Has the Medicare Cost Report Become Relevant Again?
By: Scott Besler

In the present environment, as hospitals compete for business, whether it is for patients or physicians or third party payors, the Medicare Cost Report is becoming a useful benchmark for senior leadership.

Medicare Cost Report Defined

Providers that participate in the Medicare program must submit an annual Medicare Cost Report (MCR) to their Medicare Administrative Contractor (MAC) also known as their Fiscal Intermediary (FI). The MCR is a rather large financial report of various data. The MCR includes certain data related to patient statistics (e.g., visits, discharges, and days), provider’s total gross and net revenue, and expenses. A provider’s payer mix (i.e., amount of Medicare and Medicaid, as well as commercial and private third party payer, patients) is also included and is an important part of the MCR. This data is submitted and separated by hospital services. The MCR determines each provider’s total costs and charges that are associated with all patients, and allocates a portion of these costs and charges to Medicare patients. The amount is then compared to the payments received by the provider from Medicare and a settlement is then calculated. From this streamlined perspective, the MCR has been compared to a tax return.
The cost reporting process includes subsystems for the Hospital Cost Report (CMS¬-2552-10 – previously CMS-2552-96), Skilled Nursing Facility Cost Report (CMS-2540-96), Home Health Agency Cost Report (CMS-1728-94), Renal Facility Cost Report (CMS-265-94) and Hospice Cost Report (CMS-1984-99). Access the following website https://www.cms.gov/Manuals/PBM/list.asp to find instructions for completing cost report forms, which are also included in the Provider Reimbursement Manual.

The MCR is divided into worksheets which allow for the correct submission and flow of the report and also make it easy to compare data elements among providers and between cost reporting years.

Below is a brief description of the most common worksheets.

There may be other worksheets that a hospital is required to submit due to the type of services provided. For example, providers that offer renal services will have to complete the I series worksheets, and those that offer provider-based services for Hospice and Home Health will need to submit the H and J series worksheets, respectively.

Worksheet S-10

The Centers for Medicare and Medicaid Services (CMS) has made several changes to the Hospital Cost Report data system, and the new CMS-2552-10, after having a few minor snags, is in full use. Of the many changes, no worksheet has seen more change than worksheet S-10 – Hospital Uncompensated and Indigent Care Data.

The purpose of worksheet S-10 is to provide charges and payments for uncompensated care and indigent care and to calculate the associated cost for providing patient care services for which the hospital is not compensated. Hospitals will utilize several data elements, including but not limited to the following: 

• Uncompensated Care Policies;
• Bad debt listing by write-off date applicable to cost reporting period;
• Charity care listing based on service date with the cost reporting period;
• Medicaid traditional and managed care listing including patient charges and payments; and
• Documentation to support Disproportionate share (DSH) or supplemental payments for Medicaid (State subsidy funding)

There are three major components of worksheet S-10:

• Uncompensated Care
  Listed as charity care but also the bad debt which would include both non-Medicare bad debt and non-reimbursable Medicare bad debt.
  
  Note: Uncompensated care does not include courtesy allowances or discounts given to patients.
• Charity Care
  Includes all health services at the hospital where it was demonstrated that the patient is unable to pay. Charity care results from a hospital's policy to provide all or a portion of services free of charge to patients who meet certain financial criteria.
  
  Note: For Medicare purposes, charity care is not reimbursable and unpaid amounts associated with charity care are not considered as an allowable Medicare bad debt.
• Bad Debt
  This is the provision for actual or expected uncollectible accounts. Bad debts that would be included are those that are non-Medicare patients and those that are non-reimbursable Medicare Bad Debt.
  
  Note: Bad debts are normally reported as an expense and not as a reduction from revenue. Therefore the gross charges that result in bad debts will remain in net revenue.

The importance of the calculation of your hospital’s DSH payments will change beginning in federal fiscal year 2014. At a recent session at the American Health Lawyers conference on Medicare and Medicaid Issues, members of CMS and the United States Department of Health and Human Services (HHS) would not commit that worksheet S-10 would be the sole source of calculating the uncompensated care portion of the 2014 DSH payments. It was stated here that both CMS and HHS are currently reviewing and listening to comments from the provider community regarding this calculation and that it was too early to say what could and should be used. CMS also stated that they are aware of many different sources for uncompensated care and would need to evaluate each before any final determination is decided. The 2552-10 version of worksheet S-10 has changed from the previous year. These changes could impact the amount of uncompensated care applied to the new DSH calculation, as it is currently one of the controllable variables in future DSH calculations, and should be reviewed before submission.

Conclusion

The MCR continues to play a critical role in the determination of Medicare reimbursement to hospitals and health systems. In the present environment the staff at many hospitals is challenged to allocate their time and resources toward the preparation and thorough review of the MCR. Preparation of this report is or should be a year-long process that involves not only financial staff but clinical and other departments as well. The employees completing your cost report need to invest their time by implementing policies and creating procedures for cost report data accumulation and preparation. This may involve time that staff is borrowing from time spent focusing on future issues for the hospital. Historically, the cost report is seen as a retrospective report; however, with the appropriate understanding and review, this report can assist management in future budgeting, decision support and strategic planning. As we have mentioned the MCR preparation is a yearlong process and a hospital should assure that a formal cost report preparation process is in place. Hospitals should maintain a cost report inventory that includes status and deadlines as time management plays a key role. A hospital should also keep a log of their Medicare cost report reserves and estimated settlement amounts, in addition to understanding the open appeal items for the hospital.

The United States Supreme Court recently heard cases challenging the constitutionality of certain provisions of the Patient Protection and Affordable Care Act, leaving the fate of the healthcare reform law in question. If the act’s individual mandate is struck down by the Court, it is uncertain what portions of the law, if any (including the DSH changes), will survive.

The provider community has withstood similar changes to the cost reporting requirements in the past. The use and importance of cost report data for Medicare Inpatient and Outpatient Prospective Payment Systems, will continue to be an important piece of hospitals’ future plans. Hospital leadership needs to be aware of various re-opening and appeal processes. For many hospitals, having a proactive plan in place can result in witnessing increased revenue through corrected payments, which has helped them to meet their fiscal responsibilities and their social missions.

For more information about the changes to the MCR forms, preserving your appeal rights and assistance with navigating the process, please contact Scott Besler at sbesler@besler.com or (732) 839-1219.