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Medicare cost report – still a crucial component of hospital reimbursement [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by BESLER’s DeLicia Pierce to discuss the Medicare Cost Report and why it is still a crucial component for hospital reimbursement.

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Is your hospital receiving the revenue to which you are entitled? BESLER’s Reimbursement Services has extensive experience assisting providers with Medicare Cost Report preparation and review, S-10 Reviews and Refiling, Wage Index Opportunity analysis, and DSH analysis and submissions.

Highlights of this episode include:

  • Review of key reimbursement factors are that are used to calculate the pass-through payments on a cost report
  • How the Wage Index drives reimbursement
  • How the S-10 has become such an important worksheet for the Cost Report
  • How state agencies use Medicare Cost Reports

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.

Today, I’m joined by DeLicia Pierce who is the Director of our Reimbursement Services team here at BESLER.

And DeLicia is going to talk with us about the Medicare Cost Report. Now that’s something that people who work in reimbursement teams at hospitals deal with all the time. But it’s still very relevant and still has an increasing relevance really in today’s reimbursement landscape.

So DeLicia, welcome to the show!

DeLicia Pierce: Hi! Good morning, Mike.

Mike: So DeLicia, talk to us about why the cost report is still a crucial reporting tool for hospitals.

DeLicia: Well, it is so crucial for hospitals, number one, because if you’re a Medicare-certified provider, you must submit your annual cost report, you must submit it timely. And failure to do so will cost you to either be on withhold, or they could suspend your payments, or they could take you out of the Medicare program altogether.

And the Medicare cost report is probably the most comprehensive report of what’s going on in a hospital other than their own financial statements. And you have to file it annually. And you have to certify that everything in it is accurate. And it’s used to drive your payments going forward.

So, it’s always been important. And it definitely drives the bottom line.

Mike: Yeah, no doubt. Let’s dig into it a little bit because some of the listeners may not be familiar with all the things that the cost report drives. So first, why don’t you tell us what’s some of the key reimbursement factors are that are used to calculate the pass-through payments on a cost report?

DeLicia: Yes, thanks. The Medicare cost report is used to calculate the IME, GME, Medicare bad debt, DSH pass-through payments. And failure to get the dollars on those cost reports accurately can definitely have an impact on your financials any upcoming year.

So, what Medicare does is they base your biweekly pass-through payments for the upcoming year based off of the cost report that you most recently filed.

So, it impacts your cashflow. It definitely is so important that you get those numbers right, so that you don’t have any negative impacts on your current year financials.

And I can give you an example. It’s one of our hospitals. One of our clients had a Medicare bad debt. When they converted their systems, they can’t claim Medicare bad debt for this upcoming cost report. Their pass-through payments on average are about $700,000 a year. When they set their pass-through payments for the next year, they’re going to get zero pass-through payments because they have zero Medicare bad debt payments on the cost report.

So, giving everything in there accurately when you file your cost report, so that anything that is based off of rate setting, anything you need to pay based off rate setting and pass-through payments needs to be accurate because it could definitely have a financial impact on your current year financial statements.

Mike: DeLicia, are there any areas that are still settled on the cost report?

DeLicia: Absolutely! IME, GME, Medicare bad debts, DSH and organ acquisition. A lot of the hospitals that have organ acquisition programs or transplant programs, that is a big piece of what’s going on in their cost report, trying to make sure that your counts, your stats are right, the allocation cost on your cost report correct.

And this is a big thing that we do at BESLER, is review hospitals’ organ acquisition programs from a cost report perspective, make sure that they are getting the money that they’re due for providing these services to their patients.

And we also have a partnership with Guidry & East that does comprehensive clinical reviews. They work with the transplant coordinators in each hospital, in each OPO, in order to help them get their program set up, to optimize the clinical processes, and also to get the financial benefit that they’re supposed to in the cost report as well.

IME and GME, we provide services to clients where we look at their intern-to-bed ratio to make sure that they’re getting actual reimbursement for providing the services that they should.

And bad debt, Medicare bad debt, has always been around. Historically, years ago, they paid $.70 on the dollar. Now they pay $.65 on the dollar. But then it’s subject to sequestration. So that’s 2% that goes away. So it really ends up being $.63 on the dollar which you’ve got to make sure that you follow all the procedures—your bad debt logs are correct, that your Medicare bad debt policies and procedures are correct, so that you can truly get the dollars that you deserve.

And that’s typically related to co-pay and deductible for Medicare patients.

And DSH, clearly, DSH is always big. The classic DSH is very important. That’s the 25% that’s based off of the old method. And CMS seems to be referring to it classically recently. So it’s 25%. It’s based off your Medicaid days. It’s SSI ratio. And then, you have the other piece which is the uncompensated care piece which is 75%. And that has become the biggest driver in the last few years and change in how reimbursement is impacting DSH.

Mike: Got it! Are there any other payment factors that the cost report is used for?

DeLicia: Yes, wage index, that’s another schedule that drives the reimbursement. That is one of the biggest players because you’re taking away index value.

And keep in mind, that is pretty much budget neutral. So every hospital is fighting for the opportunity to get the highest wage index. And look, they range anywhere from 0.70 to 1.35 I think. There’s a couple that are a little bit higher than that from an average hourly wage. But you’re following your cost report, and they’re applying the national average to come up with your hospital’s wage index or your CBSA’s wage index.

So, it’s crucial to make sure that you’re getting everything right on your cost report, that potentially you have wage index reviews done. It’s easier for a consultant to come in and look at it from a high level and drill down. When you’re looking at it every year the same, you may not see the opportunities. If you change your payroll system, it’s a good time to have that looked at to make sure you’re getting the proper hours.

And also, contract labor is a big piece of it. Home office cost is another big piece of it, physicians. So, you want to get your wage index as accurate as possible when you file your cost report. Now you do have a second shot at it for the desk review. So that’s pretty important as well, taking the opportunity when you have the second review to get everything in there that you think you might’ve missed.

Mike: DeLicia, what else does the wage index drive?

DeLicia: It also drives your ability to geographically reclass to another CBSA to take advantage of their higher average hourly wage. So what’s on your cost report, whether or not you meet the test to reclassify, the 108 or 85%, those, the different rules that apply. That data is used for geographic reclassification.

So, if you can, you want to look to see if there are any opportunities for you. And we do that for hospitals across the country.

Mike: Got it! Let’s talk about, obviously, the cost report is made up of several different worksheets. But the S-10 has become so important as of late. Can you talk to us about that?

DeLicia: Yes, as I referenced earlier in the Medicare DSH payments, when you look at what’s going on with S-10—and in the proposed rules, they’re continuing to move forward with S-10. In 2018, it was a 33%, 33%, 33%. So actually 66% was based off of the Medicaid days and low income days. And the other 33% was based off of what happened on your uncompensated care numbers on your S-10.

But next year, in 2019, it’s two years of S-10 data and one year of the Medicaid and low income days.

So what you’re reporting on your S-10 schedule, the uncompensated care, is driving 75% of your DSH reimbursement, which in the proposed rules, it has increased from $6.4 billion to $8.2 billion. So that’s an astronomical increase in the amount of money they’re putting in the UCC pool. So now hospitals are fighting for their prorata share of those dollars.

And there are ways to look at that data patient by patient to try to make sure you’re putting it in the right classification. And BESLER has a proprietary, automated tool that can do that. You use your 835’s, your 837’s, your own patient detail.

And one of the things that I tell our clients is to make sure you’re looking at your policies and procedures, that you’re marrying up what you’re actually doing to what your policies and procedures say. And if you’re not, make sure you update your policies and procedures because this is a lot of money for hospitals. We’re talking about $8.2 billion getting spread across hospitals.

Now, that being said, you have to qualify for DSH. So if you’re not a DSH hospital, you’re not going to get a portion of the UCC funds.

Mike: Got it! DeLicia, do state agencies use the Medicare cost report for anything?

DeLicia: Yes. I mean, when you file a Medicare cost report, if you’re participating in the Medicaid program, you are required to file a Medicaid cost report as well. And typically, they require you to use the Medicare forms.

So, what you do in your Medicare cost report is basically the same thing you’re going to do for the Medicaid cost reports.

Now, as I say that, some states do make tweaks to how they want things reported for their Medicaid cost report reporting. I’ll give you an example. North Carolina is one of the states that you’ll have to do a few little tweaks within the cost report from your Medicare to your Medicaid to get the proper reimbursement.

Also, a lot of states are looking at the S-10 as a potential way of developing a tool to distribute their state supplemental funding programs. So if they move to that, that’s definitely going to drive how people look at the S-10 as well because it could impact their state supplemental funding which is billions of dollars as well.

So, the cost report is definitely very important. Cost-to-charge ratios drive some of the Medicaid programs. And it does also drive some of the Medicare reimbursement as well. And don’t forget, it’s not just inpatient that’s impacted by the cost report, it’s also outpatient, rehab, SNP. Those payments are also computed on the Medicare cost report.

Mike: Got it! And for those in our audience, DeLicia’s team obviously handles a lot of this kind of work from cost report reviews, wage index, through to specific things surrounding S-10.

So, we invite you to go over to the BESLER website, click on the Services button, head down to Reimbursement. And on that page, there’s a variety of resources—videos, articles, links to slides, et cetera. So please head over there. Take a look. And we’ll make sure that we’re keeping you on the right side of things.

DeLicia, thanks so much for joining us today on the Hospital Finance Podcast.

DeLicia: Thank you, Mike. I appreciate it.


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