Medicare Reimbursement 101 Medicare Payments and Cost Reporting - - PowerPoint PPT Presentation

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Medicare Reimbursement 101

Medicare Payments and Cost Reporting December 2019 Julie DiFrancesco Executive Vice President Medicare Reimbursement Revint Solutions

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Agenda

Day 1:

• Introduction and Overview of the Medicare Program and Medicare

Payment Methodologies

Day 2:

• Walkthrough of a Sample Medicare Cost Report

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Introductions

• Name
• Organization
• Title
• Number of years in healthcare
• Number of years in reimbursement
• What do you hope to get out of this class?
• What was your very first job and how did you spend your

first paycheck(s)?

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Overview of the Medicare Program

Medicare was established in 1965 as part of the Social Security Amendments of 1965

• Title XVIII of the Social Security Act
• Medicaid is Title XIX of the Act

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Overview of the Medicare Program

Administration of the program

• The Secretary of The Department of Health and Human

Services (HHS) is responsible for the overall administration of the program

• Within HHS, the Centers for Medicare and Medicaid

Services (CMS), formerly known as the Health Care Financing Administration (HCFA), administers the program

• CMS contracts with entities to act as Medicare

Administrative Contractors (MACs)

• Non-governmental
• Provides reimbursement and audits cost reports
• Processes claims
• Other

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Overview of the Medicare Program

Eligibility:

• Part A
• Automatic upon age 65 if entitled to Social Security benefits
• Under age 65 if due to disability or End-Stage Renal Disease

(ESRD)

• Citizen or permanent resident of the U.S.
• Part B
• Voluntary program for those 65 or older who elect to enroll and

pay

• Possible to receive Part B benefits without being eligible for Part A

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Overview of the Medicare Program

Benefits and services:

• Part A
• Inpatient hospital care and skilled nursing
• Home health – post-institutional services for up to 100 visits
• Part B
• Outpatient hospital services, physician services, home care,

durable medical equipment and ambulance services

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Overview of the Medicare Program

Initial intent of the Medicare program:

• Pay actual costs incurred, regardless of variances among

providers

• Reasonable direct and indirect cost of providing,

maintaining and delivering patient care related to services to Medicare beneficiaries

• Limitations to costs:
• Reasonable
• Directly related to patient care

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Overview of the Medicare Program

Simplified cost reimbursement calculation: Hospital cost of rendering patient care $1,000,000 Hospital Medicare patient days 50,000 Total hospital patient days 100,000 Hospital Medicare utilization 50% Amount due to the hospital $500,000

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Overview of the Medicare Program

Restrictive steps taken by government

• 1982 – Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA)

• 1984 – Inpatient Prospective Payment System (IPPS) for

certain hospital inpatient operating costs

• 1985 – Graduate Medical Education (GME)
• 1991 – PPS for capital costs

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Overview of the Medicare Program

Restrictive steps taken by government

• 1997 – Balanced Budget Act (BBA)
• 1999 – Balanced Budget Refinement Act (BBRA)
• 2000 – Benefits Improvement and Protection Act (BIPA)
• 2003 – Medicare Prescription Drug, Improvement and

Modernization Act (MMA)

• 2010 – Affordable Care Act (ACA)

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Inpatient Prospective Payment System (IPPS)

Operating Costs

• Payment rates determined based on categories of illness:

Medicare severity diagnosis-related groups (MS-DRGs)

• MS-DRG payment rates are full payment for inpatient
• perating costs except for some specific items (add-on

payments)

• MS-DRG payment rates are updated annually
• Patients continue to be liable for deductible and

coinsurance

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Inpatient Prospective Payment System (IPPS)

• Weighting factors established for each MS-DRG (relative

weights) – designed factors to measure resource consumption relative to a particular illness

• Periodic adjustments made to reflect changes in resource

consumption, treatment patterns, technology and other factors

• Unique MS-DRG assigned to each Medicare discharge

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Sample MS-DRG List from Federal Register

TABLE 5.—LIST OF MEDICARE SEVERITY DIAGNOSIS-RELATED GROUPS (MS-DRGS), RELATIVE WEIGHTING FACTORS, AND GEOMETRIC AND ARITHMETIC MEAN LENGTH OF STAY—FY 2020 Correction Notice MS-DRG FY 2020 FINAL Post-Acute DRG FY 2020 FINAL Special Pay DRG MDC TYPE MS-DRG Title Weights Geometric mean LOS Arithmetic mean LOS 190 Yes No 04 MED CHRONIC OBSTRUCTIVE PULMONARY DISEASE W MCC 1.1440 3.6 4.5 191 Yes No 04 MED CHRONIC OBSTRUCTIVE PULMONARY DISEASE W CC 0.8928 3.0 3.6 192 Yes No 04 MED CHRONIC OBSTRUCTIVE PULMONARY DISEASE W/O CC/MCC 0.7092 2.4 2.9 193 Yes No 04 MED SIMPLE PNEUMONIA & PLEURISY W MCC 1.3335 4.2 5.2 194 Yes No 04 MED SIMPLE PNEUMONIA & PLEURISY W CC 0.8886 3.2 3.8 195 Yes No 04 MED SIMPLE PNEUMONIA & PLEURISY W/O CC/MCC 0.6821 2.6 3.0 196 Yes No 04 MED INTERSTITIAL LUNG DISEASE W MCC 1.6754 4.8 6.2 197 Yes No 04 MED INTERSTITIAL LUNG DISEASE W CC 1.0215 3.2 4.0 198 Yes No 04 MED INTERSTITIAL LUNG DISEASE W/O CC/MCC 0.7550 2.4 2.9 199 No No 04 MED PNEUMOTHORAX W MCC 1.7941 5.2 6.7 200 No No 04 MED PNEUMOTHORAX W CC 1.0821 3.3 4.2 201 No No 04 MED PNEUMOTHORAX W/O CC/MCC 0.7180 2.4 3.0 202 No No 04 MED BRONCHITIS & ASTHMA W CC/MCC 0.9480 3.0 3.7 203 No No 04 MED BRONCHITIS & ASTHMA W/O CC/MCC 0.6938 2.3 2.8 204 No No 04 MED RESPIRATORY SIGNS & SYMPTOMS 0.8125 2.2 2.8 205 Yes No 04 MED OTHER RESPIRATORY SYSTEM DIAGNOSES W MCC 1.6342 4.1 5.6 206 Yes No 04 MED OTHER RESPIRATORY SYSTEM DIAGNOSES W/O MCC 0.8725 2.4 3.1 207 Yes No 04 MED RESPIRATORY SYSTEM DIAGNOSIS W VENTILATOR SUPPORT >96 HOURS 5.7356 12.0 14.1 208 No No 04 MED RESPIRATORY SYSTEM DIAGNOSIS W VENTILATOR SUPPORT <=96 HOURS 2.4841 4.9 6.8 215 No No 05 SURG OTHER HEART ASSIST SYSTEM IMPLANT 12.8861 4.9 8.0 216 Yes Yes 05 SURG CARDIAC VALVE & OTH MAJ CARDIOTHORACIC PROC W CARD CATH W MCC 10.0424 13.7 16.0

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Transfer DRG

Medicare reduces DRG payments when:

• The patient’s Length of Stay (LOS) is at least 1 day less

than the geometric mean DRG LOS

• The hospital transfers the patient to another IPPS-

covered acute care hospital, or for certain MS-DRG patients, a post-acute setting

• The hospital transfers the patient to a hospital without a

Medicare Program participation agreement

• The hospital transfers the patient to a Critical Access

Hospital (CAH)

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Case Mix Index

Case mix index (CMI) – A scale that measures the relative difference in resource intensity among different groups in a clinical model; the more severe the case(s), the higher the CMI

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FFY20 National Standardized Amounts

FY 2020 CN Tables 1A-1E TABLE 1A. NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS; LABOR/NONLABOR (68.3 PERCENT LABOR SHARE/31.7 PERCENT NONLABOR SHARE IF WAGE INDEX GREATER THAN 1) Hospital Submitted Quality Data and is a Meaningful EHR User (Update = 2.6 Percent) Hospital Submitted Quality Data and is NOT a Meaningful EHR User (Update = 0.35 Percent) Hospital Did NOT Submit Quality Data and is a Meaningful EHR User (Update = 1.85 Percent) Hospital Did NOT Submit Quality Data and is NOT a Meaningful EHR User (Update = -0.4 Percent) Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor- related $3,959.10 $1,837.53 $3,872.28 $1,797.23 $3,930.16 $1,824.10 $3,843.34 $1,783.80 TABLE 1B. NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX LESS THAN OR EQUAL TO 1) Hospital Submitted Quality Data and is a Meaningful EHR User (Update = 2.6 Percent) Hospital Submitted Quality Data and is NOT a Meaningful EHR User (Update = 0.35 Percent) Hospital Did NOT Submit Quality Data and is a Meaningful EHR User (Update = 1.85 Percent) Hospital Did NOT Submit Quality Data and is NOT a Meaningful EHR User (Update = -0.4 Percent) Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor- related $3,593.91 $2,202.72 $3,515.10 $ 2154.41 $3,567.64 $2,186.62 $3,488.83 $2,138.31

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FFY20 Wage Index Table

Table 3- WAGE INDEX TABLE BY CBSA - FY 2020 (CONTAINS THE FOLLOWING DATA: AVERAGE HOURLY WAGE, WAGE INDEXES AND THE GAF. ALSO INCLUDES WAGE INDEXES PRIOR TO APPLICATION OF THE FRONTIER WAGE INDEX AND/OR RURAL FLOOR AS WELL AS AN INDICATOR FOR CBSAs ELIGIBLE FOR THE FRONTIER AND/OR RURAL FLOOR WAGE INDEX)- FY 2020 CORRECTION NOTICE CBSA Area Name State State Code

2FY 2020

Average Hourly Wage

23-Year

Average Hourly Wage (2018, 2019, 2020) Wage Index GAF Reclassified Wage Index Reclassified GAF State Rural Floor Eligible for Frontier Wage Index

4Eligible for

Rural Floor Wage Index

3Pre-Frontier

and/or Pre- Rural Floor Wage Index Reclassified Wage Index Eligible for Frontier Wage Index

4Reclassified Wage

Index Eligible for Rural Floor Wage Index

3Reclassified Wage

Index Pre-Frontier and/or Pre-Rural Floor 33 NEW YORK PA 39 38.1609 37.3985 0.8261 0.8774 33 NEW YORK NY 33 38.1609 37.3985 0.8618 0.9032 0.8618 0.9032 0.8618 35614 New York-Jersey City-White Plains, NY-NJ NY 33 56.9664 55.6839 1.2866 1.1884 1.2720 1.1791 35614 New York-Jersey City-White Plains, NY-NJ NJ 31 56.9664 55.6839 1.2866 1.1884 1.2720 1.1791

Table 3- WAGE INDEX TABLE BY CBSA - FY 2020 (CONTAINS THE FOLLOWING DATA: AVERAGE HOURLY WAGE, WAGE INDEXES AND THE GAF. ALSO INCLUDES WAGE INDEXES PRIOR TO APPLICATION OF THE FRONTIER WAGE INDEX AND/OR RURAL FLOOR AS WELL AS AN INDICATOR FOR CBSAs ELIGIBLE FOR THE FRONTIER AND/OR RURAL FLOOR WAGE INDEX)- FY 2020 CORRECTION NOTICE CBSA Area Name State State Code

2FY 2020

Average Hourly Wage

23-Year

Average Hourly Wage (2018, 2019, 2020) Wage Index GAF Reclassified Wage Index Reclassified GAF State Rural Floor 33 NEW YORK PA 39 38.1609 37.3985 0.8261 0.8774 33 NEW YORK NY 33 38.1609 37.3985 0.8618 0.9032 0.8618 0.9032 0.8618 35614 New York-Jersey City-White Plains, NY-NJ NY 33 56.9664 55.6839 1.2866 1.1884 1.2720 1.1791 35614 New York-Jersey City-White Plains, NY-NJ NJ 31 56.9664 55.6839 1.2866 1.1884 1.2720 1.1791

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MS-DRG Payment Calculation

Patient discharge date: July 1, 2020 MS-DRG assigned: Simple Pneumonia #195 Hospital location: New York, New York National rates from the IPPS Final Ruling for FFY 2020: Labor Non-labor $3,959.10 $1,837.53 Area wage index factor – NYC 1.2866 MS-DRG #195 Simple Pneumonia .6821

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MS-DRG Payment Calculation

National Area Wage Adjusted Rate Factor Rate Labor $3,959.10 1.2866 $5,093.78 Non-labor 1,837.53 n/a 1,837.53 Base DRG payment rate $6,931,31 MS-DRG #195 Simple Pneumonia .6821 Total patient claim payment $4,727.85

NOTE: There may be add-on amounts for disproportionate share (DSH) or indirect medical education (IME), as applicable

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Inpatient Prospective Payment System (IPPS)

Capital Costs

• Capital-related costs
• Depreciation
• Interest
• Amortization
• Operating lease or rentals
• Property taxes
• Property insurance
• Depreciation expense is considered capital when asset is

depreciated utilizing the straight-line method over the approved useful life

• Interest expense recognized net of interest income

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Inpatient Prospective Payment System (IPPS)

Capital Costs

• Payment system utilizes a published federal rate per

discharge

• Federal Standard Capital Amount from FFY20 Federal

Register:

TABLE 1D. - CAPITAL STANDARD FEDERAL PAYMENT RATE Rate National $462.33

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Inpatient Capital Payment Calculation

Published federal rate (FFY2020) $462.33 Geographic adjustment factor (GAF) 1.1884 Federal rate per discharge $549.43 MS-DRG #195 Simple Pneumonia .6821 Payment rate per discharge $374.77

NOTE: There may be add-on amounts for disproportionate share (DSH) or indirect medical education (IME), as applicable

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Outliers

• Outliers are defined as cases involving atypical costs
• A discharge may qualify as a high cost outlier if the cost of

covered services exceeds the cost threshold established by CMS

• Currently, the cost outlier “fixed loss” threshold is the DRG

payment for the applicable DRG plus $25,743 plus any DSH, IME and/or new technology payments, adjusted for area wage differences; hospitals receive an additional payment (marginal cost factor) equal to 80% of the difference between the hospital’s adjusted cost for the discharge and the cost threshold

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New Technology Payments

• CMS established that a new technology would be a

candidate for an additional payment when it represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries. The following were previously approved and continue eligibility in FFY 2020:

• VYXEOS

Remede System Kymriah/Yescarta

• GIAPREZA

AndexXa

• VABOMERE

Sentinel Cerebral Protection System

• ZEMDRI

Aquabeam

• New approvals for FFY 2020:
• AZEDRA

ERLEADA CABLIVI

• SPRAVATO

ELZONRIS XOSPATA

• Erdafitinib

JAKAFI T2Bacteria Panel

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Polling Question

The original intent of the Medicare program was to pay hospitals

• A. Their cost of providing care to all patients
• B. Their cost of providing care to Medicare and Medicaid

patients

• C. Their cost of providing care to Medicare patients

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Wage Index

What is Wage Index?

• Section 1886(d)(3)(E) of the Social Security Act,

“Adjusting for Different Area Wage Levels,” requires that as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the proportion of hospital costs attributable to wages and wage related costs for area differences in hospital wage

• levels. This adjustment factor, the wage index, reflects the

relative hospital wage level in the geographic area compared to the national average hospital wage level.

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Wage Index

• The Wage Index Factor (WIF) measures relative

differences between each labor market’s average hourly rate and the national average hourly rate

• The WIF is a cost of living differentiator that is a primary

driver in determining a health care provider’s reimbursement under the Medicare Prospective Payment System (PPS)

Inpatient MS-DRG payments Skilled nursing facility Disproportionate Share (DSH) Home health Indirect medical education (IME) Inpatient rehabilitation Outpatient APCs Psychiatric facility

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Wage Index

• Hospital compensation and paid hours are included to

develop the geographic market’s average hourly wage (AHW) – weighted based on total adjusted salaries.

• The geographic market’s AHW is compared to the

National AHW to calculate the Wage Index Factor (WIF).

• Total DRG payments for the country are budget-neutral;

therefore, the wage index is a zero-sum gain.

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Wage Index

This is a TEAM SPORT!

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Wage Index

Labor Market: ABC Labor Market Hospital Name Salaries Hours AHW % of CBSA Hospital A $ 83,370,874 3,200,000 $ 26.05 23.9% Hospital B $ 49,244,995 1,485,000 $ 33.16 14.1% Hospital C $ 84,619,069 3,500,000 $ 24.18 24.3% Hospital D $ 64,370,601 2,400,000 $ 26.82 18.5% Hospital E $ 67,211,235 2,300,000 $ 29.22 19.3% Total $ 348,816,774 12,885,000 $ 27.07 100.0% Divided by National AHW $ 26.29 WIF for ABC Labor Market 1.03

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Wage Index

• The WIF is applied to the ‘labor’ component of the

standardized amount which is approximately 65% of the total standardized amount. For FFY 2018:

• WIF <= 1.00 labor component = 62%
• WIF > 1.00 labor component = 68.3%
• The standardized amount is updated annually and

published in the Federal Register.

• Labor markets referred to as a Core-Based Statistical

Areas (CBSAs) as defined by the President’s Office of Management and Budget. Every state, except for New Jersey and Rhode Island has a rural CBSA.

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Wage Index

Comparison of CBSAs Component Ohio Rural Cleveland Houston New York City Labor Component 3,593.91 3,593.91 3,959.10 3,959.10 WIF 0.8101 0.8819 1.0021 1.2866 2,911.43 3,169.47 3,967.41 5,093.78 Non-labor Component 2,202.72 2,202.72 1,837.53 1,837.53 Total 5,114.15 5,372.19 5,804.94 6,931.31 DRG Weight 0.6821 0.6821 0.6821 0.6821 Total Patient Claim 3,488.36 3,664.37 3,959.55 4,727.85 # of Case 2,500 2,500 2,500 2,500 Total Payment 8,720,898.30 9,160,925.68 9,898,880.94 11,819,613.07 Difference from Previous Column 440,027.38 737,955.26 1,920,732.13 Difference from OH Rural 1,177,982.64 3,098,714.77

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Wage Index

• Wage Index values are based on data reported by

hospitals on Worksheet S-3, Parts II and III of their Medicare cost reports.

• These worksheets do not have any impact on Current

Year Medicare Settlement – they drive future Medicare PPS payments.

• The FFY 2020 wage index values are based on the data

collected from the Medicare cost reports beginning in FFY 2016 (cost reports that began between 10/01/2015 through 09/30/2016).

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Wage Index

• If a hospital has more than one cost reporting period

beginning during this period:

• The longest period should be selected for review
• If the periods are the same length, select the latest period
• Public Use File (PUF) – periodic releases of information

that contain wage data for all IPPS hospitals across the country

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Wage Index

Currently under review: FY 2021 Wage Index Data

• The deadline to submit wage index revisions to the MAC

was September 3, 2019

• January 31, 2020 – Release of PUF
• February 14, 2020 – Deadline to submit requests for

corrections – no new data

• April 2, 2020 – Deadline for appeals (received by)
• April / May – preliminary and final PUFs

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Wage Index

• Hospital departments that should be involved in the

development of the wage data prior to a Medicare cost report filing:

• Reimbursement
• Accounts Payable
• Payroll
• Human Resources
• Finance
• Clinical Departments
• Overhead Departments

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Wage Index – Common Issues

Salaries

• Capitalized salaries (be sure to exclude related hours)
• A-8 Adjustments
• Worksheet A-8 is not segregated between Salary and Other costs
• If Salary is included in an A-8 adjustment, consider an A-6

reclassification to move the amount from the salary column to the other column (or vice versa). Make any adjustments to associated hours and fringe benefits

• PTO Accruals or other salary costs recorded in Employee

Benefits Department

• Consider an A-6 reclassification to move salary cost from this department

to the appropriate lines for proper fringe benefit allocation calculation

• Advanced Practitioners
• Are they billing separately or not?

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Wage Index – Common Issues

Hours

• Use of “canned” reports vs Labor Distribution Report

(LDR)

• Complete LDR will give the full picture and each pay code can b

analyzed

• LDR with job titles and/or job codes will make identification of physicians

and advanced practitioners easier

• Review of all pay codes
• Count only those hours included in the definition of a Full-Time

Equivalent (FTE) = 2,080 hours for exempt employees; 2,080 + overtime for hourly employees

• Reclassify hours associated with any A-6 salary

reclassifications

• Remove hours associated with capitalized labor

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Wage Index – Common Issues

Employee Benefits

• Pension Calculation for Defined Benefit plans
• Allocation of Benefits: Salaries or Hours (FTE’s)
• Only allocate benefits to those groups of employees that receive the

benefit

• Interns & Residents likely do not participate in defined benefit plans
• r other retirement plans
• Union workers may receive different benefits than other employee

groups

• FICA cap for high-income earners in excluded areas
• Self-insurance health insurance costs

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Wage Index – Common Issues

Home Office / Other Related Party

• Allocation methodologies (direct vs. pooled)
• Physicians paid through the home office
• Contract labor paid through the home office
• Fringe benefits paid through the home office

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Wage Index – Common Issues

Physician Salary & Hours

• Salary & hours should be reconciled to Worksheet A-8-2
• Differences may occur for Medical Directors, Advanced Practitioners and

fringe benefits

• Ensure that any salary amounts that are claimed on Lines

4.00 – 5.01 are also included in Line 1 of Worksheet S-3, Part II

• Ensure that any salary amounts that are claimed on Lines

4.00 – 5.01 are not also claimed on another excluded line

• Process for acquiring proper documentation for salaried

and contracted physicians, i.e. time studies/contracts

• Only exclude advanced practitioners if they bill separately

to the Part B Carrier

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Wage Index – Common Issues

Contract Labor

• Collection and analysis of contract labor documentation

should be an on-going task, not a year-end task

• Lack of documentation from vendors for paid hours
• Reconciliation to Invoices
• Only include costs relative to professional fees
• Do not include travel cost or other expenses
• Do not include contract labor expensed in excluded cost

centers

• Home Office contract labor should be reported on the

appropriate contract labor line, not in the Home Office line

• Intern & Resident contract labor should be reported on

Lines 7.01 AND 11.00

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Polling Question

When is the best time to examine wage data in detail?

• A. When filing the cost report
• B. During the amendment process after the cost report is

filed

• C. Never – we’ll let the MAC look for errors / omissions

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Occupational Mix Survey

• The Occupational Mix Survey is required to be completed

every three years

• Purpose is to control the effect of hospital’s employment

choices on wage index

• The data reported in the survey is used to calculate an
• ccupational mix adjustment factor to applied to the wage

index data

• CMS is using the data from the 2016 survey to calculate

the 2019, 2020 and 2021 wage index (was due July 2017)

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Occupational Mix Survey

• The survey collets data regarding the occupational mix of

employees, i.e. RNs vs. LPNs vs. aides, etc.

• Any hospital that is subject to IPPS or any hospital that

would be subject to IPPS if not granted a waiver is required to complete the survey

• Exclusions include
• Critical access hospitals
• No or low Medicare utilization providers

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Occupational Mix Survey

Same rules apply as for wage index

• Limit hours to FTE definition
• Include contract labor
• Include home office
• Overhead allocation calculation

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Geographic Reclassification

• Goal: Opportunity to increase Medicare payments by

demonstrating that your hospital has comparable labor costs to another market that has a higher wage index and that your hospital is in close proximity to that other market

• Individual hospital or group (county or statewide) can file

an application with the Medicare Geographic Classification Review Board (MGCRB) to reclassify to another labor market

• Applications are typically due on September 1 each year
• If approved, reclassifications are effective for a 3-year

period

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Geographic Reclassification

• Individual hospital reclassification:
• Urban: 108% and 84% tests and 15 miles
• Rural: 106% and 82% tests and 35 miles
• Group:
• 85% and adjacent
• Effects of reclassification
• Nobody can be negatively impacted
• Does not apply to distinct units or other non-acute

areas

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Disproportionate Share Hospital (DSH)

DSH is an add-on payment for qualifying hospitals that provide services to a ‘disproportionate share’ of indigent patients SSI% + Medicaid utilization% => 15%

• SSI% = Total SSI Patients / Total Medicare Patients (Provided by

CMS)

• Medicaid Utilization = Total Medicaid Eligible Days / Total

Patient Days (Internal Data)

• DSH formula determines DSH factor to be multiplied by total

DRG payments to calculate DSH reimbursement

• Pre-ACA – Hospital received 100%
• Post ACA – Hospital receives 25% + Portion of UCC Pool

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Disproportionate Share Hospital (DSH)

• SSI Re-determination
• CMS calculates the SSI% based on the Federal Fiscal

Year ending 9/30

• Hospitals may request a re-determination based on its

fiscal year end

• Must wait until cost report has been NPR’d
• Allina Case
• Covers years 2005 – 2013
• Settled in hospitals’ favor and removes MA days from

the denominator for these years

• Medicaid fraction not decided yet

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Uncompensated Care (Worksheet S-10)

Uncompensated Care (UCC) Pool Factors:

• Factor 1: Fund UCC Pool with 75% of total projected

DSH payments

• Factor 2: Adjustment for change in uninsured
• Factor 3: Old method distributed funds to hospitals based
• n the ratio of their specific Medicaid days

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Uncompensated Care (Worksheet S-10)

Factor 3 Calculation:

• Recent Changes in determining Factor 3
• Only S-10 Data from FFY 2015 cost reports will be

used to calculate a hospital’s Factor 3

• Since FFY 2018, data from Worksheet S-10 has been

incorporated into the calculation of Factor 3

• CMS had been using three years of data to protect

hospitals from undue payment fluctuations

• But for FFY 2020, UCC payment will be based only on
• ne year of Worksheet S-10 uncompensated care

data

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S-10 Implementation Schedule

Year Factor 3 Basis FFY 2014 1 Year FFY 2015 1 Year FFY 2016 1 Year FFY 2017 Mean of 3 Years Days Proxy 2011 Days Proxy 2012 Days Proxy 2013 FFY 2018 Mean of 3 Years Days Proxy 2012 Days Proxy 2013 WS S-10 2014 FFY 2019 Mean of 3 Years Days Proxy 2013 WS S-10 2014 WS S-10 2015 FFY 2020 1 Year FFY 2021 1 Year -??? FFY 2022 1 Year - ??? For Days Proxy, CMS uses # of Medicaid Days in HCRIS the March prior to the FFY Example: FFY 2018 Medicaid Days came from data in HCRIS as of March 2017. SSI Days: are the latest published SSI Ratios For FFY S-10 Cost information, CMS also uses data in HCRIS as of March prior to FFY WS S-10 2017 ??? CMS CALCULATES FACTOR 3 DIFFERENTLY EACH FFY CMS Data Source for Calculating Factor 3 Days Proxy 2011 Days Proxy 2012 Days Proxy 2012 WS S-10 2015 WS S-10 2016 ???

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Uncompensated Care (Worksheet S-10)

Uncompensated Care (UCC):

• “Cost” of charity and Financial Assistance Program

(“FAP”) write-offs plus

• Cost of non-Medicare bad debt
• Non-Reimbursable Medicare bad debt
• Cost is calculated using Worksheet C cost-to-

charge ratio (“CCR”)

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Uncompensated Care (Worksheet S-10)

How to Be a “Five Star” Medicare DSH Hospital

Empirically Justified Amount (OLD DSH) Charity Care Cost/Charge Ratio Policies Bad Debt

What’s your star rating?

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Uncompensated Care (Worksheet S-10)

What does the S-10 do?

• Redistributes billions of dollars
• Affects states differently
• Affects hospitals within each state differently
• Report every allowable dollar – this is a zero-sum

game

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Uncompensated Care (Worksheet S-10)

Approach to Complete S-10

• General Ledger Approach
• Historical approach used by most hospitals
• Simple but risky
• Sub Claim Level 835 Approach
• Complex but more accurate
• Claim by claim analysis

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Uncompensated Care (Worksheet S-10)

Hospital Bad Debt

• Non-Medicare Bad Debt
• GAAP vs. Medicare principals – timing issues
• Cannot duplicate Medicare bad debt claims in non-

Medicare bad debt

• Non-Reimbursable Medicare Bad Debt
• The other 35%

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Uncompensated Care (Worksheet S-10)

• Emphasize Optimizing your Empirically Justified Medicare

DSH amount.

• Where possible reopen prior years for DSH especially pre ACA years.
• Update your Uncompensated / Charity Care Policies and

Procedures to be in line with the latest CMS definitions of Charity Care.

• Upgrade your ability to find and document Charity Care

that you provide.

• Document, document, document
• Upgrade your ability to find and document relevant bad

debt claims

• Document, document, document
• Assure that your Cost to Charge Ratio is accurate

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Medicare Bad Debts (MBD)

• Deductible and coinsurance amounts due from patient are

subtracted from the total Medicare DRG payment

• If patient does not pay, hospital may collect from Medicare

65% of the amount

• Three areas of Medicare Bad Debts:
• Traditional – requires significant collections efforts and

documentation – usually sent to collection agencies

• Indigent – Charity, Deceased, Bankrupt
• Crossovers – patients dually eligible for both Medicare

and Medicaid

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Medicare Bad Debts (MBD)

• Recoveries must be netted against current year claims
• 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

• If using collection agency, cannot claim as bad debt

until the claim has been returned from the agency

• Timely billing of patient
• 90 days from last Medicare remit date
• There could be outliers due to billing, etc. that can be

included if documented

• 120-day rule – An account cannot be claimed as a

Medicare bad debt prior to 120 days from when the beneficiary was first billed or the most recent payment from any source

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Medicare Bad Debts (MBD)

• Medicare/Medicaid crossover patients
• Indigent patients
• Deceased patients
• Bankrupt patients

May all be claimed without collection effort

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Medicare Bad Debts (MBD)

Action Items:

• Have well-written and consistent policies and follow them
• Including policies for returning claims from collection

agencies

• Keep all necessary documentation for all categories
• Separate different categories of patient listings so any

audit adjustments are extrapolated to a smaller population

• Accounting for zero-balance accounts
• Accounting for Medicaid crossovers on AFS
• Know your MAC and understand what documentation is

required / what can be re-opened

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Class Discussion

What audit issues has your organization experienced during Medicare bad debt audits?

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Medical Education

Hospitals that have approved medical education programs are reimbursed for the cost of:

• Direct graduate medical education (GME) –

identifiable costs

• Indirect graduate medical education (IME) –

incremental costs

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Medical Education

GME reimbursement based on:

• Base year (1984) cost per resident amount

(PRA)

• Updating factor
• GME resident cap (1996)
• Current period resident count
• 3 year average
• Medicare utilization

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Medical Education

Simplified GME Calculation: 1996 allowable FTEs 30 (a) Current (3 year average) FTEs 35 (b) Current allowable FTEs (lesser of (a) or (b)) 30 Per Resident Amount (PRA) x $60,000 Medicare Utilization x 40% Medicare GME Reimbursement $720,000

• Amount is allocated to inpatient and outpatient based on total

Medicare costs

• Current period costs are not considered

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Medical Education

IME reimbursement based on formula: I&R Count .405 1.35 X [1+(Available Beds)] -1= IME Factor

• Intern-to-bed ratio is limited to the lesser of the current

year or prior year

• The IME factor is then multiplied by the DRG payment,

excluding any outliers to calculate IME reimbursement

• Current period costs are not considered

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Medical Education

• For cost reporting periods beginning on or after 10/1/97,

the total number of FTEs will be limited to the unweighted allopathic and osteopathic FTEs during the most recent cost reporting period ending on or before 12/31/1996

• Opportunities to increase cap – redistribution, affiliated group

agreements

• No limits on dental and podiatric resident FTEs
• The total FTEs are counted using a rolling average of the

current period and the preceding two periods

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Medical Education

• Must be part of an approved program listed in 42 CFR

415.152

• Primary care resident = family medicine, general internal

medicine, general pediatric, preventive medicine, geriatric medicine or osteopathic general practice (42 CFR 413.75(b))

• Count no resident as mort than one FTE
• Count the resident as a partial FTE in proportion spend

in an allowable setting

• GME only – Residents not within the initial residency

period and certain foreign medical graduates must be appropriately weighted

• IRIS data required to be filed with the MAC at the time of

cost report submission

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Medical Education

• For discharges occurring on or after 1/1/1998, hospitals

also receive Medical Education payments associated with Medicare managed care – must “shadow bill

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Medical Education

• Notify MAC regarding existence of new program for accurate interim

rate setting; this also allows time to implement any specific information requests they may require to “accept” the program

• Capture all appropriate program expenses in GME cost center
• Obtain and retain all required contracts for teaching physician

remuneration, resident employment agreements and accreditation notices

• Monitor regulatory changes for impact on GME operations and

contributions

• Document count of residents and ensure all required IRIS

information is available before the cost report is completed; this includes detailed rotation schedules and information regarding non- provider rotations (42 CFR 413.75(d))

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Medical Education – Margin Considerations

GME

• Reimbursement only based on Medicare share of costs
• Application of regional amounts likely to result in shortfall

comparing direct expenses to actual reimbursement amount

IME

• Cost report does not provide mechanism to capture

incremental costs that IME is designed to reimburse

Caution

• Evaluate each revenue stream separately when

considering the margin contribution associated with the Residency programs

• Regulatory changes may impact the continued viability of

the program

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Pass-Through Costs

Cost-Based Reimbursement:

• Nursing Schools
• Paramedical/Allied Health Education
• Organ Acquisition

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Nursing School and Allied Health

Nursing and paramedical training costs continue to be reimbursed on a reasonable cost basis Salaries (teachers, technicians, specialists) + Other (fringe benefits, supplies, etc.) = Total Allowable Costs XMedicare utilization (based on patient days) = Medicare reimbursement

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Organ Acquisition

Organ acquisition costs continue to be reimbursed on a reasonable cost basis Salaries (nurses, some physician, specialists) + Other (fringe benefits, supplies, etc.) = Total Allowable Costs XMedicare utilization (based on # of organs) = Medicare reimbursement

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Organ Acquisition

• Fees for physician services (preadmission for transplant donor and

recipient tissue-typing and all tissue-typing services performed on cadaveric donors)

• Cost for kidneys acquired from other providers or kidney procurement
• rganizations
• Transportation costs of kidneys
• Kidney recipient registration fees
• Surgeons' fees for excising cadaveric donor kidneys
• Tissue-typing services furnished by independent laboratories
• Other costs listed in cost report instructions
• Examine B-1 statistics to ensure that overhead is being stepped down

appropriately to organ acquisition

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Provider-Based Status

• Applies to both PPS and CAH facilities
• Relationship between an entity and the main hospital
• Additional reimbursement related to facility services reimbursed under

OPPS

• May be additional patient coinsurance responsibilities
• Professional services reimbursed under reduced physician fee

schedule

• Sites may be identified for inclusion in 340B program
• NEW – FFY2018 – in order to receive higher outpatient

reimbursement, facility must be within 250 yards of the main hospital facility

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Outpatient Prospective Payment System (OPPS)

• Prior to PPS – cost base reimbursement with limits
• The Balanced Budget Act of 1997 established a PPS for

hospital outpatient services effective August 1, 2000

• Cancer and children’s hospitals are permanently held

harmless

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Outpatient Prospective Payment System (OPPS)

• CMS implemented OPPS based on ambulatory payment

classifications (APCs), which cover the facility costs (operating and capital) of all hospital-based outpatient services provided to Medicare recipients

• Services are reimbursed by Medicare according to APC

groupings at established rates, similar to the way in which Medicare reimburses hospitals by MS-DRGs for inpatient hospital services

• Unlike the MS-DRG system, OPPS will allow outpatients

to be assigned more than one APC for services provided during a visit

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Overview of Medicare Cost Report

What is a Medicare cost report?

• A year-end report of statistical and financial data

used to determine the federal government’s liability for care provided to Medicare beneficiaries throughout the year

• This document is filed with the Medicare

Administrative Contractor (MAC), which determines the dollar amount due to/due from the government

• It also provides the Centers for Medicare and

Medicaid Services (CMS) with important statistical and financial data

• Due date = 150 days or 5 months after the hospital’s

fiscal year end

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Overview of Medicare Cost Report

Why are there monies due to/from the government?

• Certain services are paid to hospitals using estimates

from historical data; the settlement amount is the difference between the historical estimates and the current actual costs or data

• Certain services are paid prospectively; therefore, no

settlement is calculated at the end of the year for these services

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Overview of Medicare Cost Report

Who files cost reports?

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Overview of Medicare Cost Report

Provider Numbers

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Overview of Medicare Cost Report

Simplified cost reimbursement calculation: Hospital cost of rendering patient care $1,000,000 Hospital Medicare patient days 50,000 Total hospital patient days 100,000 Hospital Medicare utilization 50% Amount due to the hospital $500,000 Amount paid to hospital (based on estimates) 400,000 Receivable due to hospital $100,000

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Overview of Medicare Cost Report

With most services being paid prospectively, why should we care about the accuracy of the cost report?

• Compliance
• CMS uses the information submitted by hospitals through

the cost reports in aggregate to set future payment rates

• Potential use as a base year for a future change in

payment regulations

• Medicaid reimbursement, state DSH reimbursement, etc.

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Overview of Medicare Cost Report

Penalties for Not Filing

• Facility is placed on 100% withholding of Medicare

payments

• Interest Due
• May result in data (such as wage index) not being

incorporated into payment rates

• May result in being ineligible for exceptions or payment

relief (e.g., repayment plans)

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Overview of Medicare Cost Report

Why does cost report preparation take so much time?

• Data for filing comes from many areas
• Data must be gathered throughout the fiscal year, not

just at fiscal year-end

• Requires statistical and financial data
• Many individuals and departments have to share the

responsibility for the data

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Overview of Medicare Cost Report

Cost report preparation

• Set up a cost report work plan and timeline that includes:
• Training on policies, procedures and regulations for everyone

involved

• Data requests and coordination with other related parties
• Standardized workpapers
• Source documentation review
• Look for variances from prior year and investigate and

document

• Assign responsible person and expected completion date for

each step

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Overview of Medicare Cost Report

Data needs for the cost report preparation

• Audited financial statements and trial balance
• Provider Statistical and Reimbursement (PS&R) Report
• Medicare rate letters, exemption and exception letters (if

any)

• Census summary including Medicare, Medicaid and total

days and discharges

• Revenue and usage report
• Vendor distribution register (accounts payable for

contract labor)

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Overview of Medicare Cost Report

Data needs for the cost report preparation

• Physician allocation agreements, contracts and time

studies for all physicians who were paid for administrative, medical director or department head duties

• Statistics for allocation of overhead
• Numerous other items…..

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Overview of Medicare Cost Report

Medicare regulations

• Medicare regulations are published in the Federal

Register

• Each August 1, or thereabout, the final regulations are

printed for the Federal Fiscal Year (FFY) period 10/1 through 9/30 of the upcoming year (FFY 2019 will be published in August 2018 and will be effective 10/1/2018 through 9/30/2019)

• These regulations update the amounts to be paid to

Inpatient Prospective Payment System (IPPS) facilities

• Intermediary Manual 15 (HIM-15) instructs the MAC

regarding cost report allowability issues

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Overview of Medicare Cost Report

Medicare Payment Exempt Hospitals/Units Retrospective/Reasonable Cost w/Limits TEFRA Children’s Cancer Acute Care Hospitals Retrospective Reasonable Cost w/Limits Organ Acquisition Renal, Nursing/Paramedical Education, Bad Debts Prospective Payment System (PPS) Fee Schedule DRG, Outliers, DSH, IME, GME Capital, SNF, Rehab, LTAC, HHA, APC, Lab, Therapies, CORF, CMHC Psychiatric Physicians RBRVS

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Overview of Medicare Cost Report

• Report submitted to

contractor

• Cover letter
• ECR
• Other documentation
• Signature/certification

Cost report submission

• Contractor accepts report
• Requests additional

information

• Tentative settlement
• Audit scoping

Cost report settlement process

• Audited/reviewed
• Adjustments proposed
• Settlement data
• Cost adjustments
• Other
• Exit conference

Provider receives final settlement

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Overview of Medicare Cost Report

Appeals

• Intermediaries issue a Notice of Program Reimbursement

(NPR) once the cost report has been audited

• Facilities have 180 days from the date of the NPR to appeal

any determination included in the NPR

• The appeal request is processed by the Provider

Reimbursement Review Board (PRRB)

• The facility and intermediary argue their positions to the

PRRB which renders a judgment

• Must be something on the cost report that the MAC adjusted

to be appealed

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Overview of Medicare Cost Report

Re-openings

• Intermediaries issue an NPR once the cost report has

been audited

• The facility and the intermediary have three years from

the date of the NPR to reopen a determination included in the NPR

• Re-openings are processed by the intermediary
• Generally granted for significant omissions and/or

errors

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Overview of Medicare Cost Report

Source Data

The Cost Report CMS Form 2552

Other Operating Revenue

Expenses

Gains and Losses

Statistics Patient Revenues

Patient Days Patient Discharges Settlement Data

Process

PHASE I PHASE II Cost Allocation PHASE III Cost Apportionment PHASE IV Determining Settlement Amount Due to

• r from the

Provider Worksheet A Series Worksheet B Series Worksheet C and D Series Worksheet E, H, I, J & L Series Determining Allowable Cost

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Class Discussion

If someone with no healthcare experience asked you what is a Medicare Cost Report, how would you answer?

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Questions

CONTACT INFO:

Julie DiFrancesco Executive Vice President Reimbursement Julie.difrancesco@revintsolutions.com (330) 573-8196