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The Importance of the FQHC Medicare Cost Report in Calculating Your PPS Rate

Presented by: Michael Holton, Manager, Health Care Services GroupcMichael.Holton@McGladrey.Comober 12, 2006

Tennessee Primary Care Association

Leadership ConferenceAugust 18, 2011

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This session is intended to familiarize participants with the theory behindthe preparation of Cost Reports.

Understand the steps involved in preparing a Cost Report.

Will review recommended preparatory reports and guidelines, with anemphasis on providing an improved understanding of how a health centerarrives at their calculated cost per visit.

Look at how the FQHC Medicare cost report can be used to determine PPSrates

Goals of Section

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ALLOWABLE COSTS

BILLABLE VISITS___________________

= ALL-INCLUSIVE RATE

POSSIBLECAPS

POSSIBLE CEILINGS

POSSIBLE PRODUCTIVITY

SCREENS

All-Inclusive Rate Methodology

1. Based on the All-Inclusive Allowable Cost of Providing Covered Services

2. Defining Covered and Non-Covered Services

3. Defining Allowable Cost for Covered Services

4. Allocation of Cost to All Services

Principles of Cost-Based Reimbursement

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• Physician Services

• Services and supplies incident to physician services (including drugs and biologicals that cannot be self administered)

• Pneumococcal vaccine and its administrations and influenza vaccine and its administration

• Physician Assistant services

• Nurse practitioner services

• Clinical Psychologist services

• Clinical Social Worker Services

• Services and supplies incident to clinical psychologist and clinical social worker services as would otherwise be covered if furnished by or incident to physician services

• In the case of those FQHC’s that are located in an area that has a shortage of home health agencies, part-time or intermittent nursing care and related medical supplies to a homebound individual

• Any other ambulatory service included in a state’s Medicaid plan if the FQHC offers such a service (e.g. dental, pharmacy).

• EPSDT screening, diagnosis, and treatment (including federally reimbursable medically necessary services regardless of coverage in state’s Medicaid plan)

Preventive Services

Core Services

M

E

D

M I

E C

D A

I R

C E

A

I

D

“Other Ambi’s”

FQHC Covered Services

Services and Supplies Incident to….

Services and supplies incident to a physician's professional services are covered FQHC services as long as they are:

• Furnished as an incidental, although integral, part of a physician's professional services;

• Of a type commonly rendered either without charge or included in the RHC or FQHC’s bill;

• Services provided by clinic employees other than those nonphysicianpractitioners listed in §30.1 (PA/NP/CNM and CP/CSW), furnished under the direct, personal supervision of a physician;

• Covered FQHC services provided by clinic employees furnished under the direct, personal supervision of a physician; and

• Furnished by a member of the clinic or center’s staff who is an employee of the clinic or center

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Services and Supplies Incident to….

Incidental and Integral Part of Physician’s Professional Services

• Services and supplies incident to a physician’s professional services are covered as FQHC services as long as they are an integral, although, incidental, part of the physician's personal professional services in the course of diagnosis or treatment of an injury or illness. In other words, there must be a physician’s personal service rendered to which the nonphysican’s service (or the supply) is an incidental, although integral part.

• This requirement is also met for nonphysician services furnished during a course of treatment in which the physician performs an initial and subsequent service with a frequency which reflects his or her active participation in and management of the course of treatment.

• Although incident to services are covered, they are covered as part of an otherwise billable encounter. If no medically necessary face-to-face encounter with a physician or midlevel practitioner, CP or CSW has also occurred during the visit with the incident to staff then no encounter can be billed.

Total Costs of Operation includes:

Direct Costs

• Covered Costs - Cost Related to the Direct Services of Providers Covered by the Program as well as Services Incident to a Provider’s Visit

• Non-Covered Costs - Direct Costs Relating to Provision of Services Not Covered by the Program

Indirect Costs

• Overhead Costs and Administrative Costs

Total Costs

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Allowable Costs

• Provider’s ACTUAL COSTS for Furnishing the Covered Services PLUS the Appropriate ADMINISTRATIVE and OVERHEAD COSTS related to the Covered Services

Reasonable Costs

• Allowable Costs with “Tests of Reasonableness” applied

Total Costs (Continued)

Total Cost XXX

Less:Unallowable Expensesand Adjustments (XX)Other Eliminations (XX)Non-Covered Costs (XX)

(XX)Total Allowable XXX

Unallowable Expenses and Adjustments• Donated Services, Bad Debt, etc.• Income Offsets - Rent, Interest, etc.

Other Eliminations• Out of Scope Sites• Other carve outs (Provider, Service, Site)

Non-Covered Service Cost• WIC, Research, Group/Mass Education, Environment, etc.

Reducing Total Cost to Allowable Cost

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• Bad debt expense

• Transactions with related parties

• Donated services

• Income offsets

• Outside contracted ancillary services (if contractor bills Medicare directly and bills FQHC for non-Medicare patients)

• Service carve-outs(?)

Examples of Common Adjustments

Total Cost $110

Less: Overhead Costs 10

Total Direct Costs 100

Less: Non-Covered Direct

• Research $4• WIC 6

10

Total Covered Direct Costs 90

Covered Overhead [(90/100)*($10)] 9

TOTAL ALLOWED COSTS $ 99

Elimination of Non-Covered Services

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Types of Units of Service:

• Procedures

• Encounters

• Visits• Allowable• Billable

Billable Visits

Medicare/Medicaid often apply productivity standards to provider FTEs to determine a reasonable level of billable visits to be used in the rate equation.

If the visits imputed by applying the productivity standards to reported FTEs are greater than the actual visits reported, the imputed visits will be used in the rate equation, effectively reducing the rate.

Medicare standards:Physicians = 4,200 per FTEMidlevels = 2,100 per FTE

Productivity Screens

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• Medicare and Medicaid often require that centers report the number of FTEs for each provider category listed (e.g. Worksheet B, Part I).

• An FTE for cost reporting purposes is often defined as the number of hours worked in relation to the total possible number of hours an employee can work at the Center for a given year.

Full Time Equivalent (FTE) Calculation

Assuming a Center’s standard work week is 40 hours, 52 weeks a year, the total number of hours an employee can work is 2,080.

Thus, an employee who worked 1,800 hours during the year has an FTE of .87 calculated as follows:

Total hours worked during year 1,800

Total possible hours worked 2,080

Full Time Equivalent (FTE) Calculation

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Medicare guidelines state that a provider’s FTE must be reduced by all administrative and non-worked days (vacation, sick, personal, etc.) for reporting purposes. Thus, our providers FTE of .87 must be further reduced as follows:

Vacation hours 80

Sick hours 16

Holiday hours 48

CME hours 56

Administrative Duties 32

Total Non-Work Hours 232

Full Time Equivalent (FTE) Calculation

The new FTE for this provider is thus calculated as follows:

Total Hours Compensated 1,800

Less: Non-Work Hours 232

Total Hours Worked 1,568

Total Hours Worked 1,568

Total Possible Hours 2,080= .75 FTE

Full Time Equivalent (FTE) Calculation

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The following data should be referenced as you prepare theCost Report:

• Health Center’s Trial Balance

• All Staff Salaries and Consultant Fees - including jobtitles and FTEs

• Total Visits by Provider

Necessary Information for Completion of a Cost Report

• To accurately account for total compensation paid for the reporting year, aSalary/FTE worksheet should be prepared listing all employees salarieson a spreadsheet with employee’s job title, compensation and hoursworked.

• Determination of an employee’s FTE is critical• Based on hours worked versus paid?

• The Payroll Department would be the data source to refer to for thenecessary data elements.

Step One: Salary/FTE Worksheet

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If FTE is based on Hours “Worked”, an employee’s FTE will be calculated based on Total Hours Paid less vacation, sick days, holidays, and CME hours.

Name Job Title Salary Hours Paid Vacation Sick Holiday CME HoursTotal Hours

WorkedAnnual Total

Hours FTEJon Small Internist $ 110,000 1,720 40 8 48 60 1,564 2,080 0.75

Adam Brick Pediatrician $ 125,000 1,800 32 - 48 60 1,660 2,080 0.80

Katie Nickel Physician Assist. $ 65,000 1,820 40 8 48 56 1,668 2,080 0.80

Joan Dollar Nurse Pracitioner $ 60,000 2,040 53 8 48 60 1,871 2,080 0.90

Carmella Soprano Nurse $ 40,000 2,000 56 16 48 1,880 2,080 0.90

Anthonoy Soprano Nurse $ 35,000 1,750 32 16 48 1,654 2,080 0.80

Donna Berman Clinical Social Worker $ 60,000 1,770 56 8 48 1,658 2,080 0.80

Joe Ajax Housekeeping $ 30,000 2,140 68 2,072 2,080 1.00

Karry McDonanld Executive Director $ 130,000 2,200 68 48 2,084 2,080 1.00

Ira Rothblack Chief Financial Officer $ 90,000 2,200 68 48 2,084 2,080 1.00

Steven Smile Dentist $ 70,000 2,150 32 48 2,070 2,080 1.00

Preparation of Salary/FTE Worksheet

For reference purposes, every employee should be assigned a “line number”.For consistency in reporting and ease of data entry, follow the Cost Centerline numbers used in Expense Worksheet (e.g. Worksheet A of the MedicareC/R).

Name Job Title Salary Hours Paid Vacation Sick Holiday CME HoursTotal Hours

WorkedAnnual Total

Hours FTE Line No.Jon Small Internist $ 110,000 1,720 40 8 48 60 1,564 2,080 0.75 1Adam Brick Pediatrician $ 125,000 1,800 32 - 48 60 1,660 2,080 0.80 1Katie Nickel Physician Assist. $ 65,000 1,820 40 8 48 56 1,668 2,080 0.80 2Joan Dollar Nurse Pracitioner $ 60,000 2,040 53 8 48 60 1,871 2,080 0.90 3Carmella Soprano Nurse $ 40,000 2,000 56 16 48 1,880 2,080 0.90 5Anthonoy Soprano Nurse $ 35,000 1,750 32 16 48 1,654 2,080 0.80 5Donna Berman Clinical Social Worker $ 60,000 1,770 56 8 48 1,658 2,080 0.80 7Joe Ajax Housekeeping $ 30,000 2,140 68 2,072 2,080 1.00 32Karry McDonanld Executive Director $ 130,000 2,200 68 48 2,084 2,080 1.00 38Ira Rothblack Chief Financial Officer $ 90,000 2,200 68 48 2,084 2,080 1.00 38Steven Smile Dentist $ 70,000 2,150 32 48 2,070 2,080 1.00 38

Assignment of Line Numbers

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Once you have the salaries and FTEs listed, the worksheetshould be rolled up to a total salary and FTE for each linenumber.

The summary line numbers are then compared with the healthcenter’s general ledger to identify any differences. Anydifferences in salaries should be allocated on the worksheet.Differences may occur due to accrued vacation, etc.

Account for Difference Allocation

Salary & Wages per G/L: 1,140,000Fringe Benefits: 200,000 Difference 1,140,000

Line No Description Category Amount FTE Allocation Total1,130,000 18.75 10,000 1,140,000

1 Physician Healthcare Staff Cost 235,000 1.55 2,080 237,080 2 Physician Assistant Healthcare Staff Cost 65,000 0.80 575 65,575 3 Nurse Practitioner Healthcare Staff Cost 60,000 0.90 531 60,531 4 Visiting Nurse Healthcare Staff Cost - - - 5 Other Nurse Healthcare Staff Cost 75,000 1.70 664 75,664 6 Clinical Psychologist Healthcare Staff Cost - - - 7 Clinical Social Worker Healthcare Staff Cost 60,000 0.80 531 60,531 8 Laboratory Technician Healthcare Staff Cost - - - 9 Other (Specify) -1 Healthcare Staff Cost 80,000 2.00 708 80,708

10 Other (Specify) -2 Healthcare Staff Cost - - - 11 Other (Specify) -3 Healthcare Staff Cost - - - 12 SubTotal 575,000 7.75 5,089 580,089

Account for Difference Allocation

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The final step to completing the Salary/FTE Worksheet would be theallocation of fringe benefits among employees. Allocation of fringebenefits is based on a percentage of each salary line to the total salaries.

Salary & Wages per G/L: 1,140,000

Fringe Benefits: 200,000 Difference 1,140,000 Fringe Line No Description Category Amount FTE Allocation Total Allocation

1,130,000 18.75 10,000 1,140,000 199,998 1 Physician Healthcare Staff Cost 235,000 1.55 2,080 237,080 41,593 2 Physician Assistant Healthcare Staff Cost 65,000 0.80 575 65,575 11,504 3 Nurse Practitioner Healthcare Staff Cost 60,000 0.90 531 60,531 10,619 4 Visiting Nurse Healthcare Staff Cost - - - - 5 Other Nurse Healthcare Staff Cost 75,000 1.70 664 75,664 13,274 6 Clinical Psychologist Healthcare Staff Cost - - - - 7 Clinical Social Worker Healthcare Staff Cost 60,000 0.80 531 60,531 10,619 8 Laboratory Technician Healthcare Staff Cost - - - - 9 Other (Specify) -1 Healthcare Staff Cost 80,000 2.00 708 80,708 14,159

10 Other (Specify) -2 Healthcare Staff Cost - - - - 11 Other (Specify) -3 Healthcare Staff Cost - - - - 12 SubTotal 575,000 7.75 5,089 580,089 101,768

Allocation of Fringe Benefit

The other category of expense that must be itemized is the OtherThan Personal Services (OTPS). The health center’s trial balanceneeds to be broken down by line item of the Cost Report.

Account # or ExpenseLead Sheet # Expense Description Amount Line Description $

1,480,000 1,480,0006150 CONSULTANTS & PROF. FEES 100,000 38 Office Salaries 45,000

52 Dental 20,00032 Housekeeping - Maintenance 10,00042 Accounting 10,00041 Legal 15,000

6151 MEDICAL CONSULTANTS 80,000 13 Physician Services Under Agreement 80,0006155 LABORATORY 140,000 59 Other - Non Reimburseable - 2 140,0006160 CONSUMABLE SUPPLIES 280,000 17 Medical Supplies 190,000

58 Other - Non Reimburseable - 1 20,00052 Dental 40,00040 Office Supplies 20,00032 Housekeeping - Maintenance 10,000

6165 PHARMACEUTICALS 90,000 51 Pharmacy 90,0006170 SPACE COST 240,000 26 Rent 200,000

29 Utilities 40,000

a list of lines.

Step Two: Other Than Personnel Services

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Examples of non-reimbursable costs and costs other thanRHC/FQHC include the following:

• Ancillary Services (Outside Contracted Radiology,Laboratory, Pharmacy)

• Dental – (Medicare)• WIC• Bad Debt Expense• Fundraising Expense

OTPS – Other Than RHC/FQHC and Non-Reimbursable

Column Data Entry Source

Column 1 Compensation Totals = Salary/FTE Worksheet

Column 2 OTPS expenses = OTPS Worksheet

Column 3 Total expenses = Trial Balance

Column 4 Reclassification of Salary/FTE Worksheet/Fringe Benefits

Column 5 Reclassified Trial Balance = Reclassified Trial Balance

Column 6 Adjusted Trial Balance

Step Three: Data Entry-Expenses

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Examples of adjustments are the following:

• Interest and miscellaneous income will need to be offsetagainst any interest and miscellaneous expense.

• Woman Infants & Children Program

• Outside contracted radiology and laboratory

• Bad Debt Expense

Data Entry-Expense Adjustments

The Reclassification column is often used to reallocate expenses to specificcost centers on a Cost Report, consistent with cost reporting rules, that arecombined on the health center’s trial balance. A common type ofreclassification is fringe benefits. The reclassification of fringe benefits istypically based on the cost center’s percentage of salaries & wages to totalsalaries & wages.

To check that all cost centers have been accounted for, the reclassificationcolumn should zero out. If the cost report has a Reclassification worksheet(e.g. Worksheet A-1 on the Medicare cost report), this worksheet shouldalso be reconciled to the Reclassification column.

Step Four: Reclassifications-Explanation of Entry

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For each line item that an adjustment was made, preparation of a detailedexplanation is typically required, including an indication of which generalledger account the expense amount is adjusted out of. For example,Worksheet A-2 of the Medicare Cost Report.

Step Five: Summary of All Adjustments

For any “related” organization that a health center incurs financialtransactions, additional disclosure is typically required includingorganization information and actual cost of providing the service to therelated organization (e.g. Supplemental Worksheet A –2 of the MedicareCost Report).

Common examples of such an arrangement include the following:• Rental Expense• Information Technology consultation and/or support• Administrative Management

Step Six: Disclosure of Transactions with Related Organizations

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Visits and Productivity provides a picture of the level of the Center’sprovider productivity compared to FQHC standards.

Completion of this schedule requires a “billable visit” report of all medicalproviders, including contracted physicians. Generally, this report can begenerated from the health center’s billing system.

Provider FTEs can be obtained from the Salary/FTE Worksheet.

Step Seven: Visits and Productivity

This worksheet is used to determine the total allowable cost per visitapplicable to RHC/FQHC services. Typically, overhead is allocated toallowable direct costs, to arrive at the amount of reimbursable costs.

Total Costs/Adjusted Visits = Adjusted Cost Per Visit

This worksheet can be used as an analytical tool by management incomparing direct health center cash, non-reimbursable, and overhead withthe prior year Medicare Cost Report.

Step Eight: Determination of Rate for RHC/FQHC Services

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Medicaid Services Line No.Cost col 7

Less Additional Adjustments Sub Total

Allocate Facility Overhead After Facility Overhead After Admin Overhead Total Costs Units of Service* Cost per Unit

Core Services 25 ## 0 11,111,805 1,263,495  12,375,300 4,748,202 17,123,503 110,826 154.51

Pharmacy 51 ## 0 730,137 83,022  813,159 311,996 1,125,155 110,826 10.15

Dental 52 ## 0 803,037 91,311  894,348 343,147 1,237,495 9,323 132.74

Optometry 53 ## 0 57,187 6,503  63,690 24,437 88,126 2,387 36.92

Laboratory 54 ## 0 78,685 8,947  87,632 33,623 121,255 110,826 1.09

Radiology 55 ## 0 100,530 11,431  111,961 42,958 154,919 110,826 1.40

Behavioral Health 56.1 ## 0 857,120 97,461  954,581 366,257 1,320,838 11,879 111.19

Podiatry 56.2 ## 209,244 23,793  233,037 89,412 322,449 2,800 115.16

Patient Transportation 56.3 ## 0 55,235 6,281  61,516 23,603 85,118 110,826 0.77

Inpatient Services 56.4 ## 48,909 5,561  54,470 20,899 75,370 3,517 21.43

Other: STD Clinic 56.5 ## 226,669 25,774  252,443 96,858 349,301 2,384 146.52

Other: Nutrition Services 56.6 ## 501,177 56,988  558,165 214,159 772,323 1,994 387.32

Other: 56.7 0 0 0 0 0 0 0.00

Non Reimbursable 61 ## 0 996,748 113,338 1,110,086 425,922 1,536,008 0 0

Subtotal ## 0 15,776,483 1,793,904 17,570,387 6,741,473 24,311,860

Facility Overhead 37 ## 0 1,793,904 (1,793,904) 0 0 0

Administrative Overhead 49 ## ## 6,741,473 0 6,741,473 (6,741,473) -

Totals ## ## $ 24,311,860 0 24,311,860 0 $ 24,311,860

Determination of Cost of Services Worksheet

The final calculations of the Medicare Cost Report determine whether thehealth center owes money to Medicare or is due money from Medicare(Line 25).

Enter cash received for dates of services rendered during the fiscal yearfrom PS&R report on line 22.

Final Step – The FQHC may be entitled for bad debt related to theuncollectible portion of co-insurance. If so, enter the amount of bad debton line 24.

Step Nine: Worksheet C-Part II Determination of Total Payment

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The FQHC Medicare cost report includes two schedules specific to theMedicare program:

• 100% reimbursement for the cost of pneumococcal and influenzavaccines, as well as their administration (e.g. SupplementalWorksheet B-1)

– Effective September 1, 2009, the administration of influenzaH1N1 vaccines will also be cost reimbursed

• Reimbursement for bad debt related to uncollected coinsuranceamounts

Additional Medicare Cost Report Schedules

Sample Findings on Medicaid and Medicare Cost Report Desk Audits

Non-allowable or non-covered costs are being claimed (e.g., bad debt,inpatient costs, research, etc.).

The percentage of time allocated to cost centers is incorrect (e.g.,allocation of medical director’s FTE).

Other revenue is not offset against related expenses (e.g., miscellaneousrevenue should reduce miscellaneous expense).

Information on provider statistical and reimbursement report is notcorrect or updated (Medicare only).

Costs claimed for services are not incident to a visit or not consideredreasonable by State or intermediary.

Medicaid/Medicare

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Sample Findings on Medicaid and Medicare Cost Report Field Audits

The calculation for full time equivalents is not correct and lacks support.

The expenses on invoices are for non-allowable costs (e.g., advertising).

Total visit count per the organization’s records does not agree to dataprovided on the cost report.

Medicare visits billed are not correctly reported by provider.

Prior year desk audit adjustments are not reflected in current year costreport filing

– Considered fraudulent cost report filing!

Medicaid/Medicare

Submission of the Cost Report typically requires the submission ofattachments, such as:

1. Cost Report Submission Checklist

2. A Trial Balance with a cross-reference to line numbers on the CostReport

3. A schedule that lists allocations (including supporting documentation in package)

4. Documentation for reclassification, adjustments and protested items.

5. Provider questionnaires

6. Electronic version of cost report

Submission

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Questions???