What Can We Learn From The Cost Report

1. What Can We Learn From The Cost Report Alexsandra (Alex) Mullin Director of Reimbursement For the Health System UT Southwestern Medical Center And William (Bill) Vaughan Principal, Health Systems Concepts, Inc. TFCA Workshop October 1st - 3rd , 2008

2. The Cost Report Uses Cost Accounting • The cost report uses costs accounting methods adding direct and indirect allocated costs to determine the cost of each service. • The cost report uses different formulas to compute the cost for different service types. • By using the cost report you can determine the cost per organ and costs of transplants and post transplant care.

3. Formulas to Determine Cost • For Room / Routine services the cost report computes the cost per patient day that occurs for each room type reported on the cost report. (Example: Med/Surg, ICU, CCU, NICU, Nursery, etc) • For Ancillary Services the cost report computes the cost of the service based on the ratio of cost to charges. (Example: Surgery, Radiology, Lab, Pharmacy, E.R., Clinic, etc.) • For organs the cost report computes the total cost for organs and then based on the Medicare ratio of organs to total organs it compute the Medicare reimbursable organ cost.

4. Medicare Reimbursable Cost in the Organ Program • The room costs of a donor stay is computed by multiplying the total days of the donor/ pretransplant log by the per patient day cost (D-6 Part 1, columns 1 – 4, lines 1 - 7) • The costs of the different ancillary charges a pretransplant candidate and/or a donor incurs are computed by multiplying the charges for each ancillary service time its ratio of cost to charges (rcc) (D-6 Part 1, Columns 1-3, lines 8 - 35) • The cost of the Medicare organ is computed by multiplying the total organ cost on the cost report (which includes direct & indirect cost) times the Medicare ratio of useable organs. (D-6 Part III, Columns 1 – 2) divided by Medicare Organs.

5. Other Transplant Related Costs • The cost of the transplant stay itself is computed by multiplying the patient’s length of stay in each unit by each per unit per patient day cost and the cost of ancillary services performed during the stay are computed by multiplying each ancillary service types charges times its ratio of cost to charges as determined through the cost reporting process. (D-4 entire section) • The cost of post transplant services such as their clinic visit and other test or procedures that might be performed is computed by multiplying each ancillary service types charges times its ratio of cost to charges as determined through the cost reporting process.

6. Components of Organ Cost & Cost Report Location

7. Medicare Organ Reimbursement

8. Analysis of a Transplant Case Cost • Sample Patient has a week stay for a kidney transplant. The charges the patient incurs are as follows: • ICU unit 1 day $3,000 • Med/Surg 6 days $6,600 • Surgery 3 hours $5,000 • Anesthesia 12units $3,300 • Recovery Room 3 units $3,000 • Radiology 2 units $1,750 • Lab 30 units $9,000 • Respiratory 14 units $4,550 • EKG 3 units $1,300 • Medical Supplies 50 units $5,600 • Drugs 70 units $5,000 • Dialysis 1 units $1,400 • SAC Charge 1 unit $35,000 • TOTAL CHARGES $84,500

9. Analysis of a Transplant Case Cost Cont’d

12. What does the Organ Programs Contribute to the Facility • Since this is the only program under Medicare that is cost reimbursed for all Medicare transplants the cost of the organ is fully recovered. There is no loss for the organ cost and for Medicare secondary there is also an opportunity to collect transplant event payments up to the Medicare DRG amount also. • In that amount that constitutes the total organ cost is an amount covered by Medicare for indirect expenses of facility overhead and support services. In the case of our example that amount was $207,927 for all programs. Without an organ program this amount of indirect and overhead expense is left to be spread over all other hospital services which are all now paid on a prospective payment system basis thus increasing the cost of these services while the payment remains the same. • Organ program tend to be accompanied by disease management progams thus increasing facility business.

13. Questions?