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Advanced Medicare Cost Reporting . Mike Nichols Chad Krcil Managing Director Director. Mike Nichols. 28+ years of Healthcare Experience Cost Reporting (auditing, preparing, reviewing) Contractual Allowance and Settlement Analysis Determinations

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Advanced Medicare Cost Reporting

Mike Nichols Chad Krcil

Managing Director Director

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Mike Nichols

28+ years of Healthcare Experience

Cost Reporting (auditing, preparing, reviewing)

Contractual Allowance and Settlement Analysis Determinations

Reimbursement Opportunities and Strategies

RSM McGladrey

Healthcare Advisory Services

Managing Director (consulting partner)

Regulatory Reporting and Recovery Service Line

Great Lakes Health Care Consulting Leader

Healthcare Financial Management Association

First Illinois HFMA Chapter

Past Chapter President

Advanced Member (FHFMA)


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Chad Krcil

18+ years of Healthcare Experience

Cost Reporting

Contractual Allowance and Settlement Analysis Determinations

Reimbursement Strategies for all provider types and sizes

RSM McGladrey

Healthcare Advisory Services Consulting Practice


Regulatory Reporting

Quality Assurance Reviewer

Healthcare Financial Management Association

Colorado HFMA Chapter

Reimbursement Committee


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PPS Hospital Medicare Margin Calculation

Cost Report Update

Charity Care Connection to Cost Report


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Medicare Margin Analysis: General Definitions


Reimbursement > Cost: Margin

Reimbursement < Cost: (Deficit)


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Medicare Margin Analysis

Comparison of Medicare Cost Report Information


Medicare Defined Fully Allocated Cost



Contractual Allowance

Margin or Deficit

High Level Executive Summary

Senior Financial Executives

Corporate Governance



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Great Question: (The Answer)

Understanding the key reimbursement drivers will identify many potential opportunities

Asking the right questions will create a strategy for implementing change

Communicating results to constituencies will influence their behavior and thought process


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What opportunities exist to (legally) improve the hospital’s Medicare margin?


Pricing Strategy

Reimbursement Opportunities


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Patient Days: Medicaid Fraction hospital’s Medicare margin?

Medicare’s long standing policy is to count both Medicaid & Total days based on discharge date, but realize Medicaid data from States comes in varied formats

FFY 2010: – Utilize 3 diff methodologies for Medicaid days in the Numerator: date of admission, date of discharge, & dates of service.

Effective for CR periods beginning on/after 10/01/2009

Hospital would have to notify their FI\MAC in writing 30 days prior to the cost reporting period it is to apply if they wish to change their methodology

If Hospital changes its methodology, CMS has the authority to adjust for “double counting” in subsequent periods

CMS would expect changes between years to be “rare”


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Patient Days: Labor Room Days hospital’s Medicare margin?

Medicare’s long standing policy is to exclude L&D days from both Medicaid & Total Days

FFY 2010 Inpatient Rule – include in DSH calc L&D days in both Medicaid & Total Days effective for CR periods beginning on\after 10/01/2009

LRDs generally payable under IPPS; Therefore, days SHOULD be counted in DPP once the patient has been admitted as an inpatient:

May be considered in settling prior year cost reports or other “open” cost reporting periods.

LRDs now reported on S-3 pt 1, Line 29 (Although reported separately, patient day totals should still agree to census totals)

Refer to CR instructions for LRDs and Observation


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Patient Days: Observation Days hospital’s Medicare margin?

Medicare’s long standing policy is to treat observation services as ancillary versus routine services

Pre CRP< 10/1/2004: Days not included in DSH and IME Calculation

For CRP 10/1/2004><10/1/2009 Admitted observation ADDED to numerator and denominator of DSH Calculation

For IME non-admitted days REDUCE available beds

Pre CRP> 10/1/2009: Days not included in DSH and IME Calculation


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Worksheet C Issues hospital’s Medicare margin?

Objective is to improve how hospitals categorize Medicare charges, total charges and total costs into departments

Mismatch with the CCR and/or mismatch between CCR and Medicare charges

Mismatch between how hospitals categorize on the cost report and how CMS categorizes on MedPAR file


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Cost Report Changes hospital’s Medicare margin?

Provider CCRs will vary from national.


Mark-up formula.

Cost center groupings.

CMS groupings outlined .

Why is EEG grouped w/Lab?

Can this information be used to evaluate pricing strategy beyond Medicare?


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Charge Compression hospital’s Medicare margin?

Higher % markup over costs to lower cost items; lower % markup over costs to higher cost items.

Cost based weights undervalue high cost items and overvalue low cost items.

Potential distortions to the cost-based weights resulting from inconsistent reporting between the cost reports and the Medicare claims.


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Medical Supplies v Implantable Devices hospital’s Medicare margin?

Medical Supplies (UB 270-274; 621-623) (Line 55/71)

Implantable Devices (UB 275-278; 624) (Line 55.30/72)

Classify all billable supply cost and charges based on UB codes

Accommodate through general ledger or through an A-6 reclassification based on volume or charges in the revenue usage report

Highly recommended for CRP> 5/1/09

Mandated CRP>2/1/2010


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Medicare Bad Debts hospital’s Medicare margin?

Unpaid deductible and coinsurance amounts related to covered hospital services

Reimbursed @ 70% of the amount (100% for CAH)

Reasonable collection efforts consistent among all payers

Debt actually uncollectible when claimed as worthless

Cannot be claimed as bad debt until returned from collection agency, unless subject to OBRA ’87 Moratorium


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Medicare Bad Debts hospital’s Medicare margin?

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

120 day rule – beginning on the date of the first bill sent to the patient

“Presumed uncollectible” after 120 days


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Medicare Bad Debts hospital’s Medicare margin?

Medicare/Medicaid crossover patients (must bill requirement)

Indigent patients (Hospital must establish indigence)

Deceased patients (Must document lack of estate)

Bankrupt patients (Must document court filings etc)

May all be claimed without collection effort (no 120-day rule) (varies with intermediary)


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Medicare Bad Debts hospital’s Medicare margin?

Recoveries must be netted against bad debt expense claimed – even if the claim was originally included in a prior year bad debt submission

Prorate recoveries not specifically identified as payment for covered/non-covered services


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Medicare Bad Debts hospital’s Medicare margin?

  • May 2, 2008 CMS memorandum

  • Contractors to disallow bad debts if not returned from collection agency

  • Settlements issued after May 2, 2008


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Documentation/Listing hospital’s Medicare margin?


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Interns & Residents hospital’s Medicare margin?

Direct graduate medical education (GME)

Indirect graduate medical education (IME)


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Simplified DGME Calculation hospital’s Medicare margin?

1996 allowable FTEs 15

Current (3-year average) FTEs 20

Current allowable FTEs 15

Per resident amount (PRA) x $60,000

Medicare utilization x 40%

Medicare GME reimbursement = $360,000

Amount is allocated to inpatient and outpatient based on total Medicare costs (generally about 80% Part A; 20% Part B)

Current period Medical Education costs not considered

Special Rules apply for:

New Programs

Dental & Podiatry Residents

Residents Redistributed


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IME Formula hospital’s Medicare margin?

1.32 x [(1 + (I&R Count/Available Beds)).405 - 1] = IME Factor

Intern-to-bed ratio is limited to the lesser of the current year or prior year

Rolling average count of residents (current year, plus two previous years)/3

Available beds adjusted for observation services

Multiplier changes reflected in Final PPS rule update

Different factors may apply to portion of cost reporting period)

Special Treatment for:

New Programs

Dental & Podiatry Residents

Residents Redistributed

The IME factor is then multiplied by the DRG payment, excluding any outliers to calculate reimbursement for IME (includes “simulated DRG” for MC enrollees)


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IME Rule Updates hospital’s Medicare margin?

Amending Patient Days / Available bed counting impacting Intern-to-bed ratio.

CMS/MedPac finds little correlation between statutory IME formula and incremental operating costs incurred by having a medical education program.

MedPAC asserts that the current level of the IME adjustment factor, 5.5 % for every 10% increase in resident-to-bed ratio, overstates IME payments by more than twice the empirically justified level, resulting in approximately $3 billion in overpayments. The empirical level of the IME adjustment is estimated to be 2.2 percent for every 10 percent.


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Counting Residents (How) hospital’s Medicare margin?

Must be part of an approved program

Count no resident as more than one FTE

Count the resident as a partial FTE in proportion to the time spent in an allowable setting

GME only – residents not within the initial residency period and certain foreign medical graduates must be appropriately weighted

Information captured in IRIS (filed with cost report)


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Counting Residents (When/Where) hospital’s Medicare margin?

Hospital Rotations:

Related to Patient Care (includes didactic time and patient specific research)

PPS component (IME)

Non-provider setting (clinics, private physician offices) provided that:

Patient care activities are undertaken

Written agreement with the outside entity and hospital pays the resident’s stipend and fringe benefit

Teaching compensation is identified


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Counting Residents (Issues) hospital’s Medicare margin?

Reimbursement Issues:

Double counting of residents (related to new programs and slots vacated from one program to the other).

Counting residents rotating to off-site locations.

Matching compensation agreements to resident time-sharing arrangements.

Rural Hospital Exception –

Allows cost reimbursement for medical rotations to Critical Access Hospitals.

May obtain new program exemption at any time (for new programs).

New Programs – New programs are exempt from 1996 Resident count limitation.


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“New Programs” hospital’s Medicare margin?

Characterization by accrediting body (CMS says receiving initial accreditation for the first time).

New Program director.

New Faculty (teaching staff).

Only New Residents.

Relationship between hospitals.

Degree to which the hospital with the original program continues to operate its own program in the same specialty.


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“Affiliated” hospital’s Medicare margin?

“New Programs” (new provider agreement).

Temporary adjustment to cap for programs that begins other than July 1.

Temporary adjustment cannot be applicable prior to effective date of new provider agreement.

Requires hospital to submit a new affiliation agreement before end of cost reporting period.

Requires other hospitals in affiliated group to also file amended affiliation agreements.


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Disproportionate Share (DSH) hospital’s Medicare margin?

Hospitals may qualify for an additional payment per discharge for serving a disproportionate share of low income patients:

DSH patient percentage defined as:

Medicaid utilization (based on patient days)

+ Supplemental Security Income

(SSI) percentage (obtained from CMS)

= DSH percentage


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IPPS: DSH hospital’s Medicare margin?

Medicaid utilization:

Medicaid paid days (per provider or state records)

Medicaid HMO paid days

Out-of-state Medicaid paid days

Additional eligible days (in and out of state)

SSI Component recalculation

Based on provider fiscal year

Based on internal verification/validation process (compared to CMS calculation)


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SSI hospital’s Medicare margin?


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IPPS: DSH hospital’s Medicare margin?

Hospitals > 100 beds - Little correlation between statutorily required DSH add-on adjustment and implied higher-cost of treating low-income patients.

Hospitals < 100 beds - No correlation…

Future Considerations – Currently frozen by statue, but could incorporate DSH payment into DRG payment for larger hospitals and eliminate payment for smaller hospitals. Suggested payment formula would represent a material reduction in payments to large DSH hospitals.

MedPAC found that costs per case increase about 0.4 percent for each 10 percent increase in the low income patient percentage. (According to MedPAC, in RY 2004, about $5.5 billion in DSH payments were made above the empirically justified level.)


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New Rules for PRRB Appeals hospital’s Medicare margin?

Effective Date: For appeals pending or filed on or after Aug. 21, 2008

Reasons for change:

1. Update 30 year old regulations

2. Reduce PRRB case backlog

3. Codify existing PRRB practices


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New Rules for PRRB Appeals: hospital’s Medicare margin?Process

Due Dates (Group Appeals-Time from group being fully formed)

Provider’s Preliminary PP: 2 months

Intermediary’s Preliminary PP: 6 months

Provider’s Rebuttal (Optional): 9 months

Position Paper Process:

Provider’s Final PP: 90 days prior to hearing

Intermediary’s Final PP: 60 days prior to hearing

Provider’s Final Rebuttal: 30 days prior to hearing

Appeal Criteria (Generally the same):

1. Provider dissatisfied with final determination

2. Timing-Within 180 days from the NPR

3. Amount in controversy $10,000 or more for individual appeal and 50,000 or more for group appeal


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New Rules for PRRB Appeals: hospital’s Medicare margin?Add/Change

Adding issues to Appeal:

1. Request must be received by the Board no later than 60 days after the

expiration of the initial 180 day filing period instead of prior to hearing date

2. For appeals pending as of Aug 21, 2008 the deadline is the later of:

a . 60 days after the expiration of the 180 day filing period (240 days) or

b. Oct. 20, 2008

Changes to Initial Filing:

For cost reports ending on or after 12/31/08, providers will not be able to appeal an item unless they can show an audit adjustment or demonstrate they followed applicable procedures for filing a cost report under protest. (Little Company of Mary…)


Board must receive the appeal no later than 180 days after NPR.


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Cost Report Update hospital’s Medicare margin?

ACA Rural Hospital Changes

2552-96 to 2552-10 Crosswalk

Cost report Connection to Charity Care


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ACA Rural Hospital Changes hospital’s Medicare margin?

OP hold harmless (TOPS) through 12/31/10

All SCH (now includes SCH>100 beds)

Small rural providers (<100beds)

Cost reimbursement for certain clinical diagnostic lab services for hospitals in rural areas

MDH program through 10/1/2012 (rural<100 beds; 60%)

Low volume payment (sliding scale ; rural hospitals<1600 total discharges)

CAHs paid @ 101% of reasonable cost for all services


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Other Cost Report Items/Update hospital’s Medicare margin?


CR periods beginning 5/1/10

New redesigned cost report 2552-10

Obsolete lines/columns and worksheets deleted and renumbered

Standard subscripts eliminated (wage index, settlement etc)

New or revised worksheets added

S-2 reorganized to group info together (i.e. All CAH questions will be in one section)

S-2 PT II incorporates Exhibit 1 of CMS 339 (part of ECR)

All SNF Info will be on S-7 instead of S-2 and S-7


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2552-96 to 2552-10 Changes hospital’s Medicare margin?


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2552-96 to 2552-10 Changes hospital’s Medicare margin?


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2552-96 to 2552-10 Changes hospital’s Medicare margin?


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2552-96 to 2552-10 Changes hospital’s Medicare margin?


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2552-96 to 2552-10 Changes hospital’s Medicare margin?


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Uncompensated Care Discussion hospital’s Medicare margin?

  • What percentage of uncompensated care does your organization incur annually?

  • What percentage of your organization's uncompensated care is charity?

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Importance of identifying charity hospital’s Medicare margin?

  • NFP Status –

    • Property tax,

    • federal,

    • state and sales tax exemptions

  • Community benefit reporting in annual report

  • HIT funding – Real dollars

  • DSH Reallocation

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Charity Care Criteria hospital’s Medicare margin?

  • How do you determine the amount of charity care to write-off?

    • Hospital policy

    • Federal poverty guidelines

    • Sliding scale

    • Based on sliding scale developed by NHA years ago

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Charity Care Documentation hospital’s Medicare margin?

  • What supporting documentation is required to be submitted with your facility's charity care application?

    • Tax return

    • W-2

    • Medicaid denial

    • Bills, sources of income tax return

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Hospital Uncompensated Care S-10 hospital’s Medicare margin?

  • Supplemental Disclosure (Pre 2552-10)

  • Post 2552-96: DSH; HIT implications

  • Medicare cost report calculated cost of uncompensated care based on overall CCRs


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Definitions hospital’s Medicare margin?

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HIT Funding hospital’s Medicare margin?

($2 Million + Discharge Amount) X Medicare Share X Transition Factor

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HIT Reimbursement and charity levels of impact hospital’s Medicare margin?

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CAH HIT Reimbursement hospital’s Medicare margin?

  • Cost in the current year times Medicare utilization plus 20%

  • Effective 1/1/2012

  • Includes net book value of HIT placed in service prior to 2012.

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ACA Impact on DSH Payment hospital’s Medicare margin?

  • Reduced 75% Beginning in FFY 2014

  • “Savings” Returned as an Additional Payment for Continued Uncompensated Care Costs

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ACA DSH Impact: Criteria hospital’s Medicare margin?

  • Funds available (potentially$7.9B)

  • Percentage Change in Uninsured Population from 2013 (based on CBO estimates)

  • Hospital’s % of aggregated uncompensated care costs (Estimated by HHS based on reportedS-10 data)

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Criteria 2 Explanation hospital’s Medicare margin?

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Land Mines hospital’s Medicare margin?

  • Different timing and definitions used by each “authority”:

  • Audit: 3-4 months after year end

  • Cost report: due five months after year end.

  • IRS 990: may be filed up to 11 months after year end

  • Prepare a reconciliation between each reporting mechanisms:

    • GAAP

    • Cost Report

    • IRS

    • State

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Conclusion hospital’s Medicare margin?

Understanding the key reimbursement drivers will identify many potential opportunities

Asking the right questions will create a strategy for implementing change

Communicating results to constituencies will influence their behavior and thought process


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Contact Information: hospital’s Medicare margin?

Mike Nichols

Office: (847) 413 6360


Chad Krcil

Office: (303) 298 6463