Medicare Cost Reporting - hometownshare - home_1_

							Medicare Cost Reporting
  HomeTown Health University
             Module Two
   Introduction to the Cost Report
                Presented by:
             Draffin & Tucker, LLP
       What is a cost report?
o A cost report is a lengthy report that
  provides information regarding the
  revenues and expenses of the provider for
  its fiscal year.
  o Amount and types of expenses
  o Amount and types of revenues
  o Statistical measures (Patient Days,
    Discharges, # of Employees, etc.)
        What is a cost report?
o All hospitals and nursing homes are
  required to file cost reports.
o The cost report impacts reimbursement in
  different ways:
  o PPS & OPPS hospitals and SNFs
     o Information is used to set future rates
     o Year end settlements – DSH, Bad Debts
  o Critical Access Hospitals
     o Information directly impacts cost-based inpatient
       and outpatient payments
                 Cost Based
o Cost based does not mean that all costs
  and expenses of the provider are paid by
  Medicare and Medicaid.
  o There are some types of expenses that
    Medicare and Medicaid do not consider as
    patient related and are therefore not covered.
    Examples are:
     o Self-administered drugs
     o Advertising
     o Interest expense to the extent of interest income
           CAH Cost Based
o CAH Medicare (inpatient and outpatient)
  and Medicaid outpatient payments are
  based on a portion of the facility’s
  allowable costs.
  o Allowable costs are determined from the
    annual cost reports.
          CAH Cost Based
o Medicare and Medicaid will consider for
  reimbursement only their share of the
  allowable expenses.
o Medicare IP and OP
  o Medicare Portion of Total Days
  o Medicare Portion of Total Charges
o Medicaid IP – DRG Based
o Medicaid OP – Cost and CMO
                Cost Based
o For example:
  o If Medicare utilization (based on days or
   charges) is 40%, then Medicare will pay 40%
   of the allowable costs of operation.
    o For every allowable $1 spent, Medicare will cover
      $ .40.
               Cost Based
o Therefore, based upon a facility’s payer
  mix, care should be taken when making
  spending decisions.
  o Is there adequate payer resources to cover
    the cost of care that will not be paid by
    Medicare?
  o Remember, if Medicare utilization is 40%,
    who will pay the remaining 60% of every
    dollar spent?
               Medicaid
o Medicaid inpatient services in a CAH are
  paid on a fixed DRG basis for the aged,
  blind and disabled population. Outpatient
  services for this same patient population
  are paid based on the cost report.
o The remaining Medicaid population is now
  under CMOs and are paid similar to
  commercial insurance. There is no cost
  report impact.
    What about other payers?
o Commercial payers are paid based upon
  the individual payer contracts.
o The remaining population of self-pay
  accounts are typically paid at a much
  lower rate than costs.
The Cost Report
 A Walk-Through
All Patients




Program Patients
S Series Worksheets
Certification by Provider
             Worksheet S-3-I
o Purpose
  o This worksheet collects statistical data regarding
    beds, days, FTE’s and discharges.
Worksheet S-3-1
Information regarding
compensation to hospital
employees and related
hours worked by
employees are reported
in Worksheets S-3 Parts
II and III.
These worksheets are
completed only by PPS
hospitals. The
information is used to
compute an average
hourly wage.
This information is used
to adjust PPS inpatient
and outpatient payments.
A Series Worksheets

               The A series of
               worksheets provides
               information to CMS
               regarding the annual
               costs of operating
               the hospital.
               These are several
               worksheets in the
               cost report that are
               used in reporting this
               information.
                 Worksheet A
o Purpose
  o To group all facility costs into CMS
    approved cost centers.
  o To identify and adjust off any non-
    allowable costs.
Worksheet A reports operating costs
from the hospital’s financial records.
               Worksheet A-6
o Purpose
  o To reclassify costs to the appropriate cost center.
    In some instances, costs may be recorded in one
    departmental account but related to other
    departments, or cost centers.
For example:
On the general ledger,
the hospital may charge
the Operating Room
department for supplies
it uses. However, these
are be billed to
Medicare as medical
supplies rather than
operating room charges.
Therefore, the supply
costs must be
“reclassified” from the
OR to the Medical
Supplies cost center on
the cost report. This
reclassification is
reported on Worksheet
A-6.
              Worksheet A-6
o Examples of Common
  A-6’s
  o Depreciation expense
  o Interest expense
  o Rents and leases
  o “Floating nurses”
              Worksheet A-8
o Purpose
  o To exclude cost not related to patient care
    (offsets) or include additional patient care
    related costs (add backs).
Medicare and Medicaid
will only pay for costs that
are considered as
“patient care related”.
There are certain costs
incurred by a provider
that may not meet this
definition. Therefore,
these costs must be
“adjusted off” the cost
report. These costs are
generally subtracted from
the direct operating costs
reported on Worksheet A.
The detail of these non-
allowable costs are
reported on Worksheet
A-8.
              Worksheet A-8

o Common revenue offsets
  o Interest income (to the extent of interest
      expense)
  o   Rebates on the purchase of supplies
  o   Meals sold to employees and guest
  o   Rental income
  o   Vending machine revenue
  o   Sale of medical records
            Worksheet A-8

o Common expense offsets
  o Advertising expenses
  o Physician recruitment
  o Luxury patient care items such as patient
    telephones and televisions
  o ER physician billing cost
Worksheet A-8
details the
adjustments to
expenses,
generally for non-
allowable costs.
Examples include:
 Interest income
 Cafeteria income
 Rebates
 Non-patient drug
         sales
 Advertising

These costs must
be removed from
operating costs that
were reported on
Worksheet A.
Providers must also
identify on A-8-1, any
costs that were
incurred due to
transactions with
parties that are related
to the provider:
i.e. Home office,
management
companies, etc.
Medicare will only
reimburse what it costs
the related party to
provide the service. If
the related party
charged the provider
more, this will be offset.
Many hospitals either
employ or contract with
physicians to perform
administrative functions
and/or patient care
services. The
payments made to
these physicians must
be reported on
Worksheet A-8-2.
This worksheet is used
to determine what
portion of payments to
physicians will be offset
as non-allowable costs
for Medicare and
Medicaid
reimbursement.
The summary of all
Reclassifications and
Adjustments are
reported on
Worksheet A.

Reclassifications
must net out to zero.

When Worksheet A
is completed,
Column 7 will include
only the expenses
that Medicare
considers as
allowable. The net
expenses from
column 7 will be
transferred to
Worksheet B.
Medicare Cost Reporting
                      Module Two:
             Introduction to the Cost Report
 If you have any questions regarding this course, please contact:
                        Jeff Askey, CPA
                      Draffin & Tucker, LLP
                            P.O. Box 6
                     Albany, Georgia 31702
                         (229) 883-7878
                   JAskey@draffin-tucker.com