Georgia Hospital AssociationCenter for Rural Health

Annual Summer MeetingAugust 2014

Hospital Operations and the Medicare Cost Report

Presented By:Southwest Consulting Associates

Brief history of the reportBrief outline of the flow of the reportUse of the reportWhere operations and the cost report

intersectWage Data – Wage IndexDSH/ACA Uncompensated Care Pool

OVERVIEW

Pre 1980s – paid on cost up to limits1980s – Prospective Payment System for

Inpatient Acute implementedOutpatient, Psych, Rehab SNF, etc. to followCurrent use

Still used to settle certain cost/reimbursement items

Used extensively in rate setting and other program reimbursement decision making

Used by CMS, MACs, OIG, MedPac and Congress

HISTORY

REPORT FLOW

Worksheet A Series – GAAP expenses converted to Medicare allowable cost

Worksheet B Series – Allocate overhead cost to revenue producing cost centers

Worksheet C Series – Develop departmental cost – to – charge ratios

Worksheet D Series – Apportion cost among the programs

Worksheet E Series – Reimbursement settlement

Worksheet H Series – Home Health Agency

Worksheet I Series – Renal Dialysis

Worksheet J Series – Community Mental Health Centers

Worksheet K Series – Hospice

Worksheet L Series – Capital – Related Costs

Worksheet M Series – RHC and FQHC

MOST IMPORTANT SCHEDULE PART II – CERTIFICATION

MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINE AND/OR IMPRISONMENT UNDER FEDERAL LAW. FURTHERMORE, IF SERVICES IDENTIFIED IN THIS REPORT WERE PROVIDED OR PROCURED THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF A KICKBACK OR WHERE OTHERWISE ILLEGAL, CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINES AND/OR IMPRISONMENT MAY RESULT.

CERTIFICATION BY OFFICER OR ADMINISTRATOR OF PROVIDER(S)

I HEREBY CERTIFY THAT I HAVE READ THE ABOVE STATEMENT AND THAT I HAVE EXAMINED THE ACCOMPANYING ELECTRONICALLY FILED OR MANUALLY SUBMITTED COST REPORT AND THE BALANCE SHEET AND STATEMENT OF REVENUE AND EXPENSES PREPARED BY (PROVIDER NAME(S) AND NUMBER(S)) FOR THE COST REPORTING PERIOD BEGINNING 10/01/2011 AND ENDING 09/30/2012, AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS A TRUE, CORRECT AND COMPLETE STATEMENT PREPARED FROM THE BOOKS AND RECORDS OF THE PROVIDER IN ACCORDANCE WITH APPLICABLE INSTRUCTIONS, EXCEPT AS NOTED.

I FURTHER CERTIFY THAT I AM FAMILIAR WITH THE LAWS AND REGULATIONS REGARDING THE PROVISION OF HEALTH CARE SERVICES, AND THAT THE SERVICES IDENTIFIED IN THIS COST REPORT WERE PROVIDED IN COMPLIANCE WITH SUCH LAWS AND REGULATIONS.

(SIGNED) __________________________________________________OFFICER OR ADMINISTRATOR OF PROVIDER(S)

REPORT FLOW (con’t)

Mandatory submission requirementNon compliance penalty –

interim payments among othersEstimated completion time –

600 – 800 hoursAll subject to audit and

settlement

IMPLICATIONS OF SETTLEMENT??

Settled w/ Audit 26% Settled w/o Audit

73%

REPORT USE - EXAMPLES

Used by Medicare Medicaid Private Insurance Hospitals Others – Consultants,

Government entities, etc. Used For

Settlements CAHs SCHs MDHs DSH Bad debts Medical Education

Interim payments Rate Setting

Medicare weights, outlier thresholds, labor – related share, wage index, geographic reclassifications, etc.

Medicaid weights, standardized payment amounts, Medicaid DSH calculation, etc.

340B drug discount program qualification

ACA DSH/Uncompensated care reimbursement allocations

Contract analysis and negotiations

Financial reporting

OPERATIONS MEET COST REPORT

WAGE RELATED COSTS Objectives

Understand impact Understand where the data comes from Understand the rules behind the reported data Understand the process Factor this knowledge into decision making

Impacts virtually all aspects of Medicare reimbursement Rates

IP and OP PPS IP Psych IP Rehab LTAC Swing Bed HHA

Designations & Exceptions Geographic reclassification Others

OPERATIONS MEET COST REPORT (con’t)

WAGE RELATED COSTS (con’t)

Formula – IPPS payment

DRG standardized amountX Wage Related PortionX area wage index+non – wage related portionAdjusted standardized amount

The wage related portion of the standardized amount

derived by reported data, as is hospital AHW, area AHW

and national AHW

WAGE RELATED COSTS (con’t)Salaries

TOTAL SALARIESNON-PHYSICIAN ANESTHETIST PART ANON-PHYSICIAN ANESTHETIST PART BPHYSICIAN-PART A ADMINISTRATIVEPHYSICIAN-PART A - TEACHING PHYSICIAN-PART BNON-PHYSICIAN-PART BINTERNS & RESIDENTS (IN AN APPROVED PROGRAM) HOME OFFICE PERSONNELEXCLUDED AREA SALARIES

Other Wage & Related CostsCONTRACT LABOR CONTRACT MANAGEMENT AND ADMINISTRATIVE SERVICES CONTRACT LABOR: PHYSICIAN-PART A - ADMINISTRATIVE

Wage related CostsWAGE-RELATED COSTS (CORE) WAGE-RELATED COSTS (OTHER) EXCLUDED AREASNON-PHYSICIAN ANESTHETIST PART A NON-PHYSICIAN ANESTHETIST PART B PHYSICIAN PART A - ADMINISTRATIVE PHYSICIAN PART A - TEACHING

PHYSICIAN PART B WAGE-RELATED COSTS (RHC/FQHC) INTERNS & RESIDENTS (IN AN APPROVED PROGRAM

Overhead Costs – Direct SalariesEMPLOYEE BENEFITS ADMINISTRATIVE & GENERAL ADMINISTRATIVE & GENERAL UNDER CONTACTMAINTENANCE & REPAIRS OPERATION OF PLANTLAUNDRY & LINEN SERVICE HOUSEKEEPING HOUSEKEEPING UNDER CONTRACT DIETARY DIETARY UNDER CONTRACT (SEE INSTRUCTIONS) CAFETERIA MAINTENANCE OF PERSONNEL NURSING ADMINISTRATION CENTRAL SERVICES AND SUPPLY PHARMACY MEDICAL RECORDS & MEDICAL RECORDS LIBRARYSOCIAL SERVICE OTHER GENERAL SERVICE

WAGE RELATED COSTS (con’t)

Reported Salaries ReclassificationsAdjusted Salaries Paid Hours

1 NET SALARIES 358,459,076 6,583,218 356,042,294 8,949,948 40.79

2 EXCLUDED AREA SALARIES 20,214,312 1,574,878 21,789,190 826,722 26.36

3 SUBTOTAL SALARIES 338,244,764 5,008,340 343,253,104 8,123,226 42.26

4 SUBTOTAL OTHER WAGES & RELATED COSTS 23,548,885 23,548,885 233,933 100.67

5 SUBTOTAL WAGE-RELATED COSTS 89,901,693 89,901,693 26.19%

6 TOTAL (SUM OF LINES 3 THRU 5) 451,695,342 5,008,340 456,703,682 8,357,159 54.65

7 TOTAL OVERHEAD COST 103,821,465 1,903,921 105,725,386 2,797,105 37.80

WAGE RELATED COSTS (con’t)

Translated into a wage index:AHW MSA $35.00

Nat’l AHW $37.00

MSA Wage Index0.9459

WAGE RELATED COSTS (con’t) Priority objective –

review the data Begins with cost report

filing Year – Over – Year

analysis Overall assessment

Your hospital Hospitals in your

grouping Development

Timetable

May 2014 Release prelim wage data

July 2014 Release prelim occupational mix data

Oct 2014 Deadline for hospitals to request corrections

Dec 2014 Deadline for MAC to complete reviews

Feb 2015 Release revised WI and OM files

Mar 2015 Re-request corrections previously disclosed

Apr/May 2015

NPRM issued, reclassification withdrawal 45-days from publication

April 2015 MAC transmission of data

April 2015 Hospital deadline to appeal MAC determination

April 2015 Compiled data sent to MACs from CMS

May 2015 Release of PUFs

June 2015 Hospital deadline to request error correction

Aug 2015 Publish final payment rule

Oct 2015 Rates become effective

WAGE RELATED COSTS (con’t)

Occupational mix Adjustment Every three years 2013 most current – to be used in 2016

– 2018 WI Estimated 480 hours to complete the

research, compile the data, review and submit the survey

Adjust costs due to management decisions

DSH UNDER THE AFFORDABLE CARE ACT

Traditional formula – Medicare ratio + SSI ratio 100% payment

ACA formula 25% of traditional formula PLUS pro rata share of National Uncompensated Care PoolPool distribution based on days, to be converted to

uncompensated care cost

Cost report related facts Cost report drove the pre – ACA payment methodology Cost report drives 25% empirically justified piece Cost report drives UC pool “estimate” calculation Cost report drives the current UC pool distribution methodology Cost report expected to drive the new UC pool distribution pool

methodology

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

Key elements of the calculation

Operations considerations

Medicaid eligible days – impacts qualification,

empirical payment, UC payment

Medicaid patient ID, conversions, services and product lines, physicians,

Medicaid expansion

Hospital uncompensated care costs

Policies and procedures, federal and state laws,

Medicaid expansion

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

Factor 1

CMS DSH estimate

2011 base year

2011 = $11,498 B

DRG payment update factors to forecast 2015 DSH

2015 = $14,205 B

Reduced by 25% (empirically justified DSH)

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

Description Calculation2015 CMS DSH Estimate 14,205,283,21425% Emperically Justified DSH -3,551,320,804Factor 1: UC distribution pool (gross) 10,653,962,411

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

Factor 2

under uc distribution formulaDescription Calculation

2015 CMS DSH Estimate 14,205,283,21425% Emperically Justified DSH -3,551,320,804Factor 1: UC distribution pool (gross) 10,653,962,411

2013 Uninsured (non-elderly) 18%2014 Uninsured (non-elderly) 16%2015 Uninsured (non-elderly) 14%2015 Pro-rated ((16%*.25)+(14*.75)) 14.5%2015 Statutory Reduction +0.2%Factor 2 (1+((14.5%-18%)/18%)-0.2%) 80.36%

UC pool (net) = Factor 1 * Factor 2 8,561,050,684

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

Factor 3

Provider’s % of low income days = % UC pool distribution

Medicaid days + SSI days

Source: 2011 SSI days

Source: 2012 cost reports

DSH UNDER THE AFFORDABLE CARE ACT (con’t)Georgia Numbers

2014 Using days

($2,310,000) Using UC

$40,000,000 Priority

2015 Using days

($42,290,000) Using UC

($10,826,000)

Challenges Medicaid expansion

Denominator growing faster than numerator

Higher UC care Distribution basis

DSH UNDER THE AFFORDABLE CARE ACTS–10

“Although we have not yet developed revisions to the Worksheet S – 10 instructions at this time, we remain committed to making improvements to Worksheet S – 10. For that reason, we believe it would be premature to propose the use of Worksheet S – 10 data for the purposes of determining factor 3 for FY 2015.”

“We are inviting public comments on what would be a reasonable timeline for adopting Worksheet S – 10 of the Medicare cost report as the data source for determining Factor 3.”

Summary – Cost reports drive Future year estimates Current UC pool distribution basis 340b program qualification for DSH providers Current year qualification Empirically justified component Future year distribution basis

DSH UNDER THE AFFORDABLE CARE ACT (con’t)

QUESTIONS & COMMENTS

Michael NewellPresident mnewell@southwestconsulting.net

Jeff NormanNational Sales Managerjnorman@southwestconsulting.net

Southwest Consulting Associates2805 Dallas Parkway

Suite 620Plano, Texas 75093

(972)732-8100www.southwestconsulting.net