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Payments for Nursing and Allied Health Education on the Cost Report Webinar [PODCAST]

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In this episode, we’re pleased to welcome BESLER’s Reimbursement Manager, Andrew Kinnaman, to give us a glimpse into the next webinar in BESLER’s Reimbursement Best Practices Series, Payments for Nursing and Allied Health Education on the Cost Report hosted on Wednesday, August 9th at 1 PM E.T.

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Highlights of this episode include:

  • Historical background of Medicare Nursing Allied Health Education
  • Net costs of approved educational programs
  • How does Medicare reimburse the hospital?
  • Audit Process

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome back Andrew Kinnaman, a reimbursement manager here at BESLER. In this episode, Andrew will give us a glimpse into the next webinar in BESLER’s Reimbursement Best Practices Series, Payments for Nursing and Allied Health Education on the Cost Report that we’re hosting on Wednesday, August 9th at 1 PM Eastern time. Welcome back and thank you for joining us, Andrew.

Andrew Kinnaman: Well, thank you. It’s a privilege to be back, and I look forward to providing some information here that will hopefully move people towards coming towards the webinar where we go into a lot of this into much more detail. Appreciate you having me back on.

Kelly: Yeah. Fantastic. Well, let’s jump in today. So, what is the historical background of Medicare Nursing Allied Health Education?

Andrew: Well, that’s a good question because actually it really comes from the very beginning of Medicare. Medicare was really established in 1965. And if you think about the Nursing Allied Health Education, the first regulation to address this and the obligation of Medicare to share in the cost of Nursing Allied Health was published in a federal register on November 22nd, 1966. So, in that regard, we have a very old–or a very old regulation that we’re following that continues today. But what’s key in that is the regulations now–or the regulations now also come forward from those original regulations. And part of the two regulations I’m going to talk about here is how they state the net cost of approved educational program and how it was defined. It was the cost of the approved educational activities, which included things such as the stipend of trainings, compensation of teachers, and other costs, less any reimbursement from grant tuition and specific donations. Now, we’ll get into net costs in a little while in this conversation, but the other regulatory definition that we want to know is that this was a formerly organized or planned program, a study which usually engaged by the providers to enhance the quality of patient care in an institution. So going back to 1966, we’ve had Nursing Allied Health Education. Now, Medicare payments for Nursing and Allied Health Education provided for Medicare to share in the cost that the hospital incurred for these approved nursing programs. But reimbursement was for the Medicare share of classroom and clinical costs of the approved program based on Medicare’s hospital’s share or the percentage of Medicare patients. And there’s a different couple calculations on that, which we’ll cover a lot more in the webinar.

But to really define the costs that were allowable for education that were set forth in the regulations in the provider reimbursement manual, we go back to congressional language from the Social Security Amendments of 1965, that Medicare would share in the cost of educational activities until communities bore them in some other way. In addition, both sources clearly stated that it was not intended that Medicare should pay for increased costs resulting from a redistribution of costs from educational institutional to providers. So, they were really sitting there saying, “If these programs are born in another way, then Medicare wouldn’t pay for them if the hospitals brought those back on to them away from where they had been funded, maybe in an educational institution before.” So, there’s a couple nuggets there, but in summary, what you’ve seen is this has been around since 1966 with very little change from regulatory of what they were trying to do then and what they’re doing now.

Kelly: Wow. Thank you for that great background information. Andrew, you mentioned some things in your opening. Can I ask you about them to get a better understanding of what they mean?

Andrew: Yes. So, there’s a couple things that were noted there. One was what is meant by improved educational programs. And this is a specific language, and improved educational program meets specific criteria, which is established by Medicare to receive pass through payments for reasonable costs. So, you’re actually paid this outside of the DRG. These are reasonable costs that are paid on the Cost Report. So, in this discussion, I’m just going to briefly talk about the three main program approvals and give a summary of their major requirements. The most common and the historical one is a provider operated program, which is a planned program, is studied, licensed by state law if required or accredited by a recognized national professional organization to meet these requirements that you have to meet–well, to be this approved program, you have to meet a number of different requirements. And they are that the hospital directly incurred the training costs, the hospital has direct control of the program, curriculum, and the administration of the program, they employ the teaching staff, and the hospital provide and control both classroom instructions and clinical training.

Then there’s another type of program–or approved program, and this is identified as the non-provider operated program. And what this means is this is the type of educational program that’s provided by an education institution that is related to the provider by common ownership or control. If a program is defined as a non-provider operated program, class program, classroom costs are not allowable as a pass-through cost. So, you can see the difference of a provider based or a provider organization, you are responsible for the classroom costs, and that’s part of the cost. If you’re a non-provider, the classroom costs are not allowable as part of that pass-through cost. So, to make this requirement, the education must follow the following requirements. And that is one, clinical training takes place on the premise or physical area immediately adjacent to the main building or areas. Not strictly contingent to the main buildings, but located within 150 yards of the main buildings. In other words, you have a proximity that you have to meet for clinical training. The provider claimed and have been paid clinical training cost for reasonable cost basis during the most recent cost report ending 10/1/1989. So going back, you had to be basically having these costs from 10/1/89 forward to be able to qualify still as a non-operated program. There’s a cap provision. If you’re this facility, you’ll want to look at that because your cap is limited to some data required from the cost report period beginning 10– or beginning on or before 10/1/89.

In this case, the students must provide a benefit to the provider, not other providers, through the provision of clinical services to the provider patients, and the costs incurred by the provider do not exceed the costs the provider would’ve incurred if it was a sole operator of the program. So those are the requirements to be pass-through costs for a non-provider operated program. Finally, the third one that I want to discuss is called a non-provider operated program at a wholly owned subsidiary educational institution. A lot to swallow there, but basically to qualify for pass through, there’s a couple requirements that must be met. The program must have originally been provider operated. So that first program approval that we talked about must have been in place at one point. The program was transferred to a wholly owned subsidiary in order to meet accreditation standards prior to 10/1/2003. And finally, the provider was continually incurring the cost of the classroom and clinical training portions of the program at the educational institution. So, the hospital is still incurring those costs for both of those classroom and clinical training. And lastly, I should put on that that the Medicare provider was also being paid reasonable cost payments for both prior and after the date of the transfer to the subsidiary. So, really it’s a case where you transfer the actual delegation of the program, but to a wholly owned subsidiary and meet those requirements.

Kelly: Thank you so much for those explanations, Andrew. Would you go into greater detail about net costs of approved educational programs?

Andrew:Right. That’s one of those things that we talked up in the opening that one of the major qualifications in that is net cost. So, if you think of net costs, the definition of net cost is really your total allowable cost for Medicare less revenue from tuition and student fees, which is very important. But to explain the net cost, we first have to determine what total allowable costs are for educational purposes. Allowable costs include the direct cost of the trainee salary or stipend, compensation of teachers, books and supplies. Could be fees or costs associated with accreditation and at global other costs of the activities determined under Medicare cost finding regulations, that it’s allowable. But one thing that needs to be no total allowable cost of the education program must exclude any non-educational or cost related to patient care. So that is your total allowable of the formula, total allowable costs less revenue and student fees, any revenue associated with it. So, the calculations of the net costs are part of the calculation of the Medicare cost report. We don’t do anything outside of the cost report, but it is part of it. So, CMS and MACs require a reduction of costs for specific type of revenues prior to overhead allocation. That means if you’re getting tuition, you’re getting fees, those have to be offset to that expense of running the program. And even if the revenue offset is greater than the expense incurred, we still have to recognize all the revenue compared to the expense. Now, most typically, the revenue offset is completed on the cost report as a worksheet AA adjustment. Now, if you think about that, you’re sitting there, “Oh, well, if I have more revenue expenses, I have negative expenses.” Basically, that’s what happens here. Well, it’s fine. The way Medicare treats net cost and Nursing Allied Health Education is different from other treatment of allowable costs.

I’m going to give you a quick example here. The Cost Report can carry over a negative amount of allowable education costs prior to overhead allocation. So, you have your direct cost, you had funds come in or revenue come in that actually took that cost and made it negative because your revenue exceeded your expense. If the negative amount continues to be in effect prior to step downs, and where I’m really going is to the A and G, or the administrative and general step down, then no overhead costs for A and G will be allocated. Therefore, you’re not getting any A and G costs allocated because we had negative expense before the step down came in. Goes even further, that if we continue, and let’s say we had so much greater revenue and the expense that we’ve done all our overheads on the cost report, and at the end of the step-down process, we still have a negative amount, well, that drops off the cost report and no pass through for reasonable cost will be made on the cost report. So, in that case, yes, your revenue exceeded your program, but also what you see here that you don’t see a lot of times is that the program does not actually get the total allowable costs because the administrative and general costs do not get added into the overall education expense. So, it’s very important to understand what fees, what student tuition, student fees could be offset, finding your direct costs, and determining whether you go into that negative or that the net cost, which we hope would be positive, flows through so you get Medicare share of that cost.

Kelly: Makes sense. And if your hospital has an approved program, how does Medicare reimburse the hospital?

Andrew: Well, there are really two payments related to NAHE approved program reimbursement. There’s what we’ve been talking about, the pass-through payments for reasonable costs, and then we have what’s called the NAHE Medicare Advantage add-on payments. The best way I can explain this is that then, for the pass-through cost is that the net cost of these approved programs is excluded from inpatient operating cost principles. They’re also excluded from the IPPS rate calculations, which basically means that they are not part of your inpatient operating per claim basis of reimbursement. You’re going to be paid these over and above, those inpatient operating costs that you get, through the calculations of the cost report. So, the pass-through amount is determined by the Medicare share for both inpatient and outpatient based on the Medicare share of the net cost of the education program. And that’s what’s important. Yes, you can have the full net cost, but then you have to determine the Medicare share of that. So, on the Medicare Cost Report, the net expense or cost for Medicare share will pass through to worksheet D and worksheet E series. And we’ll be covering a lot more of that in the webinar coming up. As for the NAHE Medicare Advantage add-on payments, well, there’s a few requirements to receive that payment. And basically, this is a payment for the managed care portion of population. So, the first requirement is a hospital must receive Medicare reasonable cost payment for an approved Nursing or Allied Health Education program in its cost report period ending in the fiscal year that is two years prior to the current calendar year.

Now, if you ask me, if you go try and figure that out, you’re going to have headaches. But basically, that is the requirement. Now, how do I look at this? This is to be verified by reviewing the Medicare cost report for the specified period and confirming that cost review reported on worksheet D part 3 and D part 4 for the Nursing Allied Health and cost were transferred to worksheet E part 8. Then you would know you would meet that qualification. The second is the hospital must be receiving cost payment for an approved Nursing or Allied Health Education program in the current calendar year, in other words, the year that you’re filing. So, if you are filing with an approved program in the current year and will be receiving pass through payments on D part E– on worksheet D and worksheet E series, then you’ve met that requirement. The last requirement is that the hospital must have had Medicare Advantage utilization greater than zero in a cost report periods ending in the fiscal year that is two years prior to the current calendar year. Again, it takes a math wizard to come back to what year that is, but you should be able to determine that. And quickly, this can be verified by reviewing the Medicare cost report for the specified period that we’re talking about, and confirming that Medicare Managed Care days were reported on worksheet S3, part 1, column 6. Now, unlike the pass-through reasonable costs, which is calculated through the cost report process, the Medicare Advantage add-on payments are an off the cost report calculation and is input on worksheet E, part A, line 53 of Medicare settlement worksheet. You have other worksheets that can be done, but I’m just focusing on the hospital side. But you could have these costs for other type of sub-providers, etc.

Now, some of the MACs have tools available to assist with the calculation of the add-on payment. So, you might look at your MAC website. And I know WPS happens to have a pretty good one where they actually have an Excel that you can use to do those calculations.

Kelly: Sounds great. Is there any other information you would like to discuss related to this topic today?

Andrew: There is one additional topic I would like to touch upon, and this will not be part of a discussion for the upcoming webinar due to time limitations. But this is the audit process for the NHAE programs because MACs can consider each year whether or not to consider a provider’s legal operator of a program status. And that’s very important because that’s going to obviously trigger the pass through the reimbursement mechanisms and also the add-on payment. If they were to remove that program status, then you would be disallowed that cost being flowed through the cost report. So, what’s consideration? We’re not talking how this flows through, but is the program approved is what we’re really talking about. So, in any given audit, MACs may request documentation on whether the provider has control of the program curriculum. If there is a curriculum committee who makes up that committee and the relationship to the provider. Consider names not associated with the provider or vary from the provider’s name will be questioned because it may indicate a difference in the operator. They could look at the faculty to determine employment of the provider by the provider or by another entity. Lastly, degrees, diplomas, and certificates that don’t clearly reflect the name of the provider or are signed and dated by individuals not employed by the provider will be questioned and possible disallowance. So, some of the MACs, again, do have tools that assist providers with questionnaires to respond to likely audit concerns. Providers each year or as they’re doing a Cost Report should– well, probably pre-Cost Report because you don’t want to learn about this during the cost report process, but should monitor their individual programs for any significant changes that could impact the current reimbursement claimed and received.

So, with that, Kelly, I thank you for inviting me to bring some perspective on the Medicare and Nursing Allied Health Education reimbursement, and I look forward to having everyone join us I believe on August 9th.

Kelly: Yes. Definitely. Thank you so much for joining us, Andrew, and for sharing this glimpse into the upcoming webinar, Payments for Nursing and Allied Health Education on the Cost Report that, like you said, we’re presenting live on August 9th at 1 PM Eastern time. And as a bonus, there will be CPE offered. Thanks again, Andrew.

Andrew: Thank you, Kelly.

Kelly: And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…

[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit The Hospital Finance Podcast is a production of BESLER | SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.


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