provider components will be compared to signed time summaries submitted with CMS-339 • If nothing submitted with CMS-339, alternate information will be requested and reviewed. • If CMS-339 information is not signed, we may request other supporting information. • Any remuneration considered 100% provider component will be questioned. May request additional documentation to support such treatment (if not CAH). • Medical Director • ER Stand-by fees

39. Desk Reviews: W/S A-8-2 • Provider component hours will be agreed to CMS-339 or any alternate documentation obtained. They will be reviewed for reasonableness. • RCE limits will be compared to the Federal Register

40. Desk Reviews: Depreciation • As-filed depreciation expense will be reconciled to a summary depreciation schedule • Verifies that such expenses are supported by a fixed asset accounting system • A schedule of fixed-asset additions for the fiscal year under review will be reviewed to ensure proper treatment • Year of acquisition depreciation methods are consistent • Useful lives are reasonable

41. Desk Reviews: PS&R Data • Days, charges and payments (both inpatient and outpatient) will be agreed to the updated PS&R • To extent possible, provider crosswalk will be utilized • If Outpatient settlement had been previously performed, then that will be used

42. Desk Reviews: PS&R Data • Lab fee schedule charges and payments will be included • Zero-paid claims will not be included • CRNA charges and payments should be excluded

43. Field Reviews: Materiality Investigation Threshold • Used to determine what changes from the prior year are material.

44. Field Reviews: Materiality Adjustment Threshold • Used as a guide on what questionable accounts need to be pursued further • Also used as a guide to determine which as-filed A-6 reclassifications and A-8 adjustments require further review

45. Field Reviews: Reconciliation Reconcile w/s A to WTB • Will ask for both summary WTB grouped by cost center and a detailed WTB Reconcile w/s C to WTB • Will ask for both summary WTB grouped by cost report cost center and a detailed WTB • Any material reclassifications of charges between cost centers will be reviewed to ensure proper matching of costs and charges

46. Field Reviews: Reconciliation Reconcile w/s A and w/s C to audited financial statements • Purpose – To identify any costs that should not have been included on the cost report, and/or any cost items that should have been included as a NRCC. To identify any charges to have been omitted from the cost report. • We may request this be performed by the provider if we are unable to reconcile within tolerable limits.

47. Field Reviews: Prior Year Comparison Will review material changes from the prior year • Used to determine accounts to vouch and departments to review • May also include inquiries of the provider

48. Field Reviews: Prior Year Review Results Review any prior desk and/or field reviews and determine if same adjustments apply to the current year

49. Field Reviews: Cost-to-Charge Ratios Same as desk reviews, except can be used to identify expenses and/or charges that warrant substantive testing

50. Field Reviews: Worksheet A-6 and A-8 • Done to ensure accuracy and validity of as-filed adjustments and reclassifications • Same as desk reviews except supporting workpaper will be audited. Where applicable, information will be traced to source documentation. This includes an audit of any percentages used to determine amount to reclassify and/or adjust.