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Reimbursement Best Practices Series-Cost Report Fundamentals Webinar [PODCAST]

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The Hospital Finance Podcast

In this episode, we’re pleased to welcome back Tim Powell, Senior Reimbursement Consultant with BESLER to give you a glimpse into an upcoming webinar: Reimbursement Best Practices Series, Cost Report Fundamentals. You can watch it live on Wednesday, February 8th at 1PM E.T.

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Highlights of this episode include:

  • Who has to file a cost report
  • How providers can collaborate more with payers
  • When are cost reports due to be filed
  • Basic flow of the cost report
  • The implementation of prospective payments
  • The basic building blocks
  • Key elements

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome back Tim Powell, senior reimbursement consultant with BESLER. In this episode, we’re going to give you a glimpse into an upcoming BESLER webinar. It’s part of our Reimbursement Best Practices Series, Cost Report Fundamentals. You can watch it live on Wednesday, February 8th at 1:00 PM Eastern Time. Thank you for joining us today, Tim.

Tim Powell: Thank you, Kelly. I appreciate the opportunity to be of service.

Kelly: Awesome. Well, let’s go ahead and jump in, today. So, Tim, who has to file a cost report?

Tim: Institutional providers, including acute care hospitals, skilled nursing facilities, home health administrations, federally qualified health centers, rural health clinics and freestanding end-stage renal dialysis providers all have to file Medicare cost reports. Now, some facilities with a very small amount of Medicare services may be allowed to file a minimized version of the cost report. Now, in general, these cost reports are due by the end of the fifth month after the end of the cost reporting period.

Kelly: Those are great tips. Thank you. And can you talk more about how providers can collaborate more with payers? Okay. Yeah, sounds like there’s a lot of facilities that do have to file. And when are cost reports due to be filed?

Tim: Well, as I said, in general, unless there’s extensions, the cost reports are due by the end of the fifth month following the cost reporting period that’s set up by the facility. In recent years, though, with COVID, we’ve had an awful lot of extensions. I think, in the future, we’re going to get back into a regular cycle where the cost reports will all be due by the end of the fifth month after that cost reporting period.

Kelly: Okay. And what is the basic flow of the cost report, and how did the cost report get created and evolve over the years?

Tim: Well, despite my age, I have not been around since Medicare first started in 1966. But Medicare started in 1966. And from 1966 through 1984, Medicare reimbursed hospitals for treating Medicare patients by computing a cost for those services. And the computation of the Medicare costs started by listing out the cost of the facilities in the cost centers. Now, some of the cost centers are overhead types of cost. And in order to match revenue and cost, these overhead costs had to be stepped down or allocated to cost centers that also had revenue. Now, after the overhead was allocated to the cost centers that had revenue, there was a computation of the ratio of cost to charge for each individual cost center. And by multiplying the amount of the cost to charge ratio by Medicare charges, you could compute the amount that Medicare would pay for that particular service.

Now, since 1966, Medicare has also created a slew of rules as to what cost were considered to be reimbursable and included in the computation of Medicare allowable costs and, specifically, what costs were, quote-unquote, “related to patient care.” And in 1984, Medicare shifted to a prospective payment model. Reimbursement would be determined for hospitals first, and then other facilities would follow on to this new system. Instead of being based on cost, it’s is based on the diagnosis of the particular patient. Now, I was a Medicare auditor back in 1984. And I thought that this would be the end of the Medicare cost report as we knew it. Luckily for me, we were still filing cost reports. And I would just like to add that I’m glad we’re not filing like we used to do in the old days. When I started filing Medicare cost reports, we had to get a blank paper form and fill them out with a pencil and a calculator.

Kelly: Oh, wow. That sounds like a lot of work. So why are cost reports still important after the implementation of prospective payments?

Tim: Well, even though this step-down of cost really isn’t important anymore in terms of the actual calculation of the amount that’s paid to the hospitals, cost reports continue to provide the backbone of cost data used to set reimbursement rates, and still contain data that’s used to reconcile payments for certain other items that are excluded from the perspective payment system. And the report hopes to determine if the facility also qualifies for certain add-on payments, including disproportionate share of hospital patients for hospitals that serve a large number of poor patients.

Kelly: Okay. Great. And what are the basic building blocks someone needs to complete the cost report?

Tim: Okay. Well, I’m going to start by listing out the things that you absolutely have to have in order to fill out a Medicare cost report. And I’m also going to explain why and how they’re used. And the very first thing that you’re going to need to fill out a Medicare cost report is a trial balance. And normally, we call this a trial balance of expenses, but it’s really a trial balance for the entire facility. And from that trial balance, we also want to make sure that we can reconcile to the second item that, at BESLER, is one of our best practices that we try to make sure that we always do as part of our reconciliation process. But it’s something that’s required to be filed with a cost board is a copy of your audited financial statements. So, you’re going to need a trial balance of expenses. That’s going to include all of the accounts and sub-accounts and amounts. And when we take those, those should be reconcilable to the copy of the audited financial statement of your facility.

You’re also going to need some basic census data for the hospital, including patient days, admissions and discharges for all of your patients, but also specifically for patients in Medicare and Medicaid. You’re also going to need a Medicare payment summary of payment amounts to your facility. And you get that by going online to Medicare to the portal. And you get a summary of payment amounts for your particular facility. Also required to go along with the cost report is not just a copy of the letter that Medicare has sent informing you that you must file a cost report. There’s a checklist included with that letter that you need to sit down and fill out in order to submit along with the cost report. You’re also going to need certain statistical data that you use to allocate overhead cost, specifically things like the square footage of the hospital. So, you’re going to have various overhead costs that you’re allocating. You need to make sure that you have the data, and it’s consistent with the prior periods.

Now, for certain hospitals, you’re also going to need a list of patients that have been written off as not collectible. So, if your hospital receives a disproportionate share hospital payments, you’re going to need to also make sure that you have a list of all of the patients in your facility that you have written off during that period as being uncollectible as charity or bad debts. Now, for teaching hospitals, you’re also going to have to have demographic information for your interns and residents. This is a fairly voluminous task. And it’s going to include things like their social security numbers, the medical school they graduated from, their initial residency period and where they went to school. You’re also going to need a list of patients and amounts that are written off as Medicare bad debts. And I guess, theoretically, you may be a hospital that you don’t actually claim any Medicare bad debts. But I’m assuming that virtually all hospitals claim them. So submitted with the cost report has to be a list of your Medicare bad debts.

Now, here are some things that we, at BESLER, think are absolute have-to-haves. We think that you really have to have a revenue and usage report showing inpatient and outpatient revenue by units and revenue code. So, this should be a standard report that you have in all of your systems. You’re going to want to have the revenue and usage report for both the entire hospital as gross charges. But you’re also, specifically, going to want to have the same revenue and usage report for just Medicare services. And you’re going to want to use that for allocating certain charges on your revenue allocations. You’re also going to want to have a payroll registry file that shows salaries and hours worked by a department. So again, this is not something that you would have your cost support rejected for. But we consider it, at BESLER, the must-have that you’re going to have to have this payroll registry. And within that payroll registry is going to want to have salaries and hours by department, but also by type of job code, so that we can make adjustments that flow into something called the hospital wage index, which is awfully important for hospitals.

Kelly: Well, that’s a lot of information. Thank you, Tim. And what are some key elements people should know to make sure that it’s completed properly?

Tim: Well, even assuming that you’ve done the step-down, and you put all your amounts together at a higher level, some of the things that you just want to make sure are done right is, first, you want to make sure that the Medicare average hourly wage rates and the wage rates are stated properly on your cost report. Because that’s one of those macro items that eventually affects your facility because it’s used for calculating the Medicare wage index that’s used in the prospective payment system. And if you received disproportionate share hospital payments, you’re going to want to make sure that your uncompensated care is properly reported on Worksheet S-10. So that’s where you’re going to want to have this list of your patients that have been written off as charity and bad debts. Also, a calculation with your Medicaid reimbursement. You want to make sure that the amounts on this disproportionate share hospital adjustments are properly stated because that’s one of the items that will actually affect you outside of prospective payments.

Now, you also want to make sure that you’re listing of Medicare bad debts is complete and makes sense compared to prior periods. You probably want to go online and compare your listing of Medicare bad debts to make sure that it meets the reporting requirements of Medicare. But you also want to do some kind of basic tests, and look at how much you’ve reported in Medicare bad debts for the current year as well as comparing the amount of your Medicare bad debts to your Medicare deductibles and co-insurance just to make sure that it looks reasonable, and that you’re getting the amount of Medicare bad debts that you think you should have. Now, if you’re a teaching hospital, there have been some recent changes. I know that CMS is going to be going through and making some retroactive changes. So, if you have interns and residents, you want to make sure that the account of interns and residents and the amounts coming from prior cost reports are properly stated. And if you want to reach out to us at BESLER and have some assistance in that area, that’s something that we certainly can help you with.

And finally, it’s also important that– there are going to be items where you, most likely, are going to protest certain calculations by Medicare, specifically in areas like disproportion in share. So, you need to make sure that if, on your Medicare cost reports, you’ve listed something as a protested item, that you’ve listed it out separately and included it on your cost report as a protested item. This is extremely important because this preserves your rights to file appeals after the fact that once your Medicare audit is completed and the cost report is closed by Medicare, this holds on to your right to file a Medicare appeal eventually, or become part of a Medicare group appeal.

Kelly: Great. Those are some good tips. Well, thank you so much for joining us today, Tim, and for sharing some of the information that people can expect to get in our upcoming webinar, the second in our Reimbursement Best Practices Series, Cost Report Fundamentals, that we’re hosting February 8th at 1:00 PM Eastern Time. And as a bonus, you can earn CPE. Thanks again, Tim.

Tim: Thank you very much, Kelly. I really appreciate.

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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