Blog, Reimbursement, The Hospital Finance Podcast®

Cost report preparation – Four ways to improve accuracy [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Jeff Wolf, Director of Reimbursement Services at BESLER, to discuss four specific areas that can improve cost report accuracy.       

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Highlights of this episode include:

  • Why identifying how payroll systems track hours is a critical with wage index.
  • How Worksheet A-6 reclasses impact wage index.
  • Why matching revenue reclasses and adjustments to Worksheet A-6 reclasses and A-8 adjustments improve cost report accuracy.
  • The importance of understanding how patient care might differ from how CMS pays for those services.
  • And more…

Jeff Wolf presented a webinar on four areas that can dramatically improve the accuracy of cost reports. Come away with specific approaches to improve the accuracy of your cost report. 

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the award-winning Hospital Finance Podcast®. We think about the Medicare cost report. There are so many areas that can affect how hospitals are reimbursed. But there are really four specific areas that can improve cost report accuracy. And to help us understand what those areas are, I’m joined by Jeff Wolf, who is the Director of Reimbursement Services here at BESLER. Jeff, welcome to the program.

Jeff Wolf: Thank you. It’s a pleasure to be here.

Mike: So Jeff, as I mentioned in the opener, there are four ways that we’re going to focus on improving accuracy for Medicare cost reports. So let’s walk through each of them in turn. The first one is the wage index hours analysis. Tell us about that.

Jeff: Well, when we’re working with a cost report, the wage index is one of the factors that impacts our DRG payments. And in the cost report, we have a section called Worksheet S-3, Part II, and it’s all about identifying what the average hourly rate is for your staff and for your contract employees. And one of the most important things in identifying that for your staff is what are the hours that we are trying to identify that go with these staff salaries so that we get a proper average hourly rate. And the reason that this becomes an issue is our payroll systems have ways of tracking information, especially for patient treatment staff that make it a little more difficult to say, “Here’s the number of hours.” An example would be a nurse who’s working a weekend night shift on a holiday. That nurse gets a regular salary, let’s just call it 40 bucks an hour. And then get paid one hour for her regular pay. But then because they’re working the weekend, they also get a weekend shift differential which the payroll system tracks as one hour of shift differential. And let’s say they get paid an extra 25% and that would be an extra $10 an hour for that shift differential. Then they have the nighttime, another 25%, another hour. And you have the holiday which may be another 50% of their pay. So another $20 plus another hour. So when you add all that up, it looks like that person worked for hours but they only worked one. And so identifying how your payroll system tracks those extra hours and excluding those so that you truly identify the hours worked for that staff is really the most critical thing that you need to do in your wage index.

Mike: Got it! Jeff, the second item that we want to talk about is the impact of Worksheet A-6 reclasses on the wage index.

Jeff: Well, as I just said, that average hourly rate is really important. And different staff members obviously earn different hourly rates. One of the things that we see in Medicare cost reports is we have to make reclassifications of dollars for departments between where Medicare wants it booked versus where you had it originally booked. A couple of examples would be your dietary versus cafeteria. Most hospitals have one department of food preparation, usually called nutrition services. Well, but for Medicare, we need to split that between the dietary function, the serving of meals to patients, and the cafeteria function. So we have some reclass, some methodology that’s being used to identify how much of that nutrition service gets allocated to dietary versus cafeteria. When you do that those staff salaries are going to be moved. Now you have to move the hours that go with it. So one of those really critical things to do for your wage index is what I call follow-the-leader. You have to follow the salaries with the hours. So you need to identify – for every salary reclass that you make, you need to identify, what are the hours that go with that and make sure that you’ve made the same reclass for the hours so that at the end of the day you have a proper average hourly rate calculation by department in your cost report.

Mike: And the third way you can improve cost report accuracy is by looking at the matching of revenue reclasses and adjustments, to Worksheet A-6 reclasses and A-8 adjustments. Explain that to us, Jeff.

Jeff: Well, a mistake that we see quite often in cost reports is we’ve made quite a few reclassifications of expenditures to meet Medicare requirements. Simple things like drugs supplies, implantable devices, it can be more complex things like labor delivery, nursery postpartum, or it can be some one-off things like the certified nurse anesthesiologists. Those types of reclasses caused us to move those expenses to where Medicare expects them to be. There’s a corresponding revenue that needs to be moved in order to meet what we call the matching principle. And basically, the matching principle says that you must identify the revenue against the expenses that incurred that revenue. So if we move these expenses to meet Medicare requirements, we have to ensure that the revenues associated with those are moved. And one of the things that we do as practice is we look at every one of the A-6’s that is on a cost report. And we always ask the question, “Does this have a patient treatment revenue impact?” And what is the revenue that’s associated with this issue? Some things that can be pretty simple, pretty straightforward in medical supplies, drugs, and implants. We all know as reimbursement people, those are the 250s, the 270s, and the 275, six, and eight for the implants. Those revenue codes represent those particular items. It gets a little more complicated when you’re looking at the labor delivery because now you have to say, “I need the nursery revenue. Well, I don’t want nursery ICU, I just want regular nursery. I need the room and board revenue but only for the labor delivery department.” So you have to start making some definitions to that revenue to make sure you’ve identified it correctly. But in essence, once you ask the question on every A-6, does this have a patient revenue impact? Then you have to start looking at, “How do I define that revenue? And has it been reclassed in order to match my expenses on worksheet C?”

Mike: And the final item we’re going to discuss today is really understanding how a patient’s care might differ from how CMS pays for those services.

Jeff: This is actually kind of an interesting one. A lot of people understand – one of the examples I’ve used already, labor delivery, recovering, and nursery, and basically, in that particular service, all of those activities happen in the same unit at the hospital. The mother comes in, she’s in labor, she’s in the room. They have a suite right next door where they actually do the delivery, and then the mother and the baby are placed on that same unit into a room together for recovery and postpartum. All of that happens in the same physical space, the same staff, the same everything. The difference is Medicare wants to pay for those in different ways. So consequently, we have to create these reclasses to move expenses into identifying these expenditures separately from where we actually accounted for them in our books. And labor delivery is one good example that most people recognize. Another one would be medical supplies, drugs, and implants. But one of the things that we’re starting to see is that this is now expanding. The way that we treat patients in hospitals is starting to have an impact on these types of issues. I’ll give you a couple of new examples that we’re running across. EKGs. As a basic EKG– if you think about these EKGs, most of us have had them. The nurse aide or the nurse puts the little leads on your chest, pushes the button on the machine and the basic EKG is run. It does not require specialized trained staff like an EKG tech or respiratory tech in order to do that. So we’re seeing those services being provided all over the hospital. But we have a department called EKG. So where are the expenses? Where are the revenues associate with? We need to understand how are we charging for those. Are we actually matching them up? Do we need to move the revenues or the expenses or both? Same thing with laboratory. We now have these point of care tests. What blood type are you? What’s your sugar level? Things like that that the nurse or the nurse aide can do on the unit. They happen in clinics. They happen in emergency room. They happen in units. They happen all over the hospital and it’s not a laboratory technician that’s going out and doing this. So one of the things we’ve seen is, historically, all lab was done by the lab department. So we made sure that all the lab revenue went to lab. Well, that’s no longer true. We either going to have to move the expenses or we’re going to have to allocate the revenues out. And the same thing is true with ultrasound. We no longer need ultrasound techs for some of the basic things. If you think about my labor delivery example, who is it that actually does the ultrasound on the baby? It’s a nurse or nurse aide. It doesn’t require that specialized training that an ultrasound tech would have for some of the more intensive or basic procedures. So understanding how your institution actually practices medicines and how they treat patients can have a significant impact on your cost report. Some of the things that I think you need to ask when you’re looking at these issues is, is there a way to segregate the expenses? And is there a way to match the revenue provided to these types of patients with that expense? And then lastly, are the expenses the same per treatment no matter where they are in the organization? So we talk about those lab tests, whether it’s a nurse aide in the clinic or it’s a nurse in the unit, are those the same average hourly rates? Are those the same cost? And if not, then we need to think about spreading the revenue rather than trying to spread the expense. Because usually when you do reclasses and adjustment of expenses, you tend to average these expenditures out. So those are the kinds of things that you want to think about. But truly understanding how your institution provides care to the patients and the nuances of some of these services that are now being provided by lower-level staff, and how do we charge for those are becoming very important in making sure that our cost report is accurate.

Mike: Great insights, Jeff. For those in our audience, Jeff recently hosted a webinar that got into a lot more detail on this topic. So if you’d like to take a deep dive, head up to, click on the insights button and then reimbursement and you will see a recording of this webinar available that you can watch in its entirety. Jeff, thanks so much for joining us on the podcast again today.

Jeff: Thanks for having me.

The Hospital Finance Podcast


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